See the accompanying Notes to the Consolidated Financial Statements.
See the accompanying Notes to the Consolidated Financial Statements.
See the accompanying Notes to the Consolidated Financial Statements.
See the accompanying Notes to the Consolidated Financial Statements.
See the accompanying Notes to the Consolidated Financial Statements.
See the accompanying Notes to the Consolidated Financial Statements.
Notes to Consolidated Financial Statements
1. Nature of Business and Financial Condition
Nature of Business. Gevo, Inc. (Nasdaq: GEVO) ("Gevo" or the "Company," which, unless otherwise indicated, refers to Gevo, Inc. and its subsidiaries), a Delaware corporation founded in 2005, is a growth-oriented company with the mission of solving greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen.
The Company is focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as sustainable aviation fuel ("SAF"), with the potential to achieve a “net-zero” greenhouse gas ("GHG") footprint. The Company uses the Argonne National Laboratory’s GREET (Greenhouse gases, Regulated Emissions, and Energy use in Transportation) model (the "GREET Model") to measure, predict and verify GHG emissions across the life-cycle of its products. The “net-zero” concept means that Gevo expects to produce fuels that consume as much carbon dioxide in their manufacture as the fuels produce when burned.
Gevo's primary market focus, given current demand and growing customer interest, is SAF. The Company believes that it also has commercial opportunities for other renewable hydrocarbon products, such as hydrocarbons for gasoline blendstocks and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals.
The Company believes it has the technology and know-how to convert various carbohydrate feeds through a fermentation process into alcohols and then transform the alcohols into renewable fuels and materials. While the Company expects its first major capital deployments to focus on the production of SAF, Gevo recognizes that there are opportunities to operate in several different markets and it will pursue those opportunities when appropriate based on customer interest, access to capital and expected investment returns.
Gevo currently operates two development scale plants: (i) a demonstration facility in Silsbee, Texas that is operated in partnership with South Hampton Resources, Inc. (the "South Hampton Facility") and (ii) a wholly-owned development plant in Luverne, Minnesota (the "Luverne Facility").
The Luverne Facility was originally constructed in 1998 and is located on approximately 55 acres of land, which contains approximately 50,000 square feet of building space. Gevo currently plans to install a 1 million gallon per year alcohol-to-hydrocarbon process pilot unit that is expected to produce olefins and fuel products for market development and testing purposes. This pilot unit is expected to be complete and delivered to the Luverne Facility in late 2022. The pilot unit will also be used in training of employees for Net-Zero 1 and other future projects.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Gevo's initial renewable natural gas ("RNG") project, Gevo RNG, will generate RNG captured from dairy cow manure which will be supplied by three dairies located in Northwest Iowa totaling over 20,000 milking cows.
Ultimately, the Company believes that the attainment of profitable operations is dependent upon future events, including, but not limited to (i) the successful development of the Company's initial Net-Zero Project (the "Net-Zero 1 Project") and future projects for the production of energy dense liquid hydrocarbons using renewable energy and our proprietary technology; and (ii) the achievement of a level of revenues adequate to support its cost structure.
COVID-19. The novel coronavirus ("COVID-19") pandemic has had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in financial markets. It is possible that that the impact of the COVID-19 pandemic on general economic activity could continue to negatively impact the Company's revenue and operating results for 2022 and beyond.
During the first quarter of 2020, the Company suspended the ethanol production at its Luverne Facility due to COVID-19 and an unfavorable commodity environment. The suspension of ethanol production and a reduction in the Company's workforce that occurred during the first quarter of 2020 due to the impact of COVID-19 had an adverse impact on the Company's financial results for the year ended December 31, 2021 reducing revenue by 87% compared to the year ended December 31, 2020. Revenue was reduced by 77% for the year December 31, 2020 compared to the year ended December 31, 2019 as a result of COVID-19. The Luverne Facility re-commenced operations during July 2021.
Financial Condition. The Company has incurred consolidated net losses since inception and had a significant accumulated deficit as of December 31, 2021. The Company’s cash and cash equivalents totaled $40.8 million, short and long-term restricted cash totaled $95.2 million and marketable securities totaled $339.7 million as of December 31, 2021. Gevo expects to use its cash, cash equivalents, restricted cash and marketable securities for the following purposes: (i) identification, development, acquisition and construction of new production facilities and to plan for expanded production to fulfill existing off-take agreements, including the Company's Net-Zero Projects; (ii) investment in RNG projects; (iii) development of the Luverne Facility; (iv) development, acquisition and operation of sustainable ethanol-to-SAF plants to produce SAF alone or with partners; (v) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (vi) exploration of strategic alternatives and additional financings, including project financing; and (vii) future debt service obligations.
The Company expects to incur future net losses as it continues to fund the development and commercialization of its product candidates. To date, the Company has financed its operations primarily with proceeds from issuance of equity and debt securities, borrowings under debt facilities and product sales. The Company’s transition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates, the development, acquisition and construction of additional production facilities to support that Company’s off-take agreement, the achievement of a level of revenues adequate to support the Company’s cost structure, and the ability to raise capital to finance the development, acquisition and construction of additional productions facilities. Management intends to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, the Company may seek additional capital through arrangements with strategic partners or from other sources, and it will continue to address its cost structure. Notwithstanding, there can be no assurance that the Company will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations on acceptable terms, or at all. Management believes it has adequate cash to fund operations for at least one year from the date the financial statements are issued.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies
Principles of Consolidation. The Consolidated Financial Statements of Gevo include the accounts of its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation. The Consolidated Financial Statements of the Company (which include the accounts of its wholly-owned subsidiaries Gevo Asset, LLC, Gevo RNG Holdco, LLC, Gevo NW Iowa RNG, LLC ("Gevo RNG"), Gevo Net-Zero HoldCo, LLC, Gevo Net-Zero 1, LLC ("Net-Zero 1") and Agri-Energy, LLC ("Agri-Energy")) have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC") and accounting principles generally accepted in the U.S. ("U.S. GAAP") for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company at December 31, 2021.
Reclassifications. The Company reclassified certain prior period amounts to conform to the current period presentation, including the categorization of preliminary stage project costs and depreciation and amortization on the Consolidated Statements of Operations. These reclassifications had no impact on total revenues, total cost of goods sold, total operating expenses, net loss or stockholders' equity for any period.
Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Concentrations of Credit Risk. The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash and cash equivalents in excess of the federally insured limits. The Company’s cash and cash equivalents are deposited with high credit-quality financial institutions and are primarily in demand deposit accounts.
Cash and Cash Equivalents. The Company maintains its cash and cash equivalents in highly liquid interest-bearing money market accounts or non-interest-bearing demand accounts. The Company considers all highly liquid investments purchased with a maturity of three months or less at the date of acquisition to be cash equivalents.
Marketable Securities. The Company’s marketable securities consist of marketable debt securities and have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Marketable securities with maturities of 12 months or less are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term. The Company’s marketable securities are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive income in shareholders’ equity, with the exception of unrealized losses believed to be other-than-temporary, which are reported in earnings in the current period.
Accounts Receivable. The Company records receivables for products shipped and services provided but for which payment has not yet been received. As of December 31, 2021, trade accounts receivable totaled $0.1 million, while other accounts receivable totaled $0.9 million. As of December 31, 2020, trade accounts receivable totaled $0.5 million. Th Company currently has limited production of SAF and other renewable hydrocarbons at our development scale plants, and as such, we are not dependent on any specific customers at this time.
Inventories. Inventory is recorded at net realizable value. Cost of goods sold is determined by the average cost method. Isobutanol and ethanol inventory cost consists of the applicable share of raw material, direct labor and manufacturing overhead. Work in process inventory includes unfinished SAF, isooctane and isooctene inventory. Spare Parts inventory consists of the parts required to maintain and operate the Company’s Luverne Facility and is recorded at cost. For each reporting period, the Company reviews the value of inventories on hand to estimate the recoverability through future sales. The Company reduces its inventories with adjustments for lower of cost or market valuation.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Property, Plant and Equipment. Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized over the term of the lease agreement or the service lives of the improvements, whichever is shorter. Assets under construction are depreciated when they are placed into service. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized.
Construction in Progress. Construction in progress represents expenditures necessary to bring an asset, project, new facilities or equipment to the condition and location necessary for its intended use are capitalized and recorded at cost. Once completed and ready for its intended use, the asset is transferred to property, plant and equipment to be depreciated or amortized.
Depreciation and Amortization. Capitalized costs are depreciated or amortized using the straight-line method at rates sufficient to depreciate such costs over the shorter of estimated productive lives of such assets or the useful life of the individual assets. The estimates of productive lives may change, possibly in the near term, resulting in changes to depreciation and amortization rates in future reporting periods.
Capitalized Internal-Use Software Costs. Software development costs are capitalized when module development begins, it is probable that the project will be completed, and the software will be used as intended. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. Internal-use software is amortized on a straight-line basis, generally over three to five years. We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Impairment of Long-Lived Assets. The Company evaluates the recoverability of the recorded amount of long-lived assets, including property, plant and equipment, licenses, patents, operating lease right-of-use assets, finance lease right-of-use assets and capitalized internal use software when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is considered to be impaired if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the Company determines that an asset is impaired, it measures the impairment to be recognized as the amount by which the recorded amount of the asset exceeds its fair value. We report assets to be disposed of at the lower of the recorded amount or fair value less cost to sell. The Company determines fair value using a discounted future cash flow analysis.
Investment in Juhl. In September 2019, Agri-Energy purchased 1.5 million shares of Series A preferred stock of Juhl Clean Energy Assets, Inc. ("Juhl") for a purchase price of $1.00 per share in connection with the development of wind electrical energy generating facility project near the Luverne Facility. An affiliate of Juhl constructed, owns and operates the wind project, and Agri-Energy purchases the electricity directly from the City of Luverne. The investment in Juhl is accounted for under the cost method.
Leases, Right-of-Use Assets and Related Liabilities. The Company enters into various arrangements which constitute a lease as defined by Accounting Standards Codification ("ASC") 842, Leases, as part of its ongoing business activities and operations. Leases represent a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. Such contracts result in both (a) right-of-use assets, which represent the Company’s right to use an underlying asset for the term of the contract; and (b) a corresponding lease liability which represents the Company’s obligation to make the lease payments arising from the contract. The Company has elected not to recognize a right-of-use asset and lease liability for any lease with an original lease term of 12 months or less. Lease expense for such leases is recognized on a straight-line basis over the lease term.
A lease is classified as a finance lease when one or more of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, and (v) the asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. If a lease does not meet any of these criteria, the lease is classified as an operating lease.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Lease liabilities are initially measured at the lease commencement date based on the present value of lease payments over the lease term, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term and payment as the lease. Right-of-use assets are measured based on the amount of the lease liability adjusted for any lease payments made to the lessor at or before the lease commencement date less any lease incentives received. All right-of-use assets are evaluated for impairment in accordance with accounting standards applicable to long-lived assets.
Renewal options are included in the calculation of our right-of-use assets and lease liabilities when the Company determines that the option is reasonably certain of exercise based on an analysis of the relevant facts and circumstances. Certain of the Company’s leases require variable lease payments that do not depend on an index or rate and such payments are excluded from the calculation of the right-of-use asset and lease liability and are recognized as variable lease cost when incurred.
The Company has elected the practical expedient to account for the lease and non-lease components as a single lease component for its dairy lease and fuel supply asset class. This results in a significantly higher right-of-use assets and lease liabilities than if the Company had not elected this practical expedient.
Lease cost for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease cost for finance leases consists of amortization of the right-of-use assets on a straight-line basis over the lease term, interest expense on the lease liability and variable lease payments as incurred.
Axens License. Costs related to licenses, including legal fees, are capitalized and amortized over the estimated useful lives using the straight-line method. The license is included in "Prepaid expenses and other current assets" in the Consolidated Balance Sheets.
Intangible assets. Intangible assets consist of patents. Costs related to patents, including legal fees, are capitalized and amortized over the estimated useful lives using the straight-line method. Amortization expense is recorded in "Depreciation and amortization" in the Operating expenses section of the Consolidated Statements of Operations. For patents purchased in an asset acquisition, the useful life is determined by valuation estimates of remaining economic life. The patents are included in "Intangible assets, net" in the Consolidated Balance Sheets.
The Company periodically evaluates the amortization period and carrying value of its licenses and patents to determine whether any events or circumstances warrant revised estimated useful life or reduction in value.
Borrowing Costs. The borrowing costs that are directly attributable to acquisition and construction of an asset that needs a substantially long period of time for its intended use commence to be capitalized and recorded as part of the cost of the asset when expenditures for the asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have commenced. The capitalization of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use and the borrowing costs incurred thereafter are recognized in profit or loss for the current period. Capitalization of borrowing costs is suspended during periods in which the acquisition or construction of an asset is interrupted abnormally and the interruption lasts for more than three months, until the acquisition or construction is resumed.
Debt Issuance Costs and Debt Discounts/Premiums. Debt issuance costs are costs with third parties incurred in connection with the Company’s debt financings that have been capitalized and are being amortized over the stated maturity period or estimated life of the related debt using the effective interest method. Debt issuance costs are presented as a direct reduction of the carrying amount of the related debt. Debt discounts, including fees paid to lenders, and debt premiums are amortized over the life of the related debt using the effective interest method. Debt discounts and premiums are presented as a reduction and increase, respectively, in the carrying amount of the related debt. Amortization of debt issuance costs, discounts and premiums is included in interest expense.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Fair Value of Financial Instruments. We record various financial instruments at fair value. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. U.S. GAAP also classifies the inputs used to measure fair value into the following hierarchy:
Level 1: | | Quoted market prices in an active market for identical assets or liabilities. |
Level 2: | | Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
Level 3: | | Unobservable inputs for the asset or liability. |
The Company believes that the carrying value of its cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and loans payable - other approximate fair value due to their short maturities.
Warrants. Warrants are classified as a component of permanent equity when 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, permit the holders to receive a fixed number of shares of common stock upon exercise and do not provide any guarantee of value or return.
The Series 2020-A Warrants are classified as a component of permanent equity. The Company valued the Series 2020-A Warrants at issuance using the Black-Scholes option pricing model and determined the fair value. The key inputs to the valuation model included a weighted average volatility of 130%, risk free rate of 0.31% and an expected term of five years.
Revenue Recognition. The Company records revenue from the sale of ethanol and related products, hydrocarbon products and funding from government grants and cooperative agreements. The Company recognizes revenue when all of the following criteria are satisfied: (i) it has identified a contract with a customer; (ii) it has identified the performance obligations of the customer; (iii) it has determined the transaction price; (iv) it has allocated the transaction price to the identified performance obligations in the contract with the customer; and (v) it has satisfied each individual performance obligation with the contract with a customer.
Ethanol and related products as well as hydrocarbon products are generally shipped free-on-board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, commissions due to marketers are deducted from the gross sales price at the time payment was remitted. Ethanol and related products sales are recorded net of commissions and shipping and handling costs. Sales and other taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue.
Cost of Goods Sold. Cost of goods sold includes costs incurred in conjunction with the operations for the production of isobutanol and costs directly associated with the ethanol and related products production process such as costs for direct materials, direct labor and certain plant overhead costs. Costs associated with the operations for the production of isobutanol includes costs for direct materials, direct labor and plant utilities, including natural gas and wind power. Direct materials consist of dextrose for initial production of isobutanol, corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in production operations. Costs of direct materials for the production of ethanol and related products consist of corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in the operation of the Luverne Facility. Plant overhead costs primarily consists of plant utilities. Cost of goods sold is mainly affected by the cost of corn and natural gas. Corn is the most significant raw material cost. The Company purchases natural gas and wind power to power steam generation in the production process and to dry the distillers grains, a by-product of ethanol and related products production.
Research and Development. Research and development costs are expensed as incurred. The Company’s research and development costs consist of expenses incurred to identify, develop, and test its technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expense includes personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, license fees and milestone payments paid to third parties for use of their intellectual property and patent rights and other direct and allocated expenses incurred to support the Company’s overall research and development programs.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Selling, General and Administrative. Selling, general and administrative expense are expensed as incurred. The Company's selling, general and administrative costs consist of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses.
Preliminary Stage Project Costs. Preliminary stage project costs consist of consulting, preliminary engineering costs, personnel expenses and research and development expenses to support the business activity for the Company's Gevo RNG and Net-Zero projects.
Stock-Based Compensation. The Company’s stock-based compensation expense includes expenses associated with share-based awards granted to employees and board members, and expenses associated with awards under its employee stock purchase plan ("ESPP"). Our stock-based compensation is classified as either an equity award or a liability award in accordance with U.S. GAAP. The fair value of an equity-classified award is determined at the grant date and is amortized on a straight-line basis over the vesting life of the award. The fair-value of a liability-classified award is determined on a quarterly basis through the final vesting date and is amortized based on the current fair value of the award and the percentage of vesting period incurred to date.
The grant date fair value for stock option awards is estimated using the Black-Scholes option pricing model and the grant date fair value for restricted stock awards is based upon the closing price of the Company’s common stock on the date of grant. The Company recognizes compensation costs for share-based payment awards granted to employees net of actual forfeitures and recognizes stock-based compensation expense for only those awards expected to vest on a straight-line basis over the requisite service period of the award, which is currently the vesting term of up to four years.
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions in accordance with applicable accounting standards, which require all stock-based payments to employees, including grants of stock options and restricted stock awards, to be measured based on the grant date fair value of the awards, with the resulting expense generally recognized on a straight-line basis over the period during which the employee is required to perform service in exchange for the award.
Stock-based compensation expense related to restricted stock awards and stock options are recorded net of actual forfeitures in our Consolidated Statements of Operations.
Liability awards are subject to variable accounting treatment, such that they are remeasured at fair value each reporting period through the Consolidated Statements of Operations. Any impact of forfeitures are based on actual forfeitures, although not affecting the fair value measurement of the awards, should be reflected at that time as well.
Income Taxes. Deferred tax assets and liabilities are recognized based on the difference between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax assets and liabilities are measured using currently enacted tax rates in effect in the years in which those temporary differences are expected to reverse. Deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
In preparing our Consolidated Financial Statements, we estimate the actual amount of taxes currently payable or receivable as well as deferred tax assets and liabilities attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. Changes in deferred tax assets and liabilities generally have a direct impact on earnings in the period of the changes. Mining taxes represent federal and state taxes levied on mining operations. As the mining taxes are calculated as a percentage of mining profits, we classify them as income taxes. Where applicable tax laws and regulations are either unclear or subject to varying interpretations, it is possible that changes in these estimates could occur that materially affect the amounts of deferred income tax assets and liabilities recorded in the Consolidated Financial Statements.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Each period, we evaluate the likelihood of whether or not some portion or all of each deferred tax asset will be realized and provide a valuation allowance for those deferred tax assets for which it is more likely than not that the related benefits will not be realized. When evaluating our valuation allowance, we consider historic and future expected levels of taxable income, the pattern and timing of reversals of taxable temporary timing differences that give rise to deferred tax liabilities, and tax planning initiatives. Levels of future taxable income are affected by, among other things, market gold and silver prices, production costs, quantities of proven and probable reserves, interest rates, federal and local legislation, and foreign currency exchange rates. If we determine that all or a portion of the deferred tax assets will not be realized, a valuation allowance will be recorded with a charge to income tax expense. Conversely, if we determine that we will ultimately be able to realize all or a portion of the related benefits for which a valuation allowance has been provided, all or a portion of the related valuation allowance will be reduced with a credit to income tax expense.
In addition, the calculation of income tax expense involves significant management estimation and judgment involving a number of assumptions. In determining these amounts, management interprets tax legislation in each of the jurisdictions in which we operate and makes estimates of the expected timing of the reversal of future tax assets and liabilities. We also make assumptions about future earnings, tax planning strategies and the extent to which potential future tax benefits will be used. We are also subject to assessments by various taxation authorities which may interpret tax legislation differently, which could affect the final amount or the timing of tax payments.
The Company may from time to time be assessed interest or penalties by major tax jurisdictions, although there have been no such assessments historically with any material impact to its financial results. The Company would recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying Consolidated Statements of Operations. Accrued interest and penalties would be included within the related tax liability line in the Consolidated Balance Sheets.
Net Loss Per Share. Basic net loss per share is computed by dividing the net loss attributable to Gevo's common stockholders for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings per share ("EPS") includes the dilutive effect of common stock equivalents and is computed using the weighted-average number of common stock and common stock equivalents outstanding during the reporting period. Diluted EPS for the years ending December 31, 2021, 2020 and 2019 excluded common stock equivalents because the effect of their inclusion would be anti-dilutive or would decrease the reported loss per share.
The following table sets forth securities that could potentially dilute the calculation of diluted earnings per share:
| Year Ended December 31, | |
| 2021 | | 2020 | | 2019 | |
| | | | | | |
Warrants to purchase common stock - liability classified | 7,126 | | 56,735 | | 54,989 | |
Warrants to purchase common stock - equity classified | 90,608 | | 1,957,166 | | — | |
Convertible 2020 Notes | — | | — | | 974,139 | |
Outstanding options to purchase common stock | 4,746,368 | | 1,552 | | 1,561 | |
Stock appreciation rights | 67,739 | | 67,739 | | 67,739 | |
| | | | | | |
Total | 4,911,841 | | 2,083,192 | | 1,098,428 | |
Recently Adopted Accounting Pronouncements
Financial Instruments - Credit Losses. Measurement of Credit Losses on Financial Instruments. In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses. Measurement of Credits Losses on Financial Instruments ("ASU 2016-13"), which replaces accounting for credit losses for most financial assets, including trade accounts receivable, and certain other instruments that are not measured at fair value through income. ASU 2016-13 replaces the current “incurred loss” model, in which losses are recognized when a loss is incurred as of the date of the balance sheet, to an “expected credit loss” model, which includes a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies, however the Company adopted this ASU as of Q4 2021 since the Company lost its smaller reporting company status. The adoption of this standard primarily applies to the valuation of the Company’s trade accounts receivables. The Company sells primarily to a small quantity of large customers with significant balance sheets and those financial assets are often settled within two - to - three months after the completion of the corresponding sales transaction. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.
Government Assistance Disclosures. In November 2021, the FASB issued ASU No. 2021-10 Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance ("ASU 2021-10"), which increase the transparency of government assistance including the disclosure of (i) the types of assistance, (ii) an entity’s accounting for the assistance, and (iii) the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for fiscal years beginning after December 15, 2021. Early application of the ASU is permitted. See Note 14, Debt, for additional disclosures related to the Small Business Administration’s Paycheck Protection Program ("SBA PPP").
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
3. Miscellaneous Financial Information
January 2021 Offering. On January 19, 2021, the Company completed a registered direct offering pursuant to a securities purchase agreement with certain institutional and accredited investors providing for the issuance and sale by the Company of an aggregate of 43,750,000 shares of the Company’s common stock at a price of $8.00 per share (the "January 2021 Offering"). The net proceeds to the Company from the January 2021 Offering were approximately $321.7 million, after deducting placement agent fees and other estimated offering expenses payable by the Company.
August 2020 Offering. On August 25, 2020, the Company completed a registered direct offering pursuant to a securities purchase agreement with certain institutional and accredited investors providing for the issuance and sale by the Company of an aggregate of (i) 21,929,313 shares of the Company’s common stock (the "Shares") at a price of $1.30 per share, and (ii) 16,532,232 pre-funded Series 2020-C warrants to purchase one share of the Company’s common stock (each, a "Series 2020-C Warrant") at a price of $1.29 per Series 2020-C Warrant, in a registered direct offering (the "August 2020 Offering"). The pre-funded Series 2020-C Warrants are exercisable beginning on the date of issuance at a nominal exercise price of $0.01 per share of common stock any time until the Series 2020-C Warrants are exercised in full. As of December 31, 2020, all of the Series 2020-C Warrants were exercised.
The net proceeds to the Company from the August 2020 Offering were approximately $45.8 million, after deducting placement agent fees and other estimated offering expenses payable by the Company, and not including any future proceeds from the exercise of the Warrants. The Company used the net proceeds from the August 2020 Offering to fund working capital and for other general corporate purposes.
July 2020 Offering. On July 6, 2020, Gevo completed a public offering (the "July 2020 Offering") of (i) 20,896,666 Series 1 units (the “Series 1 Units”) at a price of $0.60 per Series 1 Unit, and (ii) 9,103,334 Series 2 units (the "Series 2 Units") at a price of $0.59 per Series 2 Unit. The July 2020 Offering was made under a registration statement on Form S-1 filed with the Securities and Exchange Commission, declared effective on September 30, 2020.
Each Series 1 Unit consisted of one share of the Company’s common stock and one Series 2020-A Warrant to purchase one share of the Company’s common stock (each, a "Series 2020-A Warrant"). Each Series 2 Unit consists of a pre-funded Series 2020-B warrant to purchase one share of the Company’s common stock (each, a "Series 2020-B Warrant" and, together with the Series 2020-A Warrants, the "Warrants") and one Series 2020-A Warrant. The Series 2020-A Warrants are exercisable beginning on the date of original issuance and will expire five years from the date of issuance, at an exercise price of $0.60 per share. The pre-funded Series 2020-B Warrants are exercisable beginning on the date of issuance at a nominal exercise price of $0.01 per share of common stock any time until the Series 2020-B Warrants are exercised in full. In connection with the July 2020 Offering, the Company issued Series 2020-A Warrants to purchase an aggregate of 30,000,000 shares of common stock. As of December 31, 2020, all of the Series 2020-B Warrants were exercised.
The net proceeds to the Company from the July 2020 Offering were approximately $16.1 million, after deducting placement agent fees and other offering expenses payable by the Company, and not including any future proceeds from the exercise of the Warrants. The Company used the net proceeds from the July 2020 Offering to fund working capital and for other general corporate purposes.
During the year ended December 31, 2020, the Company received notices of exercise from holders of its Series 2020-A Warrants to issue an aggregate of 28,042,834 shares of common stock for total gross proceeds of approximately $16.8 million. During the year ended December 31, 2021, the Company received notices of exercise from holders of our Series 2020-A Warrants to issue an aggregate of 1,866,558 shares of common stock for total gross proceeds of approximately $1.1 million. As of December 31, 2021, there were 90,608 Series 2020-A Warrants outstanding.
At-the-Market Offering Program. In February 2018, the Company commenced an at-the-market offering program, which allows it to sell and issue shares of its common stock from time-to-time. In September 2021, the at-the-market offering program was amended to increase the available capacity to $500 million.
During the year ended December 31, 2021, the Company issued 24,420,579 shares of common stock under the at-the-market offering program for total proceeds of $135.8 million, net of commissions and other offering related expenses totaling $3.6 million.
During the year ended December 31, 2020, the Company issued 3,518,121 shares of common stock under the at-the-market offering program for total proceeds of $8.4 million, net of commissions and other offering related expenses totaling $0.2 million.
As of December 31, 2021, the Company has remaining capacity to issue up to approximately $500 million of common stock under the at-the-market offering program, respectively.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
2021 Bonds. On April 15, 2021, the Iowa Finance Authority (the "Authority") issued an aggregate principal amount of $68,155,000 of its Solid Waste Facility Revenue Bonds (Gevo NW Iowa RNG, LLC Renewable Natural Gas Project), Series 2021 (Green Bonds) (the "2021 Bonds") in a public offering for the benefit of Gevo RNG, a subsidiary of Gevo, to finance the construction of the Gevo RNG project.
The 2021 Bonds are reported at their amortized cost. The 2021 Bonds were issued at a premium of $0.8 million. Debt issuance costs totaled $3.0 million. The Company will amortize the debt issuance costs and the premium as a component of interest expense over the life of the related debt instrument using the interest method. The 2021 Bonds have been recorded as a long-term liability and will become current on the earlier of (i) one year prior to the Initial Mandatory Tender Date or (ii) upon the Company’s exercise of its call option to tender or redeem the Bonds. See Note 14, Debt, for further information.
Significant Customers. The following table summarizes the customers making up greater than 10% of the Company's consolidated revenue for the three years ended December 31, 2021, 2020 and 2019 in addition to the segment where such revenue is reported:
| | | Year Ended December 31, | |
| Segment (Note 21) | | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | | |
Customer A | Gevo | | | 53 | % | | | 21 | % | | | — | % |
Customer B | Agri-Energy | | | 24 | % | | | — | % | | | — | % |
Customer C | Gevo | | | 10 | % | | | — | % | | | — | % |
Customer D | Agri-Energy | | | — | % | | | 52 | % | | | 71 | % |
Customer E | Agri-Energy | | | — | % | | | 15 | % | | | 17 | % |
| | | | | | | | | | | | | |
Total | | | 87 | % | | | 88 | % | | | 88 | % |
| | | | | | | | | | | | |
Related Party Transaction. During the year ended December 31, 2020, Gevo paid Blocksize Capital GmbH ("Blocksize"), a company in which one director of Gevo had an indirect ownership interest, and Leaf Resources, a company in which one director of Gevo serves as a director, a total of $0.1 million for services rendered. The Company owed these companies a total of $0.1 million as of December 31, 2020. There were no related party transactions during the years ended December 31 2021 or 2019.
Restructuring Expenses. During the first quarter 2020, the Company terminated its ethanol production at the Luverne Facility. In addition, due to the impact of the COVID-19 pandemic on the global economy and the Company’s industry, in March 2020, the Company reduced its workforce, impacting 26 people at the Luverne Facility and four people at the Company's corporate headquarters. Affected employees were offered a severance package which included a one-time payment, one month of health insurance and acceleration of vesting for any unvested restricted stock awards.
The Company intends to continue developing its hydrocarbon business, including the planned expansion of the Luverne Facility, and the Company expects to move forward in securing the project funding needed to expand the Luverne Facility. The expansion is designed to allow the Company to produce large quantities of sustainable aviation fuel and renewable gasoline. The Company also expects to continue engineering efforts for the construction of a commercial renewable hydrocarbon production facility, as well as additional decarbonization projects, at the Luverne Facility.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
As of December 31, 2020, the Company had the following liabilities outstanding related to the restructuring expense included in "Accounts payable and accrued liabilities" in the Consolidated Balance Sheets ($0 at December 31, 2021) (in thousands):
| | December 31, | | | | | | | | | | | December 31, | |
| | 2019 | | | Additions | | | Payments | | | 2020 | |
| | | | | | | | | | | | | | | | |
Severance (including payroll taxes) | | $ | — | | | $ | 96 | | | $ | (96 | ) | | $ | — | |
Lease agreements | | | — | | | | 158 | | | | (158 | ) | | | — | |
| | | | | | | | | | | | | | | | |
Total | | $ | — | | | $ | 254 | | | $ | (254 | ) | | $ | — | |
| | | | | | | | | | | | | | | | |
4. Restricted Cash and Restricted Cash Equivalents
The Company’s restricted cash and restricted cash equivalents consists of unused proceeds from the issuance of the 2021 Bonds which are restricted for the purpose of constructing the Gevo NW Iowa RNG, LLC Renewable Natural Gas Project as well as amounts pledged and assigned to Citibank, N.A., in its capacity as credit facility provider of the 2021 Bonds (the "Credit Facility Provider") as collateral for the reimbursement obligations of Gevo. As of December 31, 2021, the unused restricted bond proceeds of $24.0 million included in restricted cash is classified as current since the proceeds will be distributed within 12 months. As of December 31, 2021, the restricted collateral included in restricted cash totaled $71.2 million, $1.0 million of which secures interest payments to be made within 12 months and is classified as current. The Company is entitled to receive interest income on the restricted cash at an agreed rate of return of 0.10% but has no ability to direct the use of the restricted cash. See Note 14, Debt, for further information.
The proceeds from issuance of the 2021 Bonds are maintained by the Trustee under a Trust Indenture dated April 15, 2021 and released to the Company only to pay costs of the construction of the biogas facility operated by Gevo RNG. See Note 14, Debt, for further information on the Trust Indenture. As the proceeds of the 2021 Bonds are restricted, the amounts from bond trustee are also considered to be restricted cash. Restricted cash is included with cash and cash equivalents on the Statements of Cash Flows.
The restricted cash held by the bond trustee as of December 31, 2021 is made up of the following (in thousands):
Restricted Cash Held by Bond Trustee | | | | |
Bond proceeds | | $ | 68,995 | |
Disbursement of funds | | | (44,780 | ) |
Interest paid on bonds | | | (216 | ) |
Interest income | | | 11 | |
| | | | |
Total restricted cash held by bond trustee | | | 24,010 | |
Total restricted collateral | | | 71,190 | |
| | | | |
Total restricted cash and restricted cash equivalents | | | 95,200 | |
Current portion | | | (25,032 | ) |
| | | | |
Long-term restricted cash and restricted cash equivalents | | $ | 70,168 | |
| | | | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
5. Marketable Securities
The cost of marketable securities sold is based upon the specific identification method. During the year ended December 31, 2021, the Company recorded the following realized (loss) from the sale of available-for-sale marketable securities ($0 during the year ended December 31, 2020 or 2019) (in thousands):
Sales proceeds | | $ | 79,574 | |
Amortized cost | | | (79,664 | ) |
| | | | |
Realized (loss) | | $ | (90 | ) |
Interest receivable related to the marketable securities of $1.5 million was included within "Prepaid expenses and other current assets" on the accompanying Consolidated Balance Sheets as of December 31, 2021 ($0 at December 31, 2020).
Interest income totaled $0.5 million the year ended December 31, 2021 (nil during the years ended December 31, 2020 and 2019) and is included in "Interest and dividend income" in the Consolidated Statements of Operations.
Future maturities of the Company's marketable securities are $275.3 million in 2022 and $64.4 million in 2023.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
6. Axens License
On September 22, 2021, Gevo entered into an agreement with Axens North America, Inc. (“Axens”) that establishes a strategic alliance aimed at accelerating the commercialization of sustainable alcohol-to-SAF projects in the United States. As part of the alliance, Axens brings technologies with over 60 related patents, engineering packages, proprietary catalysts and certain proprietary equipment required to convert ethanol into SAF. Axens would also provide process guarantees to Gevo for commercial alcohol-to-SAF projects. The Company paid a fee of $3.25 million in 2021 for Axens to provide certain alcohol-to-SAF services exclusively to Gevo for the first year of the agreement. The fee paid by the Company may be offset against future license fees and is included in "Other current assets" in the Consolidated Balance Sheets. The fee is included in the Gevo segment.
7. Intangible Assets
On September 21, 2021, the Company entered into an asset purchase agreement with Butamax Advanced Biofuels LLC and its affiliate, Danisco US Inc. (collectively, "Butamax"), pursuant to which the Company purchased all of Butamax’s rights, title and interests in certain U.S. and foreign patents and patent applications, subject to specified conditions and encumbrances, relating to the production, recovery and use of biobutanol that were owned by Butamax, for $9.2 million, including $0.2 million of legal fees. Management evaluated the patents to determine whether the patents (i) supported current products; (ii) supported planned research and development; or (iii) prevent others from competing with Gevo's products. Based on the Company's estimated purchase price allocation, approximately $4.3 million of the purchase price was allocated to the purchase of patents to support current products and planned product research and $4.9 million for patents purchased for defensive purposes. The patents are included in "Intangible assets" in the Consolidated Balance Sheets. The Gevo segment owns $8.8 million and the Agri-Energy segment owns $0.1 million of the net carrying amount of the patents.
Identifiable intangible assets were comprised of the following (in thousands):
| | December 31, 2021 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | | Weighted Average Life (Years) | |
| | | | | | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | |
Patents | | $ | 4,575 | | | $ | (368 | ) | | $ | 4,207 | | | | 7.3 | |
Defensive assets | | | 4,895 | | | | (164 | ) | | | 4,731 | | | | 8.4 | |
| | | | | | | | | | | | | | | | |
Identifiable tangible assets | | $ | 9,470 | | | $ | (532 | ) | | $ | 8,938 | | | | 7.9 | |
| | | | | | | | | | | | | | | | |
| | December 31, 2020 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net | | | Weighted Average Life (Years) | |
| | | | | | | | | | | | | | | | |
Finite-lived intangible assets: | | | | | | | | | | | | | | | | |
Patents | | $ | 300 | | | $ | (186 | ) | | $ | 114 | | | | 5.2 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Amortization expense was as follows (in thousands):
| | Years Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Related to cost of goods sold | | $ | 21 | | | $ | 21 | | | $ | 165 | |
Related to research and development expense | | | 161 | | | | — | | | | — | |
Related to selling, general and administrative expense | | | 164 | | | | — | | | | — | |
| | | | | | | | | | | | |
Total | | $ | 346 | | | $ | 21 | | | $ | 165 | |
The following table details the estimated net amortization of identifiable intangible assets as of December 31, 2021 (in thousands):
Year Ending December 31, | | Patents | | | Defensive Assets | | | Total | |
| | | | | | | | | | | | |
2022 | | $ | 599 | | | $ | 585 | | | $ | 1,184 | |
2023 | | | 599 | | | | 585 | | | | 1,184 | |
2024 | | | 600 | | | | 587 | | | | 1,187 | |
2025 | | | 599 | | | | 585 | | | | 1,184 | |
2026 | | | 585 | | | | 585 | | | | 1,170 | |
Thereafter | | | 1,225 | | | | 1,804 | | | | 3,029 | |
| | | | | | | | | | | | |
Total | | $ | 4,207 | | | $ | 4,731 | | | $ | 8,938 | |
8. Revenues from Contracts with Customers and Other Revenue
The Company’s current and historical revenues have consisted of the following: (a) ethanol sales and related products revenue, net; (b) hydrocarbon revenue; and (c) other revenue, which has historically consisted primarily of revenues from governmental and cooperative research grants.
Ethanol sales and related products revenues, net. Ethanol sales and related products revenues, net, are sold to customers on a free-on-board, shipping point basis. Each transaction occurs independent of any other sale, and once sold, there are no future obligations on the part of the Company to provide post-sale support or promises to deliver future goods or services.
Hydrocarbon revenue. Hydrocarbon revenues include sales of SAF, isooctene and isooctane and are sold mostly on a free-on-board, shipping point basis. Each transaction occurs independent of any other sale, and once sold, there are no future obligations on the part of the Company to provide post-sale support or promises to deliver future goods or services.
Other revenue. Other revenue includes occasional short-term (less than one-year) consulting services and leases of certain storage facilities located at the Luverne Facility.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The following table sets forth the components of the Company’s revenues between those generated from contracts with customers and those generated from arrangements that do not constitute a contract with a customer (in thousands):
| | Year Ended December 31, 2021 | |
Major Goods/Service Line | | Revenues from Contracts with Customers | | | Other Revenues | | | Total | |
| | | | | | | | | | | | |
Ethanol sales and related products, net | | $ | 50 | | | $ | — | | | $ | 50 | |
Hydrocarbon revenue | | | 483 | | | | — | | | | 483 | |
Other revenue | | | — | | | | 178 | | | | 178 | |
| | | | | | | | | | | | |
| | $ | 533 | | | $ | 178 | | | $ | 711 | |
Timing of Revenue Recognition | | | | | | | | | | | | |
| | | | | | | | | | | | |
Goods transferred at a point in time | | $ | 533 | | | $ | — | | | $ | 533 | |
Services transferred over time | | | — | | | | 178 | | | | 178 | |
| | | | | | | | | | | | |
| | $ | 533 | | | $ | 178 | | | $ | 711 | |
| | Year Ended December 31, 2020 | |
Major Goods/Service Line | | Revenues from Contracts with Customers | | | Other Revenues | | | Total | |
| | | | | | | | | | | | |
Ethanol sales and related products, net | | $ | 3,809 | | | $ | — | | | $ | 3,809 | |
Hydrocarbon revenue | | | 1,501 | | | | — | | | | 1,501 | |
Other revenue | | | 153 | | | | 73 | | | | 226 | |
| | | | | | | | | | | | |
| | $ | 5,463 | | | $ | 73 | | | $ | 5,536 | |
Timing of Revenue Recognition | | | | | | | | | | | | |
| | | | | | | | | | | | |
Goods transferred at a point in time | | $ | 5,310 | | | $ | — | | | $ | 5,310 | |
Services transferred over time | | | 153 | | | | 73 | | | | 226 | |
| | | | | | | | | | | | |
| | $ | 5,463 | | | $ | 73 | | | $ | 5,536 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
| | Year Ended December 31, 2019 | |
Major Goods/Service Line | | Revenues from Contracts with Customers | | | Other Revenues | | | Total | |
| | | | | | | | | | | | |
Ethanol sales and related products, net | | $ | 22,115 | | | $ | — | | | $ | 22,115 | |
Hydrocarbon revenue | | | 2,338 | | | | — | | | | 2,338 | |
Other revenue | | | — | | | | 34 | | | | 34 | |
| | | | | | | | | | | | |
| | $ | 24,453 | | | $ | 34 | | | $ | 24,487 | |
Timing of Revenue Recognition | | | | | | | | | | | | |
| | | | | | | | | | | | |
Goods transferred at a point in time | | $ | 24,453 | | | $ | — | | | $ | 24,453 | |
Services transferred over time | | | — | | | | 34 | | | | 34 | |
| | | | | | | | | | | | |
| | $ | 24,453 | | | $ | 34 | | | $ | 24,487 |
Goods transferred at a point-in-time. For the years ended December 31, 2021, 2020 and 2019, there were no contracts with customers for which consideration was variable or for which there were multiple performance obligations for any given contract. Accordingly, the entire transaction price is allocated to the goods transferred. As of December 31, 2021 and 2020, there were no remaining unfulfilled or partially fulfilled performance obligations.
All goods transferred are tested to ensure product sold satisfies contractual product specifications prior to transfer. The customer obtains control of the goods when title and risk of loss for the goods has transferred, which in most cases is "free-on-board, shipping point". All material contracts have payment terms of between one to three months and there are no return or refund rights.
Services transferred over time. For the years ended December 31, 2021, 2020 and 2019, there were no contracts for which consideration was variable or for which there were multiple performance obligations for any given contract. Accordingly, the entire transaction price is allocated to the individual service performance obligation. As of December 31, 2021 and 2020, respectively, there were no material unfulfilled or partially fulfilled performance obligations.
Contract Assets and Trade Receivables. As of December 31, 2021 and 2020, there were no contract assets or liabilities as all customer amounts owed to the Company are unconditional and the Company does not receive payment in advance for its products. Accordingly, amounts owed by customers are included in "Accounts receivable, net" on the Company’s Consolidated Balance Sheets. In addition, due to the nature of the Company’s contracts, there are no costs incurred or to be paid in the future that qualify for asset recognition as a cost to fulfill or obtain a contract. The Company recorded an allowance for doubtful accounts for one customer which represents 27% of the trade accounts receivable as of December 31, 2021. The Company recorded $0 allowance for doubtful accounts as of December 31, 2020.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
9. Leases, Right-of-Use Assets and Related Liabilities
The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in January 2029. The lease does not contain an option to extend the lease that is reasonably certain to be exercised. The Company also leases certain equipment under an operating lease at its Agri-Energy Facility that expires in 2025. All other operating leases qualified for the short-term scope exemption elected by the Company. The Company recognizes rent expense on its operating lease on a straight-line basis. The Company has elected the practical expedient to not separate lease components from non-lease components for these asset classes.
The Company also has four finance leases for land and fuel supply under arrangements related to Gevo RNG. Under these contracts, the Company leases land from dairy farmers on which it is building three anaerobic digesters, related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas will be transported from the three digester sites to a central gas upgrade system located at the fourth site that will upgrade the biogas to pipeline quality natural gas for sale. These leases expire at various dates between 2031 and 2050. Certain leases provide the Company with the right to terminate the lease prior to the stated lease expiration date; however, the Company is reasonably certain not to exercise such termination right and thus periods beyond this termination right have been recognized as part of the Company’s right-of-use assets and lease liabilities. In addition, some of these leases include renewal periods that have been deemed to be reasonably certain to be exercised and as such have been recognized as part of the Company’s right-of-use assets and lease liabilities. The Company has elected the practical expedient to not separate lease components from non-lease components for this dairy lease asset class and therefore, all amounts paid to the lessor under these arrangements for cow manure and nonlease services are classified as lease payments and included in the calculation of the right-of-use assets and lease liabilities. This results in significantly higher right-of-use assets and lease liabilities than if the Company did not elect this practical expedient.
As of December 31, 2021 and 2020, right-of-use assets under operating and financing leases, operating and financing leases liabilities are included in the Consolidated Balance Sheets as follows:
| | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | | | |
Right-of-Use Assets | | | | | | | | |
Operating leases | | $ | 2,414 | | | $ | 133 | |
Financing leases | | | 27,297 | | | | 176 | |
| | | | | | | | |
Total | | $ | 29,711 | | | $ | 309 | |
| | | | | | | | |
Operating Lease Liabilities | | | | | | | | |
Current | | $ | 772 | | | $ | 172 | |
Long-term | | | 1,902 | | | | — | |
| | | | | | | | |
Total | | $ | 2,674 | | | $ | 172 | |
| | | | | | | | |
Financing Lease Liabilities | | | | | | | | |
Current | | $ | 3,413 | | | $ | 10 | |
Long-term | | | 17,797 | | | | 162 | |
| | | | | | | | |
Total | | $ | 21,210 | | | $ | 172 | |
The Company leased its grain bins in Luverne, Minnesota in October 2020 through a short-term operating lease agreement which expired in July 2021. Rental income for the years ended December 31, 2021, 2020 and 2019 totaled $0.2 million, $0.1 million and $0, respectively.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The following table presents the (i) costs by lease category and (ii) other quantitative information relating to the Company’s leases for the years ended December 31, 2021, 2020 and 2019 (in thousands):
| Years Ended December 31, | |
| 2021 | | | 2020 | | | 2019 | |
Lease cost | | | | | | | | | | | |
Financing lease cost | | | | | | | | | | | |
Amortization of right-of-use assets (1) | $ | 1,396 | | | $ | 5 | | | $ | — | |
Interest on lease liabilities (2) | | 906 | | | | — | | | | — | |
Operating lease cost | | 240 | | | | 605 | | | | 1,554 | |
Short-term lease cost | | 1,378 | | | | 307 | | | | 66 | |
Variable lease cost (3) | | 260 | | | | 144 | | | | 119 | |
| | | | | | | | | | | |
Total lease cost | $ | 4,180 | | | $ | 1,061 | | | $ | 1,739 | |
(1) | Amortization of right-of-use assets of $1.4 million was capitalized as part of "Construction in progress" during the year ended December 31, 2021 ($0 during the years ended December 31, 2020 and 2019) and included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related Gevo RNG facilities are still under construction. |
(2) | Interest on lease liabilities of $0.9 million was capitalized as part of "Construction in progress" during the year ended December 31, 2021 (none during the years ended December 31, 2020 and 2019) and included in "Property, plant and equipment, net" in the Consolidated Balance Sheets as the related Gevo RNG facilities are still under construction. |
(3) | Represents amounts incurred in excess of minimum payments, including payments for common area expenses under our office and research facility lease, and additional amounts due under our Gevo RNG leases based on the number of cows maintained by the owners of the respective facilities. |
| Years Ended December 31, | |
| 2021 | | | 2020 | | | 2019 | |
Other Information | | | | | | | | | | | |
Cash paid for the measurement of lease liabilities | | | | | | | | | | | |
Operating cash flows from finance lease | $ | 906 | | | $ | 6 | | | $ | — | |
Operating cash flows from operating leases | | 240 | | | | 605 | | | | 1,554 | |
Finance cash flows from finance lease | | 7,189 | | | | 2 | | | | — | |
Right-of-use asset obtained in exchange for new finance lease liabilities | | 28,514 | | | | — | | | | — | |
Right-to-use assets obtained in exchange for new operating lease liabilities | | 2,593 | | | | 192 | | | | 280 | |
Weighted-average remaining lease term, financing lease (months) | | 219 | | | | 224 | | | | — | |
Weighted-average remaining lease term, operating leases (months) | | 70 | | | | 7 | | | | 21 | |
Weighted-average discount rate - financing lease (4) | | 5 | % | | | 13 | % | | | — | % |
Weighted-average discount rate - operating leases (5) | | 5 | % | | | 12 | % | | | 12 | % |
(4) | The discount rate used for the finance lease was based on the Company's incremental borrowing rate at the date the Company entered into the lease. The Company estimated the incremental borrowing rate based on collateralized borrowings for similar terms and payments. |
(5) | The discount rate used for operating leases is based on the Company's incremental borrowing rate at the date the Company entered into the lease. The Company estimated the incremental borrowing rate based on collateralized borrowings for similar terms and payments. |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The table below shows the future minimum payments under financing leases and non-cancelable operating leases as of December 31, 2021 (in thousands):
Year Ending December 31, | | Financing Leases | | | Operating Leases | | | Total | | |
| | | | | | | | | | | | | |
2022 | | $ | 4,397 | | | $ | 881 | | | $ | 5,278 | | |
2023 | | | 1,713 | | | | 528 | | | | 2,241 | | |
2024 | | | 1,729 | | | | 305 | | | | 2,034 | | |
2025 | | | 1,743 | | | | 315 | | | | 2,058 | | |
2026 | | | 1,759 | | | | 324 | | | | 2,083 | | |
Thereafter | | | 19,814 | | | | 706 | | | | 20,520 | | |
| | | | | | | | | | | | | |
Total | | | 31,155 | | | | 3,059 | | | | 34,214 | | |
Less: Amounts representing present value discounts | | | (9,945 | ) | | | (385 | ) | | | (10,330 | ) | |
| | | | | | | | | | | | | |
Total lease liabilities | | | 21,210 | | | | 2,674 | | | | 23,884 | | |
Less: current portion | | | (3,413 | ) | | | (772 | ) | | | (4,185 | ) | |
| | | | | | | | | | | | | |
Long-term portion | | $ | 17,797 | | | $ | 1,902 | | | $ | 19,699 | | |
10. Inventories
The following table sets forth the components of the Company’s inventory balances (in thousands):
| | December 31, | |
| | 2021 | | | 2020 | |
Raw materials | | | | | | | | |
Corn | | $ | 301 | | | $ | — | |
Enzymes and other inputs | | | 183 | | | | 133 | |
Nutrients | | | 3 | | | | 1 | |
Palladium | | | 265 | | | | 235 | |
Finished goods | | | | | | | | |
SAF, Isooctane and Isooctene | | | 335 | | | | 756 | |
Isobutanol | | | 223 | | | | — | |
Ethanol | | | 96 | | | | — | |
Work in process | | | | | | | | |
Agri-Energy | | | 83 | | | | — | |
Gevo | | | — | | | | 5 | |
Spare parts | | | 1,262 | | | | 1,361 | |
| | | | | | | | |
Total inventories | | $ | 2,751 | | | $ | 2,491 | |
Work in process inventory includes unfinished SAF, isooctane and isooctene inventory. The Company recorded an expense for the write down to net realizable value for the year ended December 31, 2021 totaling $5.2 million as a result of restarted production of isobutanol. During the years ended December 31, 2020 and 2019, the Company recorded an expense for the write down to net realizable value of $1.2 and $0.2 million, respectively, due to the suspension of production in the first quarter 2020. These charges are included in "Cost of goods sold" in the Consolidated Statements of Operations.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
11. Property, Plant and Equipment
The following table sets forth the Company’s property, plant and equipment by classification (in thousands):
| | Useful Life | | | December 31, | |
| | (in years) | | | 2021 | | | 2020 | |
| | | | | | | | | | | | | |
Luverne Facility retrofit asset | | | 20 | | | | $ | 70,820 | | | $ | 70,820 | |
Plant machinery and equipment | | | 10 | | | | | 17,949 | | | | 17,374 | |
Site improvements | | | 10 | | | | | 7,157 | | | | 7,157 | |
Lab equipment, furniture and fixtures and vehicles | | | 5 | | | | | 6,811 | | | | 6,396 | |
Demonstration plant | | | 2 | | | | | 3,597 | | | | 3,597 | |
Leasehold improvements, pilot plant, land and support equipment | | 2 | to | 7 | | | | 2,802 | | | | 2,523 | |
Buildings | | | 10 | | | | | 2,543 | | | | 2,543 | |
Computer, office equipment and software | | 3 | to | 6 | | | | 2,332 | | | | 1,983 | |
Construction in progress | | | — | | | | | 88,989 | | | | 13,132 | |
| | | | | | | | | | | | | |
Total Property, plant and equipment | | | | | | | | 203,000 | | | | 125,525 | |
Less accumulated depreciation and amortization | | | | | | | | (63,859 | ) | | | (59,117 | ) |
| | | | | | | | | | | | | |
Property, plant and equipment, net | | | | | | | $ | 139,141 | | | $ | 66,408 | |
The Company recorded depreciation and amortization expense related to property, plant and equipment as follows (in thousands):
| Year Ended December 31, | |
| 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | |
Cost of goods sold | $ | 4,457 | | | $ | 5,669 | | | $ | 6,282 | |
| | | | | | | | | | | |
Operating expenses | | | | | | | | | | | |
Research and development expense | | 250 | | | | 160 | | | | 152 | |
Selling, general and administrative expense | | 75 | | | | 54 | | | | 57 | |
| | | | | | | | | | | |
| | 325 | | | | 214 | | | | 209 | |
| | | | | | | | | | | |
Total | $ | 4,782 | | | $ | 5,883 | | | $ | 6,491 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
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. |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
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 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
13. Accounts Payable and Accrued Liabilities
The following table sets forth the components of the Company’s accounts payable and accrued liabilities in the Consolidated Balance Sheets (in thousands):
| | December 31, | |
| | 2021 | | | 2020 | |
| | | | | | | | |
Account payable - trade | | $ | 4,868 | | | $ | 897 | |
Gevo RNG accrued project costs | | | 11,000 | | | | — | |
Accrued employee compensation | | | 4,678 | | | | 1,960 | |
Net-Zero 1 accrued project costs | | | 5,010 | | | | — | |
Other accrued liabilities | | | 2,732 | | | | 1,086 | |
| | | | | | | | |
Total accounts payable and accrued liabilities | | $ | 28,288 | | | $ | 3,943 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
14. Debt
2021 Bond Issuance
On April 15, 2021, 2021 Bonds were issued totaling $68,155,000. The 2021 Bonds initially bear interest at the rate of 1.50% per annum during the Initial Term Rate Period (as defined in the hereinafter defined Indenture), payable semi-annually on January 1 and July 1 of each year, commencing on July 1, 2021. The 2021 Bonds mature on April 1, 2042, are callable and remarketable on or after October 1, 2022, and are also subject to mandatory tender for purchase on April 1, 2024, pursuant to the terms of the Indenture (as defined below). The 2021 Bonds were issued at a premium of $0.8 million. Debt issuance costs totaled $3.0 million.
The 2021 Bonds were issued under a Trust Indenture, dated as of April 1, 2021 (the “Indenture”), between the Authority and Citibank, N.A., as trustee (the "Trustee"). The principal of and the interest on the 2021 Bonds is payable solely from (i) payments to be made by Gevo RNG to the Trustee pursuant to a separate financing agreement, dated as of April 1, 2021 (the "Bond Financing Agreement"), between Gevo RNG and the Authority, (ii) all moneys received by the Authority or the Trustee in respect of payment of the loan of the proceeds of the 2021 Bonds from the Authority to Gevo RNG pursuant to the Bond Financing Agreement, (iii) all moneys and investments in the "Bond Fund" established and maintained by the Trustee pursuant to the Indenture, including without limitation moneys received by the Trustee pursuant to the Letter of Credit (as defined below), (iv) all moneys and investments in the “Project Fund” established and maintained by the Trustee pursuant to the Indenture from proceeds of the sale of the 2021 Bonds, and (v) all income and profit from the investment of the foregoing moneys, excluding any payments received by the Authority pursuant to rights of the Authority to receive certain additional payments and reimbursements of expenses as set forth in the Bond Financing Agreement. Pursuant to the Bond Financing Agreement, the proceeds of the 2021 Bonds will be loaned to Gevo RNG (1) to finance in part the construction of the biogas facility to be developed, designed, constructed, owned and operated by or on behalf of Gevo RNG, which is comprised of (A) three anaerobic digesters and related equipment situated on dairy farms located in Northwest Iowa that will produce partially conditioned raw biogas from cow manure, (B) gathering pipelines to transport biogas to a centrally located gas upgrade system, (C) a centrally located gas upgrade system located in Doon, Iowa that will upgrade biogas to pipeline quality natural gas and interconnect to Northern Natural Gas’ interstate pipeline, and (D) other related improvements, (2) to capitalize a portion of the interest due on the 2021 Bonds during the Initial Term Rate Period to be used to reimburse the Credit Facility Provider (as defined below) for interest draws on the Letter of Credit during such period, and (3) to pay a portion of the costs of issuing the 2021 Bonds.
On April 15, 2021, Gevo obtained a letter of credit for $71.2 million (the “Letter of Credit”) from the Credit Facility Provider, pursuant to the terms of a letter of credit reimbursement agreement dated as of April 1, 2021 (the "Reimbursement Agreement"), between Gevo and the Credit Facility Provider. The Letter of Credit will permit the Trustee to draw thereon in accordance with its terms in amounts sufficient to pay the principal and purchase price of the 2021 Bonds and up to 203 days’ interest on the 2021 Bonds. Pursuant to the terms of the Reimbursement Agreement, Gevo is obligated to reimburse the Credit Facility Provider for amounts drawn under the Letter of Credit. It is expected that payments of the principal and interest on the 2021 Bonds, and the purchase price of 2021 Bonds that are tendered for mandatory purchase and not remarketed, will be made by draws on the Letter of Credit. Gevo has pledged and assigned restricted cash to the Credit Facility Provider as security for the reimbursement obligations of Gevo pursuant to the Reimbursement Agreement in an amount equal to the principal amount of the 2021 Bonds plus three years of interest payments on the 2021 Bonds.
Gevo anticipates remarketing the 2021 Bonds under revised terms that will include a long-term maturity date and be non-recourse to Gevo. Upon a successful remarketing, Gevo anticipates that the Letter of Credit, the Reimbursement Agreement and the associated pledge of cash will be terminated.
Loans Payable - Other
The equipment loans are secured by the related equipment.
In April 2020, the Company and Agri-Energy each entered into a loan agreement with Live Oak Banking Company, pursuant to which the Company and Agri-Energy obtained loans from the SBA PPP totaling $1.0 million in the aggregate (the "SBA Loans").
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
On April 15, 2021, the Small Business Administration forgave the entire balance of $0.5 million of the Company's and $0.1 million of Agri-Energy's loans and accrued interest obtained through the SBA PPP. The remaining SBA Loan for Agri-Energy totals $0.3 million, bears interest at 1.0% and matures in April 2025. Monthly payments of $8,000, including interest, began on June 5, 2021 and are payable through April 2025.
The SBA Loans are treated as debt on the Consolidated Balance Sheets and classified as "Loans payable – other (current)" and "Loans payable – other (long-term)". The Consolidated Statements of Operations classifies the interest as "Interest expense" and the loan forgiveness as "Gain on forgiveness of SBA Loans".
The summary of the 2021 Bonds and Loans payable - other at December 31, 2021 and 2020 are as follows (in thousands):
| | | | | Years Ended December 31, | |
| Interest Rate | | Maturity Date | | 2021 | | | 2020 | |
| | | | | | | | | | | |
2021 Bonds | 1.5% | | January 2042 | | $ | 66,486 | | | $ | — | |
SBA Loans | 1.0% | | April 2025 | | | 320 | | | | 1,006 | |
Equipment | 4% to 5% | | February 2022 to December 2024 | | | 156 | | | | 248 | |
| | | | | | | | | | | |
| | | | | | 66,962 | | | | 1,254 | |
Less current portion | | | | | | (158 | ) | | | (807 | ) |
| | | | | | | | | | | |
Long-term portion | | | | | $ | 66,804 | | | $ | 447 | |
Included in the 2021 Bonds above is Bond Premium of $0.6 million and Debt Issuance Costs of $2.3 million in the principal portion as of December 31, 2021. Total interest of $2.4 million, $2.1 million and $2.7 million was incurred during the years ended December 31, 2021, 2020 and 2019, respectively. Interest of $1.2 million and nil relating to our borrowings, and interest of $0.9 million and nil relating to certain of our finance leases, was capitalized as part of "Construction in progress" and included in "Property, plant and equipment" in the Consolidated Balance Sheets for the years ended December 31, 2021 and 2020, respectively.
Future payments for the Company's long-term debt are as follows (in thousands):
Year Ending December 31, | | Amount | |
| | | | |
2022 | | $ | 158 | |
2023 | | | 159 | |
2024 | | | 66,616 | |
2025 | | | 29 | |
| | | | |
| | $ | 66,962 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
2020/2021 Notes
The following table sets forth information pertaining to the 2020/21 Notes which is included in the Company’s Consolidated Balance Sheets (in thousands):
| | Principal Amount of 2020 Notes | | | Principal Amount of 2020/21 Notes | | | Debt Discount | | | Debt Issue Costs | | | Total Notes | | | 2020 Notes Embedded Derivative | | | Total 2020 Notes and 2020/21 Notes Embedded Derivative | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2019 | | $ | 14,053 | | | $ | — | | | $ | (123 | ) | | $ | (30 | ) | | $ | 13,900 | | | $ | — | | | $ | 13,900 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of debt discount | | | — | | | | — | | | | 405 | | | | — | | | | 405 | | | | — | | | | 405 | |
Amortization of debt issue costs | | | — | | | | — | | | | — | | | | 30 | | | | 30 | | | | — | | | | 30 | |
Paid-in-kind interest | | | 47 | | | | 269 | | | | — | | | | — | | | | 316 | | | | — | | | | 316 | |
Exchange of 2020 Notes for 2020/21 Notes | | | (14,100 | ) | | | 14,100 | | | | — | | | | — | | | | — | | | | — | | | | — | |
Conversion of 2020/21 Notes into common Stock | | | — | | | | (14,651 | ) | | | — | | | | — | | | | (14,651 | ) | | | — | | | | (14,651 | ) |
Original issue discount paid with 2020/21 Notes | | | — | | | | 282 | | | | (282 | ) | | | — | | | | — | | | | — | | | | — | |
Fair value of 2020/21 embedded derivative liability upon issuance | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,848 | | | | 2,848 | |
Increase in fair value of 2020/21 Notes embedded derivative liability prior to conversion of 2020/21 Notes | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,759 | | | | 5,759 | |
Decrease in fair value of 2020/21 Notes embedded derivative liability upon conversion to common stock | | | — | | | | — | | | | — | | | | — | | | | — | | | | (8,607 | ) | | | (8,607 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31,2020 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
On April 19, 2017, the Company entered into an Exchange and Purchase Agreement (the "2017 Purchase Agreement") with WB Gevo, LTD (the "2017 Holder") the holder of the Company's 12% convertible senior secured notes due 2017 (the "2017 Notes"), which were issued under that certain Indenture dated as of June 6, 2014, by and among the Company, the guarantors party thereto, and Wilmington Savings Fund Society ("FSB"), as trustee and as collateral trustee (as supplemented, the "2017 Notes Indenture"), and Whitebox Advisors LLC ("Whitebox"), in its capacity as representative of the 2017 Holder. Pursuant to the terms of the 2017 Purchase Agreement, the 2017 Holder, subject to certain conditions, including approval of the transaction by the Company's stockholders (which was received on June 15, 2017), agreed to exchange all of the outstanding principal amount of the 2017 Notes for an equal principal amount of the 2020 Notes, plus an amount in cash equal to the accrued and unpaid interest (other than interest paid in kind) on the 2017 Notes (the "2017 Exchange"). On June 20, 2017, the Company completed the 2017 Exchange, terminated the 2017 Notes Indenture and cancelled the 2017 Notes.
The 2020 Notes had a maturity date of March 15, 2020 and were secured by a first lien on substantially all of our assets. The 2020 Notes had an interest rate equal to 12% per annum (with 2% potentially payable as PIK Interest (as defined and described below) at our option), payable on March 31, June 30, September 30 and December 31 of each year. To the extent that the Company paid any portion of the interest due on the 2020 Notes as PIK Interest, the maximum aggregate principal amount of 2020 Notes that would have been convertible into shares of the Company's common stock increased.
Under certain circumstances, the Company had the option to pay a portion of the interest due on the 2020 Notes by either (a) increasing the principal amount of the 2020 Notes by the amount of interest then due or (b) issuing additional 2020 Notes with a principal amount equal to the amount of interest then due (interest paid in the manner set forth in (a) or (b) being referred to as "PIK Interest").
Additional shares of the Company's common stock could also have become issuable pursuant to the 2020 Notes in the event the Company was required to make certain make-whole payments as provided in the 2020 Notes Indenture.
The 2020 Notes were convertible into shares of the Company's common stock, subject to certain terms and conditions. The initial conversion price of the 2020 Notes was equal to $14.72 per share of common stock, or 0.0679 shares of common stock per $1 principal amount of 2020 Notes.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
2020/21 Notes
On January 10, 2020, the Company entered into an Exchange and Purchase Agreement (the "2020/21 Purchase Agreement") with the guarantors party thereto, the 2017 Holder and Whitebox, in its capacity as representative of the 2017 Holder. Pursuant to the terms of the 2020/21 Purchase Agreement, the 2017 Holder, subject to certain conditions, agreed to exchange all of the outstanding principal amount of the 2020 Notes, which was approximately $14.1 million including unpaid accrued interest, for approximately $14.4 million in aggregate principal amount of the Company's newly created 12% Convertible Senior Notes due 2020/21 (the "2020/21 Notes") (the "2020/21 Exchange"). On January 10, 2020, the Company completed the 2020/21 Exchange, terminated the 2017 Notes Indenture and cancelled the 2020 Notes. In addition, the Company entered into an Indenture by and among the Company, the guarantors named therein (the "2020/21 Notes Guarantors") and FSB, as trustee and as collateral trustee (the "2020/21 Notes Indenture"), pursuant to which the Company issued the 2020/21 Notes.
The 2020/21 Notes matured on December 31, 2020. The 2020/21 Notes bore interest at a rate equal to 12% per annum (with 4% payable as PIK Interest (as defined and described above)), payable on March 31, June 30, September 30 and December 31 of each year. In the event the Company pays any portion of the interest due on the 2020/21 Notes as PIK Interest, the maximum aggregate principal amount of 2020/21 Notes that could be convertible into shares of the Company’s common stock will be increased.
The 2020/21 Notes were convertible into shares of the Company’s common stock voluntarily by the 2017 Holder at the conversion price, subject to certain terms and conditions. The initial conversion price of the 2020/21 Notes was equal to $2.442 per share of the Company’s common stock (the "2020/21 Notes Conversion Price"), or 0.4095 shares of the Company’s common stock per $1 principal amount of 2020/21 Notes. The Company and the 2017 Holder may also mutually agree on other conversions of the 2020/21 Notes into shares of the Company’s common stock on a monthly basis (a "Contractual Conversion") pursuant to the terms of the 2020/21 Notes Indenture. The 2020/21 Notes Conversion Price in a Contractual Conversion will be reduced to the lesser of the then-applicable 2020/21 Notes Conversion Price or a 10% discount to the average of the daily volume weighted average price of the Company’s common stock for the three forward trading days prior to the date of the Contractual Conversion.
Each 2017 Holder has agreed not to convert its 2020/21 Notes into shares of the Company’s common stock to the extent that, after giving effect to such conversion, the number of shares of the Company’s common stock beneficially owned by such 2017 Holder and its affiliates would exceed 4.99% of the Company’s common stock outstanding at the time of such conversion (the "4.99% Ownership Limitation"); provided that a 2017 Holder may, at its option and upon 61 days’ prior notice to the Company, increase such threshold to 9.99% (the "9.99% Ownership Limitation"). If a conversion of 2020/21 Notes by a 2017 Holder would exceed the 4.99% Ownership Limitation or the 9.99% Ownership Limitation, as applicable, the 2020/21 Purchase Agreement contains a provision granting the 2017 Holder a fully funded prepaid warrant for such common stock with a term of nine months, subject to a six-month extension, which it can draw down from time to time.
The 2020/21 Notes did not contain any anti-dilution adjustments for future equity issuances that were below the 2020/21 Notes Conversion Price, and adjustments to the 2020/21 Notes Conversion Price would only generally be made in the event that there is a dividend or distribution paid on shares of the Company’s common stock, a subdivision, combination or reclassification of the Company’s common stock, or at the discretion of the Board of Directors of the Company in limited circumstances and subject to certain conditions.
The 2020/21 Notes were secured by a lien on substantially all of the assets of the Company and the 2020/21 Notes Guarantors, including intellectual property and real property, and were guaranteed by the Company’s existing subsidiaries.
Under certain circumstances, the Company may file one or more registration statements on Form S-3 or amend filings in order to register shares of common stock for sale or resale, as necessary in connection with the 2020/21 Notes.
Conversion of 2020/21 Notes
On July 10, 2020, certain holders of the 2020/21 Notes converted $2.0 million in the aggregate principal amount of 2020/21 Notes (including the conversion of an additional $0.3 million for make-whole payment) into 4,169,426 shares of common stock pursuant to the terms of the indenture. In December 2020, certain holders of the 2020/21 Notes converted the remaining $12.7 million in aggregate principal amount of 2020/21 Notes (including the conversion of an additional $1.2 million for make-whole payment) into an aggregate of 5,672,654 shares of common stock pursuant to the terms of the 2020/21 Notes related Indenture. As a result, as of December 31, 2020, all obligations under the 2020/2021 Notes had been fully paid and satisfied, and the 2020/2021 Notes related indenture had been terminated in accordance with its terms at maturity on December 31, 2020. During the year ended December 31, 2020, the Company recognized an approximately $1.9 million loss on the conversion of the 2020/21 Notes into common stock within the Consolidated Statements of Operations as a result of the make-whole payments.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
15. Equity Incentive Plans
2010 Stock Incentive Plan. In February 2011, the Company’s stockholders approved the Gevo, Inc. 2010 Stock Incentive Plan (as amended and restated, the "2010 Plan"). The 2010 Plan provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units and other equity awards to employees and directors of the Company. On June 9, 2021, with the approval of the shareholders, the 2010 Plan was amended and restated, which increased the number of shares of common stock reserved for issuance to a total of 22,980,074 shares. At December 31, 2021, 8,672,529 shares were available for future issuance under the 2010 Plan.
Restricted common stock activity during the year ended December 31, 2021 consisted of the following:
Period | | Total Number of Restricted Shares Issued | | | | Total Number of Non-Qualified Stock Options Granted | | | Vesting Periods Years | |
| | | | | | | | | | | | |
January 1, 2021 to March 31, 2021 | | (121,499 | ) | (1) | | — | | | | N/A | | |
April 1, 2021 to June 30, 2021 | | (89,673 | ) | (2)(3) | | — | | | 0 | to | 4 | |
July 1, 2021 to September 30, 2021 | | 3,915,502 | | (2)(4)(6) | | 4,668,727 | (5)(7) | | 2 | to | 3 | |
October 1, 2021 to December 31, 2021 | | 108,685 | | (2)(6)(8) | | 76,089 | (7)(9) | | 2 | to | 4 | |
| | | | | | | | | | | | |
Total | | 3,813,015 | | | | 4,744,816 | | | | | | |
(1) | Includes shares of common stock cancelled related to unvested restricted stock awards of a director and an employee who resigned. |
(2) | Includes shares withheld from employees to cover tax withholding obligations upon the vesting of restricted stock awards. |
(3) | Includes restricted stock awards granted to employees April 7, 2021, May 3, 2021 and June 7, 2021. |
(4) | Includes restricted stock awards granted to employees and directors on August 20, 2021. |
(5) | Includes non-qualified stock options granted to employees and directors on August 20, 2021. |
(6) | Includes shares of common stock cancelled related to the unvested restricted stock awards of certain employees. |
(7) | Includes non-qualified stock options canceled related to unvested stock option awards granted to employees. |
(8) | Includes restricted stock awards granted to employees on December 10, 2021, December 13, 2021, December 16, 2021 and December 30, 2021. |
(9) | Includes non-qualified stock options granted to employees on December 10, 2021, December 13, 2021, December 16, 2021 and December 30,2021. |
Employee Stock Purchase Plan. In February 2011, the Company’s stockholders approved the ESPP. The offering periods for the ESPP are from January 1 to June 30 and from July 1 to December 31 of each calendar year. The Company has reserved 190 shares of common stock for issuance under the ESPP, of which 190 shares as of December 31, 2021 are available for future issuance. The purchase price of the common stock under the ESPP is 85% of the lower of the fair market value of a share of common stock on the first or last day of the purchase period. There were no purchases of common stock under the ESPP during 2021.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
16. Stock-Based Compensation
Stock-Based Compensation Expense. The Company records stock-based compensation expense during the requisite service period for share-based payment awards granted to employees and non-employees.
The following table sets forth the Company’s stock-based compensation expense (in thousands):
| Year Ended December 31, | |
| 2021 | | | 2020 | | | 2019 | |
Equity Classified Awards | | | | | | | | | | | |
Stock options | | | | | | | | | | | |
Cost of goods sold | $ | 16 | | | $ | — | | | $ | — | |
Research and development | | 681 | | | | — | | | | — | |
Selling, general and administrative | | 1,990 | | | | — | | | | — | |
| | | | | | | | | | | |
Restricted stock awards | | | | | | | | | | | |
Cost of goods sold | | 27 | | | | — | | | | — | |
Research and development | | 1,345 | | | | 481 | | | | 228 | |
Selling, general and administrative | | 3,641 | | | | 1,620 | | | | 993 | |
| | | | | | | | | | | |
Total equity classified awards | | 7,700 | | | | 2,101 | | | | 1,221 | |
| | | | | | | | | | | |
Liability Classified Awards | | | | | | | | | | | |
Restricted stock | | | | | | | | | | | |
Selling, general and administrative | | 2,165 | | | | — | | | | — | |
| | | | | | | | | | | |
Stock appreciation rights | | | | | | | | | | | |
Research and Development | | 9 | | | | 137 | | | | 66 | |
Selling, general and administrative | | — | | | | (113 | ) | | | 62 | |
| | | | | | | | | | | |
Total liability classified awards | | 2,174 | | | | 24 | | | | 128 | |
| | | | | | | | | | | |
Total stock-based compensation | $ | 9,874 | | | $ | 2,125 | | | $ | 1,349 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Stock Option Award Activity. Stock option activity under the Company’s option plans at December 31, 2021 and changes during the year ended December 31, 2021 were as follows.
| | | | | | | | | | Weighted- | | | | | |
| | | | | | | | | | Average | | | | | |
| | | | | | Weighted- | | | Remaining | | | | | |
| | | | | | Average | | | Contractual | | | Aggregate | |
| | Number of | | | Exercise | | | Term | | | Intrinsic | |
| | Options | | | Price (1) | | | (years) | | | Value | |
| | | | | | | | | | | | | | | | |
Options outstanding at December 31, 2020 | | | 1,552 | | | $ | 556.13 | | | | 5.6 | | | $ | — | |
Granted | | | 4,762,004 | | | $ | 4.63 | | | | | | | | | |
Canceled or forfeited | | | (17,188 | ) | | $ | 5,693.43 | | | | | | | | | |
Exercised | | | — | | | $ | — | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Options outstanding at December 31, 2021 | | | 4,746,368 | | | $ | 5.11 | | | | 9.6 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Options exercisable at December 31, 2021 | | | 1,515 | | | $ | 429.54 | | | | 4.6 | | | $ | — | |
| | | | | | | | | | | | | | | | |
Options vested and expected to vest at December 31, 2021 | | | 4,746,368 | | | $ | 5.11 | | | | 9.6 | | | $ | — | |
| (1) | Exercise price of options outstanding range from $4 to $56,460 as of December 31, 2021. |
The aggregate intrinsic values in the table above represent the total pretax intrinsic values (the difference between the closing price of Gevo’s common stock on the last trading day of the 2021 calendar year and the exercise price, multiplied by the number of in-the-money stock option shares) that would have been received by the option holders had all in-the-money outstanding stock options been exercised on December 31, 2021.
No stock options vested during the year ended December 31, 2021. As of December 31, 2021, the total unrecognized compensation expense, net of estimated forfeitures, relating to stock options was $19.1 million, which is expected to be recognized over the remaining weighted-average period of approximately 2.6 years.
The following table sets forth the minimum and maximum Black-Scholes option pricing model assumptions and resulting grant date fair value for the stock options granted during the year ended December 31, 2021:
| Grant Date (1) | |
| | | | | | | |
Exercise price | $ | 4.42 | | to | $ | 5.38 | |
Risk-free interest rate | | 0.87 | % | to | | 1.36 | % |
Expected dividend yield | | — | | to | | — | |
Expected volatility factor | | 141 | % | to | | 142 | % |
Expected option life (years) | | 5.75 | | to | | 6.0 | |
Weighted-average fair value | $ | 4.06 | | | $ | 4.95 | |
| (1) | There were no grants of stock options during the years ended December 31, 2020 and 2019. |
There is a maximum contractual term of ten years for the share options. The Company settles stock option exercises with newly issued common shares. No tax benefits were realized by the Company in connection with these exercises as the Company maintains net operating loss carryforwards and has established a valuation allowance against the entire tax benefit.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Restricted Stock. The Company periodically grants restricted stock awards to employees and directors. The vesting period for restricted stock awards granted may be based upon a service period or based upon the attainment of performance objectives. The Company recognizes stock-based compensation over the vesting period, generally two to three years, for awards that vest based upon a service period.
Non-vested restricted stock awards at December 31, 2021 and changes during the year ended December 31, 2021 were as follows.
| | | | | | Weighted- | |
| | | | | | Average | |
| | Number of | | | Grant-Date | |
| | Shares | | | Fair Value | |
| | | | | | | | |
Non-vested at December 31, 2020 | | | 4,701,556 | | | $ | 0.79 | |
Granted | | | 4,955,693 | | | $ | 5.08 | |
Vested | | | (2,625,259 | ) | | $ | 1.04 | |
Canceled or forfeited | | | (149,488 | ) | | $ | 1.31 | |
| | | | | | | | |
Non-vested at December 31, 2021 | | | 6,882,502 | | | $ | 3.77 | |
The total fair value of restricted stock that vested during the years ended December 31, 2021, 2020 and 2019 was $2.8 million, $1.5 million and $0.7 million, respectively. As of December 31, 2021, the total unrecognized compensation expense, net of estimated forfeitures, relating to restricted stock awards was $22.5 million, which is expected to be recognized over the remaining weighted-average period of approximately 2.4 years.
Stock Appreciation Rights. The Company granted 67,739 stock appreciation rights valued at an aggregate of $0.6 million on the respective dates of grant during the year ended December 31, 2018. The vesting period for stock appreciation rights granted are based upon a service period. The stock appreciation rights have the potential to be cash settled in the event there are insufficient shares available from the 2010 Plan and are therefore classified as a liability and remeasured at each reporting period based on the price of the Company's common stock.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
17. Income Taxes
As of December 31, 2021, the Company has a federal and state net operating loss (“NOL”) carryover of approximately $122.5 million and $64.3 million, respectively, available to offset future income for income tax reporting purposes. The Company’s ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382. A limitation may apply to the use of the net operation loss and credit carryforwards, under provisions of the Internal Revenue Code that are applicable if we experience an “ownership change”. That may occur, for example, as a result of trading in our stock by significant investors as well as issuance of new equity. Should these limitations apply, the carryforwards would be subject to an annual limitation resulting in a substantial reduction in the gross deferred tax.
We periodically evaluate our NOL carryforwards and whether certain changes in ownership have occurred that would limit our ability to utilize a portion of our NOL and tax credit carryforwards. We have evaluated whether we experienced an ownership change, as defined under Section 382, and determined that an ownership change did occur as of July 9, 2020 and January 22, 2021. NOL carryovers of approximately $66.2 million subject to the July 9, 2020 ownership change date are subject to a base $0.1 million annual limitation for each year following said ownership change. The Company will be able to utilize the annual limitation of the net operating loss carryforwards to offset future taxable incomes. NOL carryovers of approximately $17.9 million that occurred between the July 9, 2020 and January 22, 2021 ownership change dates are subject to a base $11.9 million annual limitation for each year following said ownership change.
The following table sets forth the tax effects of temporary differences that give rise to significant portions of the Company’s net deferred tax assets (in thousands):
| December 31, | |
| 2021 | | | 2020 | |
Deferred tax assets, net: | | | | | | | |
Net operating loss carryforwards | $ | 29,277 | | | $ | 15,406 | |
Operating lease assets | | (7,881 | ) | | | (82 | ) |
Operating lease liabilities | | 8,086 | | | | 88 | |
Depreciation | | 3,840 | | | | 3,427 | |
Restricted stock | | 1,146 | | | | 992 | |
Business interest expense | | 1,165 | | | | 1,441 | |
Other temporary differences | | 886 | | | | 321 | |
| | | | | | | |
Deferred tax assets | | 36,519 | | | | 21,593 | |
Valuation allowance | | (36,519 | ) | | | (21,593 | ) |
| | | | | | | |
Net deferred tax assets | $ | — | | | $ | — | |
The Company recognizes uncertain tax positions net, against any operating losses or applicable research credits as they arise. Currently, there are no uncertain tax positions recognized at December 31, 2021 and 2020, respectively.
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Based on management’s review of both the positive and negative evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting results, we have concluded that it is not more likely than not that we will be able to realize all of our U.S. deferred tax assets. Therefore, we have provided a full valuation allowance against deferred tax assets at December 31, 2021 and 2020, respectively.
The following table sets forth reconciling items from income tax computed at the statutory federal rate:
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | | | | | | | | | | | |
Federal income tax at statutory rate | | | 21.0 | % | | | 21.0 | % | | | 21.0 | % |
State income taxes, net of federal benefits | | | 3.8 | % | | | 4.1 | % | | | 7.0 | % |
Impact of change in statutory tax rates | | | — | | | | (0.8 | %) | | | (0.2 | %) |
Impact of NOL write-offs | | | — | | | | (250.4 | %) | | | — | |
Impact of Research and Development credit write-off | | | — | | | | (8.7 | %) | | | — | |
Permanent deductions | | | 0.3 | % | | | (5.3 | %) | | | (0.1 | %) |
Valuation allowance | | | (25.2 | )% | | | 240.1 | % | | | (27.7 | %) |
| | | | | | | | | | | | |
Effective tax rate | | | — | % | | | — | % | | | — | % |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
Accounting literature regarding liabilities for unrecognized tax benefits provides guidance for the recognition and measurement in financial statements of uncertain tax positions taken or expected to be taken in a tax return. The Company’s evaluation was performed for the tax periods from inception to December 31, 2021. The Company is subject to examination by major tax jurisdictions for the years ended December 31, 2016 to 2021.
18. Employee Benefit Plan
The Company’s employees participate in the Gevo, Inc. 401(k) Plan (the "401(k) Plan"). Subject to certain eligibility requirements, the 401(k) Plan covers substantially all employees after three months of service with quarterly entry dates. Employee contributions are deposited by the Company into the 401(k) Plan and may not exceed the maximum statutory contribution amount. The Company may make matching and/or discretionary contributions to the 401(k) Plan. The Company did not provide an employer match during the years ended December 31, 2021, 2020 or 2019.
19. Commitments and Contingencies
Legal Matters. From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of its business. The Company is not aware of any pending or threatened litigation against the Company that it believes could have a material adverse effect on its business, operating results, financial condition or cash flows.
Indemnifications. In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions. As of December 31, 2021 and 2020, the Company did not have any liabilities associated with indemnities.
In addition, the Company, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The duration of these indemnifications, commitments, and guarantees varies and, in certain cases, is indefinite. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.
Environmental Liabilities. The Company’s operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company’s liability is probable, and the costs can be reasonably estimated. No environmental liabilities have been recorded as of December 31, 2021.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
20. Fair Value Measurements and Fair Value of Financial Instruments
The carrying value and fair value, by fair value hierarchy, of the Company's financial instruments at December 31, 2021 and 2020 are as follows (in thousands):
| | | | | | Fair Value Measurements at December 31, 2021 | |
| | Fair Value at December 31, 2021 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
Recurring | | | | | | | | | | | | | | | | |
Marketable securities | | | | | | | | | | | | | | | | |
U.S. Treasury notes | | $ | 225,792 | | | $ | 225,792 | | | $ | — | | | $ | — | |
U.S. Government sponsored enterprise securities | | | 113,944 | | | | 113,944 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | |
Liability-classified restricted stock awards | | | 702 | | | | 702 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total recurring | | $ | 340,438 | | | $ | 340,438 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | |
Nonrecurring | | | | | | | | | | | | | | | | |
Corn and palladium inventory | | $ | 566 | | | $ | 566 | | | $ | — | | | $ | — | |
| | | | | | Fair Value Measurements at December 31, 2020 | |
| | Fair Value at December 31, 2020 | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| | | | | | | | | | | | | | | | |
Nonrecurring | | | | | | | | | | | | | | | | |
Finished goods inventory | | $ | 866 | | | $ | 235 | | | $ | 631 | | | $ | — | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The following table summarizes the Company's investments in marketable securities as of December 31, 2021 (none at December 31, 2020) (in thousands):
| Maturity | | Amortized Cost Basis | | | Gross Unrealized Losses | | | Fair Value | |
Short-term marketable securities | | | | | | | | | | | | | |
U.S. Treasury notes | Within one year | | $ | 226,136 | | | $ | (344 | ) | | $ | 225,792 | |
U.S. Government-sponsored enterprise securities | Within one year | | | 49,618 | | | | (70 | ) | | | 49,548 | |
| | | | | | | | | | | | | |
Total | | $ | 275,754 | | | $ | (414 | ) | | $ | 275,340 | |
| | | | | | | | | | | | | |
Long-term marketable securities | | | | | | | | | | | | | |
U.S. Government-sponsored enterprise securities | Within two years | | $ | 64,596 | | | $ | (200 | ) | | $ | 64,396 | |
| | | | | | | | | | | | | |
There were no transfers between Level 1 and Level 2 inputs. There were no transfers in or out of Level 3 inputs. There were no issuances, purchases, sales or settlements of Level 3 inputs during the year ended December 31, 2021 or 2020.
For the 2021 Bonds, the fair values are estimated using the Black-Derman-Toy interest rate lattice framework. The carrying values and estimated fair values of the 2021 bonds as of December 31, 2021 are summarized as follows:
| Carrying Value | | | Estimated Fair Value | |
| | | | | | | |
2021 Bonds | $ | 68,155 | | | $ | 68,380 | |
Fair Value Methodology
Inventories. The Company records its corn and palladium inventory at net realizable value only when the Company’s cost of corn and palladium purchased exceeds the market value for corn. The Company determines the market value of corn and palladium based upon Level 1 inputs using quoted market prices.
Marketable Securities. The Company's investments in marketable securities are stated at fair value and are available-for-sale.
The Company has not elected the fair value option for any of its instruments.
While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
21. Segments
The Company's chief operating decision maker is provided with and reviews a monthly executive package which separately identifies its business segments based on the nature of the products and services offered through each of its consolidated legal entities. In January 2021, the Company began to separately identify the Renewal Natural Gas segment and Net-Zero segment in the monthly executive package. As such, the Company has determined that it has four operating segments: (i) Gevo segment; (ii) Agri-Energy segment; (iii) Renewable Natural Gas segment; and (iv) Net-Zero segment. Transactions between segments are eliminated in consolidation.
Gevo Segment. The Gevo segment is responsible for all research and development activities related to the future production of renewable hydrocarbons, including the development of our proprietary biocatalysts, the production and sale of SAF and the next generation of chemicals and biofuels that will be based on the Company’s isobutanol technology. The Gevo segment also develops, maintains and protects its intellectual property portfolio, develops future markets for its renewable hydrocarbons and provides corporate oversight services.
Agri-Energy Segment. The Agri-Energy segment is currently responsible for the operation of the Company's Luverne Facility and the current production of isobutanol, ethanol and related products. Isobutanol production will be used as a feedstock for us to produce SAF and renewable premium gasoline to fulfill existing sales contracts.
Renewable Natural Gas Segment. The Renewable Natural Gas segment is nearing completion of its construction and commissioning and is expected to produce low-carbon methane from the manure of cows and pigs for the production of energy.
Net-Zero Segment. The Net-Zero segment will be responsible for the production of energy dense liquid hydrocarbons using renewable energy and proprietary technology at Gevo's Net Zero Projects.
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
The Company’s chief operating decision maker is provided with and reviews the financial results of each of the Company’s consolidated legal entities, Gevo, Inc., Gevo Asset, LLC, Gevo RNG Holdco, LLC, Gevo NW Iowa RNG, LLC, Gevo Net-Zero Holdco, LLC, Gevo Net-Zero 1, LLC and Agri-Energy, LLC. The Company organizes its business segments based on the nature of the products and services offered through each of its consolidated legal entities. All revenue is earned and all assets are held in the U.S.
| Year Ended December 31, | |
| 2021 | | | 2020 | | | 2019 | |
| (In thousands) | |
Revenues from external customers | | | | | | | | | | | |
Gevo | $ | 483 | | | $ | 1,650 | | | $ | 2,338 | |
Agri-Energy | | 228 | | | | 3,886 | | | | 22,149 | |
Renewable Natural Gas | | — | | | | — | | | | — | |
Net-Zero | | — | | | | — | | | | — | |
| | | | | | | | | | | |
Consolidated | $ | 711 | | | $ | 5,536 | | | $ | 24,487 | |
| | | | | | | | | | | |
Loss from operations | | | | | | | | | | | |
Gevo | $ | (33,080 | ) | | $ | (13,215 | ) | | $ | (12,360 | ) |
Agri-Energy | | (16,605 | ) | | | (12,047 | ) | | | (13,995 | ) |
Renewable Natural Gas | | (1,153 | ) | | | (1,294 | ) | | | — | |
Net-Zero | | (9,252 | ) | | | (405 | ) | | | — | |
| | | | | | | | | | | |
Consolidated | $ | (60,090 | ) | | $ | (26,961 | ) | | $ | (26,355 | ) |
| | | | | | | | | | | |
Interest expense | | | | | | | | | | | |
Gevo | $ | 67 | | | $ | 2,075 | | | $ | 2,738 | |
Agri-Energy | | 17 | | | | 19 | | | | — | |
Renewable Natural Gas | | 167 | | | | — | | | | — | |
Net-Zero | | — | | | | — | | | | — | |
| | | | | | | | | | | |
Consolidated | $ | 251 | | | $ | 2,094 | | | $ | 2,738 | |
| | | | | | | | | | | |
Depreciation and amortization expense | | | | | | | | | | | |
Gevo | $ | 650 | | | $ | 214 | | | $ | 210 | |
Agri-Energy | | 4,475 | | | | 5,690 | | | | 6,446 | |
Renewable Natural Gas | | 3 | | | | — | | | | — | |
Net-Zero | | — | | | | — | | | | — | |
| | | | | | | | | | | |
Consolidated | $ | 5,128 | | | $ | 5,904 | | | $ | 6,656 | |
| | | | | | | | | | | |
Acquisitions of licenses, patents, plant, property and equipment | | | | | | | | | | | |
Gevo | $ | 10,799 | | | $ | 4,501 | | | $ | 130 | |
Agri-Energy | | 5,716 | | | | 1,716 | | | | 6,367 | |
Renewable Natural Gas | | 52,470 | | | | — | | | | — | |
Net-Zero | | 25,796 | | | | — | | | | — | |
| | | | | | | | | | | |
Consolidated | $ | 94,781 | | | $ | 6,217 | | | $ | 6,497 | |
| | | | | | | | | | | |
Revenue by geographic area | | | | | | | | | | | |
United States | $ | 322 | | | $ | 4,082 | | | $ | 22,149 | |
Other | | 389 | | | | 1,454 | | | | 2,338 | |
| | | | | | | | | | | |
Consolidated | $ | 711 | | | $ | 5,536 | | | $ | 24,487 | |
GEVO, INC.
Notes to Consolidated Financial Statements (Continued)
| | December 31, | |
| | 2021 | | | 2020 | |
Construction in Process | | | | | | | | |
Gevo | | $ | 442 | | | $ | 8 | |
Agri-Energy | | | 9,122 | | | | 8,645 | |
Renewable Natural Gas | | | 56,879 | | | | 4,479 | |
Net-Zero | | | 22,546 | | | | — | |
| | | | | | | | |
Consolidated | | $ | 88,989 | | | $ | 13,132 | |
| | December 31, | |
| | 2021 | | | 2020 | |
Total assets | | | | | | | | |
Gevo | | $ | 555,877 | | | $ | 152,177 | |
Agri-Energy | | | 153,494 | | | | 131,893 | |
Renewable Natural Gas | | | 116,644 | | | | — | |
Net-Zero | | | 44,763 | | | | — | |
Intercompany eliminations (1) | | | (204,302 | ) | | | (131,971 | ) |
| | | | | | | | |
Consolidated (2) | | $ | 666,476 | | | $ | 152,099 | |
| (1) | Includes intercompany sales of nil and $0.1 million during the years ended December 31, 2021 and 2020, respectively, for hydrocarbon sales. |
| (2) | All other significant non-cash items relate to the activities of Gevo. |
22. Subsequent Events
On January 27, 2022, the Company’s stockholders voted approved to amend the Certificate of Incorporation to increase the total number of authorized shares of common stock from 250,000,000 shares to 500,000,000 shares.
On February 7, 2022, an incident occurred at one of the anaerobic digesters that is part of Gevo's RNG project that resulted in the accidental discharge of a mixture of water and manure into the environment. The Company promptly notified the Iowa Department of Natural Resources (the "DNR") and began mitigation work to minimize the impact of the discharge. The DNR has issued Gevo a notice of violation in connection with the discharge. There is a possibility that the Iowa Department of Natural Resources will initiate an enforcement action that could result in a monetary sanction against Gevo for the accidental discharge. Gevo does not believe that any such monetary sanction would be material or exceed $300,000.