Note 12 - Embedded Derivatives

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Discussion of Hybrid Instruments and Embedded Derivatives [Text Block]

12. Embedded Derivatives

Derivative Warrant Liability

The Company has warrants outstanding as of December 31, 2021 representing 97,734 shares of Gevo's common stock, which expire at various dates through  July 6, 2025. The exercise prices of the warrants range from $0.60 to $2.00 as of December 31, 2021. Based on the terms of the warrant agreements, the Company has determined that all warrants issued between 2013 and 2019 qualify as derivatives and, as such, are included in "Accounts payable and accrued liabilities" on the Consolidated Balance Sheets and recorded at fair value each reporting period. The decrease (increase) in the estimated fair value of the warrants outstanding as of December 31, 2021, 2020 and 2019 represents an unrealized gain (loss) which has been included in "Other income (expense)" in the Consolidated Statements of Operations.

The following table sets forth information pertaining to shares issued upon the exercise of such warrants as of December 31, 2021:

	Issuance Date	Expiration Date	Exercise Price as of December 31, 2021		Shares Underlying Warrants on Issuance Date		Shares Issued Upon Warrant Exercises as of December 31, 2021		Shares Underlying Warrants as of December 31, 2021
Series K Warrants	February 17, 2017	February 17, 2022	$	2.00		315,986		308,860		7,126
Series 2020-A Warrants (1)	July 6, 2020	July 6, 2025	$	0.60		30,000,000		29,909,392		90,608
						30,315,986		30,218,252		97,734

(1) The Series 2020-A Warrants are equity-classified warrants.

The agreements governing the above warrants include the following terms:

●   certain warrants have exercise prices which are subject to adjustment for certain events, including the issuance of stock dividends on the Company’s common stock and, in certain instances, the issuance of the Company’s common stock or instruments convertible into the Company’s common stock at a price per share less than the exercise price of the respective warrants;

● warrant holders may exercise the warrants through a cashless exercise if, and only if, the Company does not have an effective registration statement then available for the issuance of the shares of its common stock. If an effective registration statement is available for the issuance of its common stock a holder may only exercise the warrants through a cash exercise;

● the exercise price and the number and type of securities purchasable upon exercise of the warrants are subject to adjustment upon certain corporate events, including certain combinations, consolidations, liquidations, mergers, recapitalizations, reclassifications, reorganizations, stock dividends and stock splits, a sale of all or substantially all of the Company’s assets and certain other events; and

● in the event of an "extraordinary transaction" or a "fundamental transaction" (as such terms are defined in the respective warrant agreements), generally including any merger with or into another entity, sale of all or substantially all of the Company’s assets, tender offer or exchange offer, or reclassification of its common stock, in which the successor entity (as defined in the respective warrant agreements) that assumes the successor entity is not a publicly traded company, the Company or any successor entity will pay the warrant holder, at such holder’s option, exercisable at any time concurrently with or within 30 days after the consummation of the extraordinary transaction or fundamental transaction, an amount of cash equal to the value of such holder’s warrants as determined in accordance with the Black-Scholes option pricing model and the terms of the respective warrant agreement. In some circumstances, the Company or successor entity may be obligated to make such payments regardless of whether the successor entity that assumes the warrants is a publicly traded company.

During the year ended December 31, 2021, common stock was issued as a result of exercise of warrants as shown below (dollars in thousands):

	Common Stock Issued		Proceeds
Series K Warrants		200	$	1
Series 2020-C Warrants		1,866,558		1,120
		1,866,758	$	1,121

The following warrants were sold by the Company during the year ended December 31, 2020:

● In July 2020, the Company sold Series 2020-A Warrants to purchase 30,000,000 shares of the Company's common stock and Series 2020-B Warrants to purchase 9,103,334 shares of the Company's common stock, pursuant to an underwritten public offering.

● In August 2020, the Company sold Series 2020-C Warrants to purchase 16,532,232 shares of the Company's common stock, pursuant to a registered direct offering.

The Series 2020-A Warrants, Series 2020-B Warrants and Series 2020-C Warrants issued during 2020 are classified as component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Warrants do not provide any guarantee of value or return. The Company valued the Series 2020-A Warrants, the Series 2020-B Warrants and the Series 2020-C Warrants at issuance using the Black-Scholes option pricing model and determined the fair value of the Series 2020-A Warrants, the Series 2020-B Warrants and the Series 2020-C Warrants to purchase the Company’s common stock at $8.3 million, $2.9 million and $21.4 million, respectively. The key inputs to the valuation model included a weighted average volatility of 130% to 141%, risk-free rate of 0.30% to 0.31% and an expected term of five years.

During the year ended December 31, 2020, common stock was issued as a result of exercise of warrants as described below (dollars in thousands):

	Common Stock Issued		Proceeds
Series 2020-A Warrants		28,042,834	$	16,826
Series 2020-B Warrants		9,103,334		91
Series 2020-C Warrants		16,532,232		165
		53,678,400	$	17,082