Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used anywhere in this Report, the words “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. These statements relate to future events or our future financial or operational performance and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. These forward-looking statements include, among other things, statements about: the impact of the novel coronavirus ("COVID-19") pandemic on our business, our financial condition, our results of operation and liquidity, risks and uncertainties related to our ability to sell our products, our ability to expand or continue production of our products at our Net-Zero 1 Project (as defined below), our production facility in Luverne, Minnesota (the “Luverne Facility”) or elsewhere, our ability to meet production, financial and operational guidance, our strategy to pursue low-carbon or "net-zero" carbon renewable fuels for sale into California and elsewhere, our ability to replace our fossil-based energy sources with renewable energy sources at our Net-Zero 1 Project, our Luverne Facility and elsewhere, our ability and plans to construct a greenfield commercial hydrocarbon facility to produce sustainable aviation fuel ("SAF") and renewable premium gasoline/isooctane, our ability to raise additional funds to finance our business, our ability to perform under our existing offtake agreements and other supply agreements we may enter into in the future, our ability to develop our renewable natural gas ("RNG") projects, our ability to produce isobutanol and renewable hydrocarbon products at a commercial level and at a profit, achievement of advances in our technology platform, the availability of suitable and cost-competitive feedstocks, our ability to gain market acceptance for our products, the expected cost-competitiveness and relative performance attributes of our products, additional competition and changes in economic conditions and the future price and volatility of petroleum and products derived from petroleum. Important factors could cause actual results to differ materially from those indicated or implied by forward-looking statements such as those contained in documents we have filed with the U.S. Securities and Exchange Commission (the “SEC”), including this Report in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our Annual Report on Form 10-K for the year ended December 31, 2020 (our “Annual Report”), including Item 1A. "Risk Factors" of our Annual Report and subsequent reports on Form 10-Q. All forward-looking statements in this Report are qualified entirely by the cautionary statements included in this Report and such other filings. These risks and uncertainties or other important factors could cause actual results to differ materially from results expressed or implied by forward-looking statements contained in this Report. These forward-looking statements speak only as of the date of this Report. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and readers should not rely on the forward-looking statements as representing the Company’s views as of any date subsequent to the date of the filing of this Report.
Unless the context requires otherwise, in this Report the terms “we,” “us,” “our” and the “Company” refer to Gevo, Inc. and its subsidiaries.
The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes and other financial information appearing elsewhere in this Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including, without limitation, the disclosures in our Annual Report.
Company Overview
We are a growth-oriented renewable fuels technology and development company that is commercializing the next generation of renewable low-carbon liquid transportation fuels, such as sustainable aviation fuel and renewable isooctane (which we refer to as “renewable premium gasoline”), with the potential to achieve a “net zero” greenhouse gas ("GHG") footprint and address global needs of reducing GHG emissions with sustainable alternatives to petroleum fuels. Our technology transforms carbon from the atmosphere using photosynthetic energy, wind energy and biogas energy into liquid hydrocarbons with a low or potentially “net-zero” GHG footprint.
As next generation renewable fuels, our hydrocarbon transportation fuels have the advantage of being “drop-in” substitutes for conventional fuels that are derived from crude oil, working seamlessly and without modification in existing fossil-fuel based engines, supply chains and storage infrastructure. In addition, with sustainable aviation fuel ("SAF"), the carbon footprint of air travel can be reduced, or in the long run, eliminated on a net carbon basis, without change to planes or fuel systems. In addition to the potential of net-zero carbon emissions across the whole fuel life-cycle, our renewable fuels eliminate other pollutants associated with the burning of traditional fossil fuels such as particulates and sulfur, while delivering superior performance. We believe that the world is substantially under-supplied with low-carbon, drop-in renewable fuels that can be immediately used in existing transportation engines and infrastructure, and we are uniquely positioned to grow in serving that demand.
We use low-carbon, renewable resource-based raw materials as feedstocks. In the near-term, our feedstocks will primarily consist of non-food corn residuals. As our technology is applied globally, feedstocks can consist of sugar cane, molasses or cellulosic sugars derived from wood, agricultural residues and waste. Our patented fermentation yeast biocatalyst produces isobutanol, a four-carbon alcohol, via the fermentation of renewable plant biomass carbohydrates. The resulting renewable isobutanol has a variety of direct applications but, more importantly to our fundamental strategy, serves as a building block to make renewable isooctane (which we refer to as renewable premium gasoline), SAF, and other fuels and chemicals using simple and common chemical conversion processes. We also plan to reduce or eliminate fossil-based process energy inputs by replacing them with renewable energy such as wind-powered electricity and RNG.
Our technology represents a new generation of renewable fuel technology that overcomes the limitations of first-generation renewable fuels.
Renewable Natural Gas Projects
In 2019, we began developing RNG projects. Animal manure can be digested anaerobically to produce RNG. RNG has value in markets such as California as well as in Gevo’s hydrocarbon production process by helping us achieve carbon negative GHG emissions on our renewable hydrocarbon products. The end products resulting from such a decarbonization process have lower carbon intensity scores and increased market value, in addition to having a more positive impact on the environment. We expect that Gevo NW Iowa RNG, LLC (“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. When fully operational, the Gevo RNG project is expected to generate approximately 355,000 MMBtu of RNG per year. Gevo is working with a major RNG dispenser to finalize an agreement to sell the RNG into the California market. We expect RNG sale revenues will benefit from California’s Low Carbon Fuel Standard program and the U.S. Environmental Protection Agency’s Renewable Identification Number program. We financed the construction of the Gevo RNG project in April 2021 with the $68,155,000 of Solid Waste Facility Revenue Bonds (Gevo NW Iowa RNG, LLC Renewable Natural Gas Project), Series 2021 (Green Bonds) (the “2021 Bonds”) issued by the Iowa Finance Authority in a public offering for the benefit of Gevo RNG and we expect to construct the project in 2021. See “Recent Developments – 2021 Bonds” below for additional information. The Gevo RNG project is expected to begin producing RNG in 2022.
Net-Zero Projects
In early 2021, we announced the concept of “Net-Zero Projects” as a series of facilities for the production of energy dense liquid hydrocarbons using renewable energy and our proprietary technology. The concept of a Net-Zero Project is to convert renewable energy (photosynthetic, wind, renewable natural gas, biogas) from a variety of sources into energy dense liquid hydrocarbons, that when burned in traditional engines, have the potential to achieve net-zero GHG emissions across the whole lifecycle of the liquid fuel: from the way carbon is captured from the atmosphere, processed to make liquid fuel products, and including the end use (burning as a fuel for cars, planes, trucks, and ships). We announced that our initial Net-Zero project (“Net-Zero 1” Project) is currently planned to be constructed at Lake Preston, South Dakota. We expect that the Net-Zero 1 Project will have the capability to produce liquid hydrocarbons that when burned have a “net-zero” greenhouse gas footprint. We currently expect the Net-Zero 1 Project to have a capacity of approximately 45 MGPY of hydrocarbons (for renewable premium gasoline and SAF, backed by our current portfolio of take-or-pay contracts), to produce more than 300,000,000 pounds per year of high protein feed products for use in the food chain, to produce enough renewable natural gas to be self-sufficient for the production process needs, and also to generate renewable electricity with a combined heat and power system. We also expect that the Net-Zero 1 Project will utilize wind energy. Based on current engineering work completed to date, the unleveraged capital cost for the Net-Zero 1 Project is projected to be approximately $650 million including: (i) hydrocarbon production facility engineering, procurement and construction costs under a lump-sum turnkey format, (ii) related renewable energy infrastructure comprised of thin-stillage anaerobic digestion to produce internally-consumed biogas and a combined heat and power facility, (iii) pre-construction engineering costs, (iv) technology licensing costs, (v) development, land, permitting and environmental costs, (vi) outside-the-battery-limit capital expenditures, (vii) full plant staffing and training costs, and (viii) startup and commissioning costs.
Recent Developments
Lake Preston Site. On December 21, 2020, we announced that we optioned the right to purchase approximately 240 acres of land near Lake Preston, South Dakota (the “Lake Preston Site”). The Lake Preston Site is expected to be the location of the Net-Zero 1 Project. On March 24, 2021, we exercised our right to extend the option on the Lake Preston site until December 2022. We intend to make a decision on whether to exercise the purchase option on the Lake Preston Site in the future as part of the Net-Zero 1 financial close.
January 2021 Offering. On January 19, 2021, we completed a registered direct offering of common stock priced at-the-market under Nasdaq rules of an aggregate of 43,750,000 shares of common stock at a purchase price of $8.00 per share. After deducting placement agent’s fees, advisory fees and other offering expenses payable by us, we received net proceeds of approximately $321.9 million.
At-the-Market Offering Program. During the three months ended March 31, 2021, we 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.
2021 Bonds. On April 15, 2021, Gevo closed the 2021 Bonds offering to finance the construction the Gevo RNG project.
The proceeds of the 2021 Bonds offering, combined with Gevo equity, will be used to finance (1) the construction of the Gevo RNG project which is comprised of (A) three anaerobic digesters and related equipment situated on dairy farms located 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 RNG and interconnect to Northern Natural Gas’ interstate pipeline, and (D) other related improvements; (2) to capitalize a portion of the interest due on the bonds during the construction period; and (3) to pay a portion of the costs of issuing the bonds.
PPP Loan Forgiveness. 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 Small Business Administration's Paycheck Protection Program ("SBA PPP"). The remaining SBA PPP loan for Agri-Energy totals $0.4 million bears interest at 1.0% and matures in April 2025.
COVID-19
The 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 has also resulted in increased travel restrictions and extended shutdowns of businesses in various industries including, among others, the airline industry, and significantly reduced overall economic output. It is possible that that the impact of the COVID-19 pandemic on general economic activity could continue to negatively impact our revenue and operating results for 2021 and beyond. In light of the current and potential future disruption to our business operations and those of its customers, suppliers and other third parties with whom we do business, we considered the impact of the COVID-19 pandemic on our business. The impact of the COVID-19 pandemic on the global transportation industry could continue to result in less demand for our transportation fuel products, which could have a material adverse effect on our business, financial condition and our prospects for the foreseeable future.
During the first quarter of 2020, we suspended our ethanol production at the Luverne Facility due to COVID-19 and an unfavorable commodity environment, largely the result of greater corn costs as compared to national markets than the region has historically produced. The suspension of ethanol production and reduction in our workforce that occurred during the first quarter of 2020 due to the impact of COVID-19 had an adverse impact on our financial results for the three months ended March 31, 2021 reducing revenue by 98% compared to the three months ended March 31, 2020. There is also a risk that COVID-19 could have a material adverse impact on the development of our Net-Zero 1 Project, customer demand and cash flow, depending on the extent of our future production activities.
Financial Condition
We have incurred consolidated net losses since inception and we had a significant accumulated deficit as of March 31, 2021. Our cash and cash equivalents at March 31, 2021 totaled $525.3 million, which is primarily being used for the following: (i) development of the Luverne Facility expansion plan; (ii) identification of new production facilities and to plan for expanded production to fulfill existing off-take agreements; (iii) operating activities at the Company’s corporate headquarters in Colorado, including research and development work; (iv) development expenses associated with our RNG projects; (v) exploration of strategic alternatives and additional financings, including project financing; and (vi) future debt service obligations.
The continued operation of our business is dependent upon raising additional capital through future public and private equity offerings, debt financings or through other alternative financing arrangements. In addition, successful completion of our research and development programs and the attainment of profitable operations are dependent upon future events, including our ability to raise sufficient capital to expand our commercial production facility, completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, achieving market acceptance and demand for our products and services and attracting and retaining qualified personnel.
We expect to incur future net losses as we continue to fund the development and commercialization of our products and product candidates. We have primarily relied on raising capital to fund our operations and debt service obligations by issuing common stock and warrants in underwritten public offerings. Those issuances have caused significant dilution to our existing stockholders. While we have sought, and will continue to seek, other, less dilutive forms of financing to fund our operations and debt service obligations, there is no assurance that we will be successful in doing so.
Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our products and product candidates, the achievement of a level of revenues adequate to support our cost structure and securing sufficient financing for the expansion of the Luverne Facility or a facility at another suitable location. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise additional cash. We intend to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, we may seek additional capital through arrangements with strategic partners or from other sources and we will continue to address our cost structure. Notwithstanding, there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations, especially in light of the impact of the COVID-19 pandemic on us and the volatility in the financial markets in general.
Results of Operations
Comparison of the Three Months Ended March 31, 2021 and 2020
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
|
(in thousands)
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
Revenue and cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ethanol sales and related products, net
|
|
$
|
—
|
|
|
$
|
3,700
|
|
|
$
|
(3,700
|
)
|
|
Hydrocarbon revenue
|
|
|
13
|
|
|
|
125
|
|
|
|
(112
|
)
|
|
Other revenue
|
|
|
80
|
|
|
|
—
|
|
|
|
80
|
|
|
Total revenues
|
|
|
93
|
|
|
|
3,825
|
|
|
|
(3,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
1,994
|
|
|
|
8,139
|
|
|
|
(6,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross loss
|
|
|
(1,901
|
)
|
|
|
(4,314
|
)
|
|
|
2,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense
|
|
|
1,378
|
|
|
|
580
|
|
|
|
798
|
|
|
Selling, general and administrative expense
|
|
|
3,872
|
|
|
|
2,627
|
|
|
|
1,245
|
|
|
Preliminary stage project costs
|
|
|
2,727
|
|
|
|
156
|
|
|
|
2,571
|
|
|
Restructuring costs
|
|
|
—
|
|
|
|
299
|
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
7,977
|
|
|
|
3,662
|
|
|
|
4,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(9,878
|
)
|
|
|
(7,976
|
)
|
|
|
(1,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(5
|
)
|
|
|
(545
|
)
|
|
|
540
|
|
|
(Loss) from modification of 2020 Notes
|
|
|
—
|
|
|
|
(669
|
)
|
|
|
669
|
|
|
(Loss) gain from change in fair value of derivative warrant liability
|
|
|
(53
|
)
|
|
|
7
|
|
|
|
(60
|
)
|
|
Loss from change in fair value of 2020/21 Notes and 2020 Notes embedded derivative liability
|
|
|
—
|
|
|
|
(100
|
)
|
|
|
100
|
|
|
Other (expense) income
|
|
|
(121
|
)
|
|
|
30
|
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense), net
|
|
|
(179
|
)
|
|
|
(1,277
|
)
|
|
|
1,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,057
|
)
|
|
$
|
(9,253
|
)
|
|
$
|
(804
|
)
|
Revenue. Revenue from the sale of ethanol, isobutanol and related products for the three months ended March 31, 2021 was $0.1 million, a decrease of $3.7 million compared to the three months ended March 31, 2020. This decrease was the result of terminating ethanol and distiller's grains production at the Luverne Facility in March 2020 as a result of COVID-19 and in response to an unfavorable commodity environment. During the three months ended March 31, 2021, we did not sell any ethanol compared to 2.4 million gallons of ethanol sold in the three months ended March 31, 2020. Our Luverne Facility is not currently producing ethanol but is performing maintenance in preparation for isobutanol production expected to begin in June 2021. Currently, our demonstration plant located at the South Hampton Resources, Inc. facility near Houston, Texas (the “South Hampton Facility”) is not producing renewable premium gasoline or jet fuel. We expect to produce isobutanol in intermittent campaigns during 2021 to supply the South Hampton Facility so that renewable premium gasoline or jet fuel can be produced in 2021.
Hydrocarbon revenues are comprised of SAF, isooctane and isooctene sales. Hydrocarbon sales decreased by $0.1 million during the three months ended March 31, 2021 as a result of decreased shipments of finished products from the South Hampton Facility.
Cost of goods sold. Cost of goods sold was $2.0 million during the three months ended March 31, 2021, compared with $8.1 million during the three months ended March 31, 2020, a decrease of approximately $6.1 million, primarily the result of terminating ethanol production in March 2020 as a result of COVID-19 and in response to an unfavorable commodity environment. Cost of goods sold included approximately $0.9 million associated with the maintenance of the Luverne Facility and approximately $1.1 million in depreciation expense during the three months ended March 31, 2021.
Until the Luverne Facility restarts production, cost of goods sold will primarily be comprised of costs to process SAF, isooctane and isooctene at our South Hampton Facility as well as costs to maintain the Luverne Facility.
Research and development expense. Research and development expense increased by approximately $0.8 million during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to an increase in personnel and consulting expenses.
Selling, general and administrative expense. Selling, general and administrative expense increased by approximately $1.2 million during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to an increase in consulting and personnel expenses.
Preliminary stage project costs. Preliminary stage project costs increased by approximately $2.6 million during the three months ended March 31, 2021, compared with the three months ended March 31, 2020, due primarily to increased consulting and research and development expenses related to our RNG and Net-Zero projects.
Interest expense. Interest expense during the three months ended March 31, 2021 decreased by $0.5 million compared to the three months ended March 31, 2020, due to the conversion of all of our then-outstanding 12% convertible senior secured notes due 2020/2021 (the "2020/21 Notes") to common stock during 2020.
(Loss) from modification of 2020 notes. During the three months ended March 31, 2020, we incurred a $0.7 million of legal and professional fees to modify the 12% Convertible Senior Notes due 2020 (the " 2020 Notes") into the 2020/21 Notes.
(Loss) gain from change in fair value of the 2020/21 Notes and 2020 Notes embedded derivative liability. We incurred no gain (loss) from the change in fair value of the 2020/21 Notes since the 2020/21 Notes were converted to common stock in 2020.
Other (expense) income. Other expense during the three months ended March 31, 2021 was $0.1 million, which is a decrease of $0.2 million compared to the three months ended March 31, 2020, primarily due to the write-off of prepaid finance costs not associated with the final financing transactions.
Sources of Our Revenues
Our revenues are primarily derived from: (i) the sale of isobutanol and related products; (ii) hydrocarbon sales consisting primarily of the sale of SAF and isooctane derived from our isobutanol for purposes of certification and testing; and (iii) government grants and research and development programs.
Principal Components of Our Cost Structure
Cost of Goods Sold. Our cost of goods sold consists primarily of costs directly associated with the production of isobutanol at the Luverne Facility and production of biojet fuel and isooctane at the South Hampton Facility. Such costs include direct materials, direct labor, depreciation, other operating costs and certain plant overhead costs. Direct materials include corn feedstock, denaturant and process chemicals. Direct labor includes compensation of personnel directly involved in production operations at the Luverne Facility. Other operating costs include utilities and natural gas usage.
Research and Development. Our research and development costs consist of expenses incurred to identify, develop and test our technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expenses include personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, depreciation and amortization expense on property, plant and equipment used in product development, license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs.
Selling, General and Administrative. Selling, general and administrative expenses 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, depreciation and amortization expenses on property, plant and equipment not used in our product development programs or recorded in cost of goods sold, travel and relocation expenses and hiring expenses.
Preliminary Stage Project Costs. Preliminary stage project costs consist of research and development expense in addition to selling, general and administrative expenses related to our RNG and Net-Zero projects.
Interest Expense. Our SBA loans had a fixed interest rate of 1%. Our equipment loans had rates between 4% and 5%. Our finance leases had rates between 12% and 21%
Liquidity and Capital Resources
As of March 31, 2021, we had cash and cash equivalents totaling $525.3 million.
Since our inception in 2005, we have devoted most of our cash resources to manufacturing ethanol, isobutanol and related products, research and development and selling, general and administrative activities related to the commercialization of isobutanol, as well as related products from renewable feedstocks. We have incurred losses since inception and expect to incur losses through at least 2022. We have financed our operations primarily with proceeds from multiple sales of equity and debt securities, borrowings under debt facilities and product sales.
The continued operation of our business is dependent upon raising additional capital through future public and private equity offerings, debt financings or through other alternative financing arrangements. In addition, successful completion of our research and development programs and the attainment of profitable operations are dependent upon future events, including our ability to raise sufficient capital to expand our commercial production capabilities, completion of our development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, achieving market acceptance and demand for our products and services and attracting and retaining qualified personnel.
We expect to incur future net losses as we continue to fund the development and commercialization of our products and product candidates. We have primarily relied on raising capital to fund our operations and debt service obligations by issuing common stock and warrants in underwritten public offerings. Those issuances have caused significant dilution to our existing stockholders. While we have sought, and will continue to seek, other, less dilutive forms of financing to fund our operations and debt service obligations, there is no assurance that we will be successful in doing so.
Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our products and product candidates, the achievement of a level of revenues adequate to support our cost structure and securing sufficient financing for the expansion of the Luverne Facility or a Retrofit facility at other suitable locations. We may never achieve profitability or generate positive cash flows, and unless and until we do, we will continue to need to raise additional cash. We intend to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, we may seek additional capital through arrangements with strategic partners or from other sources and we will continue to address our cost structure. Notwithstanding, there can be no assurance that we will be able to raise additional funds or achieve or sustain profitability or positive cash flows from operations.
The Company has incurred consolidated net losses since inception and has a significant accumulated deficit as of March 31, 2021.
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(7,165
|
)
|
|
$
|
(6,975
|
)
|
|
Net cash used in investing activities
|
|
$
|
(4,630
|
)
|
|
$
|
(790
|
)
|
|
Net cash provided by financing activities
|
|
$
|
458,780
|
|
|
$
|
752
|
|
Operating Activities
Our primary uses of cash from operating activities are personnel related expenses and research and development-related expenses including costs incurred under development agreements, costs of licensing of technology, legal-related costs, expenses for production of isobutanol, ethanol and related products, logistics and further processing of isobutanol and ethanol at the Luverne Facility and for the operation of our South Hampton Facility.
During the three months ended March 31, 2021, net cash used for operating activities was $7.2 million compared to $7.0 million for the three months ended March 31, 2020. The $0.2 million increase in operating cash flows was primarily due to increased engineering and development fees on our RNG projects.
During the first quarter of 2020, we suspended our ethanol production at the Luverne Facility due to COVID-19 and an unfavorable commodity environment, largely the result of greater corn costs as compared to national markets than the region has historically produced. We are currently maintaining the Luverne Facility in preparation for isobutanol production expected to begin in June 2021.
We currently plan to spend approximately $45 million for engineering, development, long-lead equipment deposits, and debt financing costs over the next 12 months for the Net-Zero 1 Project.
Investing Activities
During the three months ended March 31, 2021, we used $4.6 million in cash for investing activities, substantially all of which related to construction in process attributable to the Gevo RNG project. We are constructing the Gevo RNG project in 2021 and expect to invest approximately $5 million of construction equity alongside debt proceeds from the 2021 Bonds to complete the project.
Financing Activities
During the three months ended March 31, 2021, we generated $458.8 million in cash from financing activities, which primarily consisted of $135.8 million of net proceeds under our "at-the-market" offering program and receiving $321.9 million from the sale of common stock and warrants in the January 2021 Offering.
During the three months ended March 31, 2021, we received notices of exercise from holders of our Series 2020-A Warrants to issue an aggregate of 1,863,058 shares of common stock for total gross proceeds of approximately $1.1 million. Following these exercises, Series 2020-A Warrants to purchase 94,108 shares of our common stock remain outstanding at an exercise price of $0.60 per share.
At-the-Market Offering Program. In December 2020, the at-the-market offering program was amended to provide available capacity of $150.0 million.
During the three months ended March 31, 2021, we 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. As of March 31, 2021, we have remaining capacity to issue up to approximately $10.6 million of common stock under the at-the-market offering program.
Finance Leases. The financing leases pay interest between 12% and 21%, have total annual payments of $0.03 million with minimal monthly payments and mature at various dates through December 2040.
Loans Payable - Other. The equipment notes pay interest between 4% and 5%, have total monthly payments of $0.01 million and mature at various dates through December 2024. 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 Small Business Administration's Paycheck Protection Program (“SBA PPP”) totaling $1.0 million in the aggregate (the "SBA Loans"). The SBA Loans are subject to the potential for partial or full loan forgiveness as dictated by U.S. federal law. Principal and interest are deferred until August 2021 and interest continues to accrue during the deferral period. The SBA Loans are payable monthly beginning August 5, 2021, with aggregate payments totaling $0.06 million per month, including interest and principal. The SBA Loans are subject to partial or full forgiveness for the initial 24-week period following the loan disbursement if all proceeds are used for eligible purposes and within certain thresholds, the Company maintains certain employment levels and the Company maintains certain compensation levels.
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 PPP loan for Agri-Energy totals $0.4 million, bears interest at 1.0% and matures in April 2025. Monthly payments of $8 thousand begin on June 5, 2021 and are payable through April 2025.
See Note 9, Debt, to our consolidated financial statements included herein for further discussion.
2021 Bonds. On April 15, 2021, the Company closed the 2021 Bonds offering totaling $68,155,000 to finance the construction of the Gevo RNG project. The proceeds of the 2021 Bonds, combined with Gevo equity, will be used to finance (1) the construction of the Gevo RNG project which is comprised of (A) three anaerobic digesters and related equipment situated on dairy farms located 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 RNG 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 construction period; and (3) to pay a portion of the costs of issuing the 2021 Bonds.
See Note 15, Subsequent Events, to our consolidated financial statements included herein for further discussion.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies since December 31, 2020. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our Annual Report.
Off-Balance Sheet Arrangements
As of March 31, 2021, we did not have any material off-balance sheet arrangements.