UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

Form 10-K

 

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20152017

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-35073

 

Gevo, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

87-0747704

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

345 Inverness Drive South, Building C, Suite 310,

Englewood, CO

 

80112

(Address of Principal Executive Offices)

 

(Zip Code)

(303) 858-8358

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of Each Class

 

 

 

Name of Each Exchange on Which Registered

 

Common Stock, par value $0.01 per share

 

NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of 16,499,378 shares of voting stockcommon equity held by non-affiliates of the registrant based on the closing sale pricewas approximately $11.2 million as of the common stock as reported on the NASDAQ on June 30, 2015,2017, the last business day of the registrant’s most recently completed second fiscal quarter, based on the closing price of $3.27 per share was $53,952,966.the common stock as reported on the NASDAQ Capital Market on June 30, 2017. Shares of common stock held by each officer, director and holder of 5%10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 29, 2016,28, 2018, the number of outstanding shares of the registrant’s common stock, par value $0.01 per share, was 23,510,855.22,600,849  

 

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates certain information by reference from the registrant’s proxy statement for the 20162018 annual meeting of stockholders to be filed no later than 120 days after the end of the registrant’s fiscal year ended December 31, 2015.2017.

 

 

 

 

 

 

 


 

GEVO, INC.

FORM 10-K—ANNUAL REPORT

For the Fiscal Year Ended December 31, 20152017

Table of Contents

 

 

 

Page

PART I

 

 

Item 1.

Business

4

Item 1A.

Risk Factors

1918

Item 1B.

Unresolved Staff Comments

4846

Item 2.

Properties

4846

Item 3.

Legal Proceedings

4847

Item 4.

Mine Safety Disclosures

4947

 

PART II

 

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

5048

Item 6.

Selected Financial Data

5249

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

5452

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

7368

Item 8.

Financial Statements and Supplementary Data

7670

Item2Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

114105

Item 9A.

Controls and Procedures

114105

Item 9B.

Other Information

115105

 

PART III

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

116106

Item 11.

Executive Compensation

116106

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

116106

Item 13.

Certain Relationships and Related Transactions, and Director Independence

116106

Item 14.

Principal Accountant Fees and Services

116106

 

PART IV

 

 

Item 15.

Exhibits and Financial Statement Schedules

118  107

Item 16.

Form 10-K Summary

  112  

SIGNATURES

126  113  

 

 

 

 


 

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934 (the “Exchange Act”). When used anywhere in this Annual Report on Form 10-K (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 achievement 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 continued listing of our common stock on the NASDAQ, our ability to raise additional funds to continue operations,operate our business, our ability to produce isobutanol on a commercial level and at a profit, achievement of advances in our technology platform, the success of our retrofit production model, our ability to expand our Luverne, Minnesota facility for our first commercial hydrocarbons facility, our ability to gain market acceptance for our products, additional competition and changes in economic conditions.conditions and the continued listing of our common stock on NASDAQ.  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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” 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 “Company” refer to Gevo, Inc. and its wholly-owned and indirect subsidiaries.

This Report contains estimates and other information concerning our target markets that are based on industry publications, surveys and forecasts, including those generated by SRI Consulting, a division of Access Intelligence, LLC, Chemical Market Associates, Inc., the U.S. Energy Information Association (the “EIA”), the International Energy Agency (the “IEA”), the Renewable Fuels Association, and Nexant, Inc. (“Nexant”). Certain target market sizes presented in this Report have been calculated by us (as further described below) based on such information. This information involves a number of assumptions and limitations and you are cautioned not to give undue weight to this information. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause actual results to differ materially from those expressed in these publications, surveys and forecasts.

Conventions that Apply to this Report

With respect to calculation of product market volumes:

product market volumes are provided solely to show the magnitude of the potential markets for isobutanol and the products derived from it. They are not intended to be projections of our actual isobutanol production or sales;

product market volumes are provided solely to show the magnitude of the potential markets for isobutanol and the products derived from it. They are not intended to be projections of our actual isobutanol production or sales;

product market volume calculations for fuels markets are based on data available for the year 2013;

product market volume calculations for fuels markets are based on data available for the year 2013;

product market volume calculations for chemicals markets are based on data available for the year 2012; and

product market volume calculations for chemicals markets are based on data available for the year 2012; and

volume data with respect to target market sizes is derived from data included in various industry publications, surveys and forecasts generated by the EIA, the IEA and Nexant.

volume data with respect to target market sizes is derived from data included in various industry publications, surveys and forecasts generated by the EIA, the IEA and Nexant.

We have converted these market sizes into volumes of isobutanol as follows:

we calculated the size of the market for isobutanol as a gasoline blendstock and oxygenate by multiplying the world gasoline market volume by an estimated 12.5% by volume isobutanol blend ratio;

we calculated the size of the market for isobutanol as a gasoline blendstock and oxygenate by multiplying the world gasoline market volume by an estimated 12.5% by volume isobutanol blend ratio;

we calculated the size of the specialty chemicals markets by substituting volumes of isobutanol equivalent to the volume of products currently used to serve these markets;

we calculated the size of the specialty chemicals markets by substituting volumes of isobutanol equivalent to the volume of products currently used to serve these markets;

we calculated the size of the petrochemicals and hydrocarbon fuels markets by calculating the amount of isobutanol that, if converted into the target products at theoretical yield, would be needed to fully serve these markets (in substitution for the volume of products currently used to serve these markets); and

we calculated the size of the petrochemicals and hydrocarbon fuels markets by calculating the amount of isobutanol that, if converted into the target products at theoretical yield, would be needed to fully serve these markets (in substitution for the volume of products currently used to serve these markets); and

for consistency in measurement, where necessary we converted all market sizes into gallons.

for consistency in measurement, where necessary we converted all market sizes into gallons.

Conversion into gallons for the fuels markets is based upon fuel densities identified by Air BP Ltd. and the American Petroleum Institute.

 


PART I

Item 1.

Business.

Company Overview

We are a renewable chemicals and next generation biofuels company.  company, targeting what we believe to be very large potential markets: that of low carbon fuels and chemicals that can compete directly against petro-chemical products depending on the price of oil and value of carbon.   Renewable fuels are one of the few markets where the value for renewable carbon has already been established, particularly in the U.S.  We believe that the demand for low carbon fuels, chemicals, and plastics will continue and grow stronger over time.  We believe that renewable carbon will eventually be valued in chemicals and plastics in addition to fuels.    

The challenges to displace petrochemical products with renewable products are enormous:  (i) the products need to meet or exceed the stringent performance requirements established by the incumbent products, (ii) the products need to be compatible with existing distribution infrastructure, (iii) the products must be economical in the market place, and (iv) in most cases, the products must have a lower carbon footprint and improve the “sustainability” of the business system.   We believe we have viable technologies that produce products that address these challenges.  

We have developed proprietary technology that uses a combination of synthetic biology, metabolic engineering, chemistry and chemical engineering to focus primarily on the production ofmake isobutanol as well as relatedand hydrocarbon products from isobutanol that can displace petrochemical incumbent products.    We have been able to genetically engineer yeast, whereby the yeast produces isobutanol from carbohydrates at costs that we believe to be commercially competitive once large production facilities are deployed that will enable economies of scale to be  reached.  We have shown that the isobutanol production process works in full scale fermenter systems at our production facility in Luverne, Minnesota (the “Luverne Facility”). We also have shown that our renewable feedstocks.isobutanol can be readily converted to hydrocarbon products that address large markets.  Specifically, our renewable alcohol-to-jet fuel (“ATJ”) has been approved for use in commercial aviation and used multiple times for commercial flights.  In addition, our renewable isobutanol is being used as a gasoline blendstock in the Houston area for on-road vehicles as an ethanol-free fuel option for consumers.  Our renewable isooctane meets the performance and specification requirements for use in chemicals and fuels and is currently being used in the European Union.  We believe that there is large potential to grow our business, through a combination of (i) directly producing and selling our renewable isobutanol and related hydrocarbon products, and (ii) licensing our technology.

We believe that renewable isobutanol is a potentially valuable commercial product because of its versatility to address large markets either as a product directly or as a key intermediate for producing renewable carbon alternatives to mainstream fuels such as jet fuel, gasoline, plastics such as Polyethylenen Terephthalate (“PET”), and various other chemical products and materials.   Isobutanol is a four-carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents, paints and coatings, or more importantly from a market size and performance value-added point of view, as a value-added gasoline blendstock.  IsobutanolBecause isobutanol can also be readily converted into butenes using dehydration chemistry deployed in the refining and petrochemicals industries today. The convertibility of isobutanol into butenes is important because butenes are primaryto hydrocarbon building blocks used in the production ofproducts such hydrocarbon fuels, including isooctane, isooctene and ATJ, lubricants, polyester, rubber, plastics, fibers and other polymers. Wepolymers, we believe that the products derived from isobutanol have potential applications in substantially all of the global hydrocarbon fuelsaddressable markets and in approximatelyare very large; potentially being able to ultimately reach 40% of the global petrochemicals markets.markets depending on the price of oil and the value for renewable carbon.        

Our renewable isobutanol production technology has been proven to work in a 1.5 million gallon per year (“MGPY”) capacity production line, (~265,000 gallon fermenter scale) at our Luverne Facility.  We have concluded that the technology works as we expected at this scale.  Our technology to convert our renewable isobutanol to ATJ, isooctane, isooctene, and para-xylene (building block for polyester) has been proven at our hydrocarbons demonstration plant located at South Hampton Resources located in Silsbee, TX.     In order to producereduce production costs further, we need to achieve economies of scale.  We plan to do this by expanding our isobutanol and sell isobutanol made from renewable sources,hydrocarbon capabilities once we have developedoff-take agreements in place.

In addition to our isobutanol production line, our Luverne Facility has production capacity of about 20 MGPY of ethanol, 45-50 kilotons (“KT”) of animal feed, and 3 million pounds of corn oil.  We plan on optimizing the Gevo Integrated Fermentation Technology® (“GIFT®”), an integrated technology platform forLuverne Facility to increase margin at the efficient productionsite by reducing carbohydrate feedstock costs, improving the value of animal feed and separationprotein products, and the yield of renewable isobutanol. GIFT® consists of two components, proprietary biocatalystscorn oil.  These improvements are expected to benefit both ethanol and isobutanol production.  We believe that convert sugars derived from multiple renewable feedstocks into isobutanol through fermentation, and a proprietary separation unit that is designedthese upgrades to continuously separate isobutanol during the fermentation process. We developed our technology platformLuverne Facility could prove to be compatible with the existing approximately 25 billion gallons per year (“BGPY”)a key step to reach profitability, independent of global operating ethanol production capacity, as estimated by the Renewable Fuels Association.isobutanol production.  

GIFT® Our technology is designed to permit (i) the retrofit of existing ethanol capacity to produce renewable isobutanol, ethanol or both products simultaneously or (ii) the addition of renewable isobutanol or ethanol production capabilities to a facility’s existing ethanol production by adding additional fermentation capacity side-by-side with the facility’s existing ethanol fermentation capacity (collectively referred to as “Retrofit”). Having the flexibility to switch between the production of isobutanol and ethanol, or produce both products simultaneously, should allow us to optimize asset utilization and cash flows at a facility by taking advantage of fluctuations in market conditions. GIFT® Our technology is also designed to allow relatively low capital expenditure Retrofits of existing


ethanol facilities, enabling a relatively rapid route to isobutanol production from the fermentation of renewable feedstocks. Alternatively, our technology can be deployed at a greenfield or brownfield site to produce isobutanol and hydrocarbons without producing ethanol.  

NASDAQ Market Price Compliance

On June 21, 2017, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market, notifying us that, for the prior 30 consecutive business days, the closing bid price of our common stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, we had an initial compliance period of 180 calendar days, to regain compliance with this requirement. On December 20, 2017, the Nasdaq Stock Market granted us an additional 180 calendar days, or until June 18, 2018, to regain compliance. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before June 18, 2018. The Nasdaq determination to grant the second compliance period was based on our meeting of the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the exception of the bid price requirement, and our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

Markets

Isobutanol Direct Use Markets

Without modification, isobutanol has applications in the specialty chemical and gasoline blendstock markets. Since our potential customers in these markets would not be required to develop any additional infrastructure to use our isobutanol, we believe that selling into these markets will result in a relatively low risk profile and produce attractive margins.

Gasoline Blendstocks

Isobutanol has direct applications as a gasoline blendstock. Fuel-grade isobutanol may be used as a high energy content, low Reid Vapor Pressure (“RVP”), gasoline blendstock and oxygenate. Based on isobutanol’s low water solubility, in contrast with ethanol, we believe that isobutanol will be compatible with existing refinery infrastructure, allowing for blending at the refinery rather than blending at the terminal.

Further, based on isobutanol’s high energy content and low water solubility, as well as testing completed by the National Marine Manufacturers Association, the Outdoor Power Equipment Institute and Briggs & Stratton, we believe that isobutanol has direct applications as a blendstock in high value specialty fuels markets serving marine, off-road vehicles, small engine and sports vehicle markets.

We estimate the total addressable worldwide market for isobutanol as a gasoline blendstock to be approximately 43 billion gallons per year (“BGPY”).

The market size for ethanol free (E0) gasoline, a large niche, is estimated by the EIA to be about 5 BGPY, outside of RFG regions. RFG areas are required to sell gasoline containing an oxygenate. Up to this point, ethanol was the only gasoline oxygenate available. We believe our isobutanol enables ethanol free gasoline in RFG areas, a market estimated to be about 2BGPY. When RFG regions are included in the total US market size estimation, the total ethanol free market is expected to be about 7 BGPY.

Specialty Chemicals

Isobutanol has direct applications as a specialty chemical. High-purity and chemical-grade isobutanol can be used as a solvent and chemical intermediate. We plan to produce high-purity and chemical-grade isobutanol that can be used in the existing butanol markets as a cost-effective, environmentally sensitive alternative to petroleum-based products.

We believe that our production route will be cost-efficient and will enable relatively rapid deploymentallow for significant expansion of our technology platform and allow ourthe historical isobutanol andmarkets within existing butanol markets through displacing n-butanol, a related renewable productscompound to isobutanol that is currently sold into butanol markets.

We estimate the total addressable worldwide market for isobutanol as a specialty chemical to be economically competitive with many of the petroleum-based products used in the chemicalsapproximately 1.2 BGPY.

Butene and fuels markets today.Hydrocarbon Markets Derived from Isobutanol


Our Strategy

Our strategy is to commercialize our isobutanol forBeyond direct use directly as a specialty chemical and gasoline blendstock, isobutanol can be dehydrated to produce butenes which can then be converted into other products such as para-xylene, jet fuel blendstock and many other hydrocarbon fuels and specialty blendstocks, and specialty chemicals offering substantial potential for additional demand. The conversion of isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in multiple markets.

Jet Fuel

According to IATA, the year-on-year growth for jet fuel is about 3 BGPY and is expected to continue at approximately the same growth rate for the next decade.   From 2020 onward the airlines industry has pledged to hold its annual emission of fossil carbon constant after 2020.  By the year 2027 IATA expects that the airlines industry will have adopted penalties tied to GHG emissions.  This means that the emissions from jets need to be mitigated.  As part of the mitigation of fossil based GHG’s, IATA expects that renewable resource based low carbon fuels will be needed.   We have developed a jet fuel made from our isobutanol.  This fuel is commonly referred to as alcohol-to-jet fuel or ATJ.  

In April 2016, ASTM International completed its process of approving a revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) to include alcohol to jet synthetic paraffinic kerosene derived from renewable isobutanol. This allows our renewable jet fuel to be used as a blending component in standard Jet A-1 for commercial airline use in the United States and around the globe.

We have delivered ATJ which was used by nine airlines for Fly Green Day, sponsored by the O’Hare Fuel Committee, at Chicago O’Hare International Airport.  This event is the first time renewable jet fuel has been supplied at Chicago O’Hare using the existing airport fueling infrastructure, such as pipelines, terminals and tankage.

We have previously delivered ATJ to Alaska Airlines, which successfully flew multiple commercial flights using our fuel in 2016, including what we believed was the first commercial flight using a cellulosic jet fuel derived from wood waste.

We have successfully delivered to the U.S. Air Force, the U.S. Army and the U.S. Navy a combined total of approximately 90,000 gallons of our ATJ. Military and commercial airlines are currently looking to form strategic alliances with biofuels companies to meet their renewable fuel needs.

We estimate the global market for jet fuel to be approximately 89 BGPY.

Other Hydrocarbon Fuels

Isooctane, isooctene, diesel fuel and bunker fuel may also be produced from our isobutanol. We have been producing jet fuel and isooctane for renewable gasoline at our demonstration plant located at South Hampton Resources in Silsbee, TX since 2011.   The products produced at our hydrocarbon plant are sold on a commercial basis to develop the markets.   We continue to optimize the technologies and production systems, but we believe this technology is ready to scale up on a full commercial basis.  

Para-xylene (“PX”) and Polyethylene Terephthalate (“PET”)

Isobutanol can be used to produce PX, polyester and their derivatives, which are used in the beverage, food packaging, textile and fibers markets. PX is a key raw material in PET production.

We estimate the global market for PET to be approximately 50 million metric tons per year of which approximately 30% is used for plastic bottles and containers. We have demonstrated the conversion of our isobutanol into renewable PX at the demonstration plant in Silsbee, TX.  This demonstration plant produced renewable PX from October 2013 through March 2014, and, in May 2014, we shipped renewable PX to Toray Industries, Inc. (“Toray Industries”) under the terms of a supply agreement.

Butenes

Traditionally butenes have been produced as co-products from the process of cracking naphtha in the production of ethylene. Historically, lower natural gas prices and reported reductions in the use of naphtha as the feedstock for the production of ethylene have resulted in a projected reduction in the volume of available butenes. This structural shift in feedstocks increases the potential market opportunity for our isobutanol in the production of butenes.

Isobutanol can be sold to isobutylene and n-butene (butenes) chemicals users for conversion into plastics, fibers, polyester,lubricants, methyl methacrylate and rubber other polymersapplications.


Our Build-Out Strategy

We are working to secure off-take agreements that justify the build-out of additional isobutanol and hydrocarbon fuels. Key elements ofproduct capacities at our strategy include:

Successfully deploy our isobutanol technology at commercial scale at ourproduction facility in Luverne, Minnesota.

Build on existing agreements with customers to support capacity growth.

Expand our production capacity via Retrofit of additional existing ethanol facilities with an emphasis on licensing.

Expand adoption of our isobutanol across multiple applications and markets.

Align the value chain for our isobutanol by collaborating with large brand owners and customersin particular as it relates to hydrocarbon fuels and chemicals.  

Incorporate additional feedstocks into our isobutanol production facilities.

Our Retrofit Strategy

Luverne Facility or another suitable location.  We plan to commercializeuse those agreements to aid in the financing of these build-out projects.  The size of the build-out projects will be determined by customer demand.  We currently believe that the Luverne Facility offers the best site for the build-out projects given the technology already deployed at the Luverne Facility.  However, if an opportunity arose whereby overall production cost of products (net of carbon value) or if a different location aided financing significantly, certain equipment could be moved from the Luverne Facility to a new site, and our isobutanol throughproducts could be produced at a strategy of Retrofittingsite other than the Luverne Facility instead.  Beyond the Luverne Facility, we believe that we will license our technology or partner to build additional plants, leveraging existing ethanol production facilities to produce isobutanolindustry infrastructure and related renewable products and have developed our technology platform to be compatible with the existing approximately 25 BGPY of global operating ethanol production capacity.  We believe thatmay not be successful in our design will enable a switch betweenefforts to build out the production of isobutanol and ethanol,Luverne Facility or the ability to produce both products simultaneously, which will allow optimization of asset utilization and cash flows at a facility by taking advantage of fluctuations in market conditions.


The Retrofit approach allows us to project potentially lower capital outlays and a faster commercial deployment schedule than the construction of new plants. We believe the ability of GIFT® to convert sugars from multiple renewable feedstocks into isobutanol will enable us to leverage the abundant domestic sources of historically low cost grain feedstocks (e.g., corn) currently used for ethanol production and will potentially enable the expansion oflicense our production capacity into international markets that use sugar cane or other feedstocks that are prevalent outside of the U.S.

We plan to secure access to existing ethanol production facilities through joint ventures, licensing arrangements, tolling partnerships and direct acquisitions. We then plan to work with design, engineering, and construction partners to deploy GIFT® through Retrofit of these production facilities.technology.

Our Retrofit at the Agri-EnergyLuverne Facility

In September 2010, we acquired the Luverne Facility, a 22 million gallon per year (“MGPY”)MGPY ethanol production facility in Luverne, Minnesota (the “Agri-Energy Facility”).Minnesota.  Since 2010, we made improvements and modifications to the Luverne Facility to add isobutanol production capabilities.  The Agri-EnergyLuverne Facility is a traditional dry-mill facility, which means that it uses dry-milled corn as a feedstock. In partnership with ICM, Inc. (“ICM”), we developed a detailed Retrofit design for this facility and began the Retrofit in 2011. In May 2012, we commenced initial startup operations for the production of isobutanol at the Agri-Energy Facility. In September 2012, as a result of a lower than planned production rate of isobutanol, we made the strategic decisioncurrently configured to pause isobutanol production at the Agri-Energy Facility at the conclusion of startup operations to focus on optimizing specific parts of the process to further enhance isobutanol production rates.

In 2013, we made modifications to our Agri-Energy Facility designed to increase the isobutanol production rate. In June 2013, we resumed the limited production of isobutanol, operating one fermenter and one GIFT® separation system in order to (i) verify that the modifications had significantly reduced the previously identified infections, (ii) demonstrate that our biocatalyst performs in the one million liter fermenters at the Agri-Energy Facility, and (iii) confirm GIFT® efficacy at commercial scale at the Agri-Energy Facility. In August 2013, we expanded production capacity at the Agri-Energy Facility by adding a second fermenter and second GIFT® system to further verify our results with a second configuration of equipment. For these initial production runs, we demonstrated fermentation operations at commercial scale combined with the use of our GIFT® separation system using a dextrose (sugar) feedstock.  Based on the results of these initial production runs, in October 2013 we began commissioning the Agri-Energy Facility on corn mash to test isobutanol production run rates and to optimize biocatalyst production, fermentation separation and water management systems.  

In March 2014, we decided to leverage the flexibility of our GIFT® technology and further modify the Agri-Energy Facility in order to enable the simultaneous production of isobutanol and ethanol. In July 2014, we began more consistent co-production of isobutanol and ethanol at the Agri-Energy Facility, with one fermenter utilized for isobutanol production and three fermenters utilized for ethanol production.

In September 2015, we began deploying additional capital at our Agri-Energy Facility, primarily designed to decrease the cost of production for isobutanol by bringing parts of the process to the facility that have previously been done off-site by third parties. Key equipment being installed at the plant include a distillation system to purify isobutanol on site, an addition to our seed train to improve our ability to grow our yeast on site and a stainless steel fermenter to replace one of the existing carbon steel fermenters that had reached the end of its useful life. The installation of this equipment is expected to decrease our cost of production of isobutanol, with a goal of producing isobutanol at our Agri-Energy Facility at a positive contribution margin in 2016. These capital projects are anticipated to be completed in the first or second quarter of 2016.

Through December 31, 2015, we have incurred capital costs of approximately $65.5 million on the Retrofit of the Agri-Energy Facility. The Retrofit of the Agri-Energy Facility includes a number of additional capital costs that are unique to the design of the facility, including additional equipment that we believe will allow us to switch betweenproduce ethanol and isobutanol, production, modifications to increase the potential production capacity of GIFT® at this facility and the establishment of an enhanced yeast seed train to accelerate the adoption of improved yeast strains at this facility and at future plants. Capital expenditures at the Agri-Energy Facility also include upfront design and engineering costs, plant modifications identified as necessary during initial startup operations for the production of isobutanol and capitalized interest.

Until May 2012, when we commenced initial Retrofit startup operations for the production of isobutanol at the Agri-Energy Facility, we derived revenue from the sale of ethanol, distiller’s grains and other related products produced as part of the ethanol production process at the Agri-Energy Facility. Continued ethanol production during the Retrofit process allowed us to retain local staff for the future operation of the plant, maintain the equipment and generate cash flow. Our Retrofit strategy includes the ability to switch between the production of isobutanol and ethanol, or produce both products simultaneously, with an emphasis on maximizing cash flows at a site. In the past we have been able to switch between the production of isobutanol and ethanol at the Agri-Energy Facility.  In the future, we believe that we will be able to transition between the production and sale of ethanol and related products at the Agri-Energy Facility, in whole or in part, if we were to project positive cash flows from ethanol operations versus maintaining the


facility at idle or producing isobutanol, including any costs related to the transition, but there is no guarantee that this will be the case. As a result, the historical operating results of our subsidiary, Agri-Energy, LLC (“Agri-Energy”), and the operating results reported during the Retrofit to isobutanol production may not be indicative of future operating results for Agri-Energy or Gevo’s consolidated results.  The future return on our invested capital depends on our ability to maximize cash flows from the Retrofit of the Agri-Energy Facility.side-by-side.

Third Party Retrofit and Construction Activities

We have commenced a licensing strategy whereby a licensee would invest the capital for the Retrofit of its own ethanol plant or for a new greenfield build out of an isobutanol-producing plant. In return, we, as the licensor, would expect to receive an up-front license fee and ongoing royalty payments from the project,projects, as well as other potential revenue streams such as yeast sales. This licensing strategy is expected to take some time to develop. The ability to license a technology is generally related to the commercial track record of the underlying technology itself. In addition, revenues from licensing our isobutanol and/or hydrocarbon technologies are expected to be directly linked to the build out of specific projects, which may take multiple years to construct.

Our Production Technology Platform

We have used tools from synthetic biology, biotechnology, chemical catalysis, and process engineering to develop a proprietary set of technologies that enable the potential of cost effective production of isobutanol and hydrocarbon fuels and chemicals.  We believe the technologies to be proven to work, having made and sold products using these technologies.  

We have a proprietary fermentation yeast biocatalyst that effectively produces isobutanol. The advantage of this biocatalyst is that it (i) works in large scale fermentation systems, and (ii) can operate in complex biological mixtures such as corn mash or molasses and produce a suitable clean isobutanol product.  The technology is designed to use similar carbohydrate feedstocks, similar to ethanol technology.  For example, carbohydrates from non-food corn, sugar cane, molasses or cellulosic sugars each could be used depending upon cost and availability.  We believe that our technology has the potential to add value to existing ethanol production sites by increasing the site profitability if our technologies are deployed.  

We have demonstrated that our isobutanol to hydrocarbon technologies for the production of jet fuel, isooctane, isooctene, and paraxylene appear to be viable from a technical and process point of view.  These catalytic technologies appear to be effective and scalable.  

Animal feed, protein, and oil are important products produced at our Luverne Facility.  Animal feed is made from the spent grain mash from isobutanol and fermentations. We market our distiller’s grains to the, beef, swine and poultry industries as a high-protein, high-energy animal feed. The spent yeast from fermentation adds protein to the mix, resulting in a higher protein content than corn itself. By selling the feed, protein, and oil products, we generate additional revenues and effectively reduce the net cost of fermentation feedstock.  Going forward we see opportunity to further add value to animal feed, protein, and oil products, thereby benefiting the site margin at the Luverne Facility, whether we produce isobutanol, ethanol, or both.

Biocatalyst Overview

Our biocatalysts are microorganisms that have been designed to consume carbohydrates and produce isobutanol as a product. Our technology team developed these proprietary biocatalysts to efficiently convert fermentable sugars of all types into isobutanol by engineering isobutanol pathways into the biocatalysts.  We designed our biocatalysts to equal or exceed the performance of the yeast currently used in commercial ethanol production in yield (percentage of the theoretical maximum percentage of isobutanol that can be made from a given amount of feedstock) and rate (how fast the sugar fed to the fermentation is converted to isobutanol). To achieve this, we believe that more than 100 genetic changes have been made to our yeast biocatalyst.  We achieved our target fermentation performance goals at our Luverne Facility, given the scale we at which we operate. We continue to seek to improve the performance


parameters of our biocatalyst with a goal of reducing projected capital and operating costs, increasing operating reliability and increasing the volume of isobutanol production.

In January 2016, in a project sponsored by the USDA, we used our one MGPY demonstration facility located at ICM, Inc.’s St. Joseph, Missouri facility to convert hydrolyzed wood feedstocks into isobutanol. The isobutanol produced was converted to jet fuel and used for flights on Alaska Airlines.  

While we believe that the majority of the development work on a commercially viable isobutanol producing yeast is complete, we expect to continue to make incremental improvements targeted to its commercial performance.

Feedstocks

In the U.S., non-food corn is a commercially attractive feedstock for both ethanol and isobutanol, because it is abundant and readily available, but more importantly because this corn generates low cost carbohydrates, protein and feed for the food chain, and corn oil.  In other parts of the world sugar or molasses from cane, beets, or other sugar producing crops could be used.  In the future, certain types of cellulosic sugars could be used once the cost to acquire those sugars becomes cost effective.  We have designed our biocatalyst platform to be capable of producing isobutanol from any fuel ethanol feedstock currently in commercial use, which we believe, in conjunction with our proprietary isobutanol separation unit, will permit us to modify any existing fuel ethanol facility to produce our products.

Our Luverne Facility is currently set up to use non-food corn as a feedstock.   The starch is fermented to isobutanol and or ethanol, the fiber and protein are isolated from the process and sold as animal feed, and the corn oil is sold for industrial use.  

We expect that our feedstock flexibility will allow our technology to be deployed worldwide and will enable us to offer our customers protection from the raw material cost volatility historically associated with petroleum-based products.  For example, in some parts of the world, it may be that molasses is a lower cost feedstock, in others, sugar from beets or cane might be the lower cost feedstock.  As cellulosic sugars become economical, we expect that these could be viable as a feedstock too.

In the future we expect feedstocks to be chosen on the collective basis of (i) cost, (ii) carbon and or sustainability footprint with associated value, (iii) positive contribution to food chain where possible, and (iv) availability of the feedstock at a practical scale.

In June 2015, Agri-Energy, LLC, our wholly-owned subsidiary, entered into a license agreementPrice Risk Management, Origination and joint development agreementMerchandising Agreement, as amended as of December 21, 2017 (the “Origination Agreement”) with Porta Hnos. S.A.FCStone Merchant Services, LLC (“Porta”FCStone”) and a Grain Bin Lease Agreement with FCStone, as amended as of December 21, 2107 (the “Lease Agreement”). Pursuant to construct multiplethe Origination Agreement, FCStone will originate and sell to Agri-Energy, the owner of the Luverne Facility, and Agri-Energy will purchase from FCStone, the entire volume of corn grain used by the Luverne Facility in Luverne, Minnesota.  For more information, see Item 7A.Quantitative and Qualitative Disclosures about Market Risk below.

Conversion of Isobutanol into Hydrocarbons

We have demonstrated conversion of our isobutanol plantsinto a wide variety of hydrocarbon products which are currently used to produce plastics, fibers, polyester, rubber and other polymers and hydrocarbon fuels. Hydrocarbon products consist entirely of hydrogen and carbon and are currently derived almost exclusively from petroleum, natural gas and coal. Importantly, isobutanol can be dehydrated to produce butenes, which are an intermediate product in Argentina using cornthe production of hydrocarbon products with many industrial uses. The straightforward conversion of our isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a feedstock,building block chemical. Much of the firsttechnology necessary to convert isobutanol into butenes and subsequently into these hydrocarbon products is commonly known and practiced in the chemicals industry today.  For example, the dehydration of ethanol to ethylene, which is expecteduses a similar process and technology to be wholly owned by Porta and is anticipated to begin producing isobutanol in 2017.  The plant is expected to have a production capacity of up to five million gallonsthe dehydration of isobutanol, per year. Onceis practiced commercially today to serve the plantethylene market. The dehydration of isobutanol into butenes is operational, we expect to generate revenues from this licensing arrangement, through royalties, sales and marketing fees, and other revenue streams such as yeast sales. The agreements also contemplate Porta constructing at least three additional isobutanol plants for certain of their existing ethanol plant customers. For these projects, we would be the direct licensor of our technology and the marketer for anynot commercially practiced today because isobutanol produced and would expect to receive all royalties and sales and marketing fees generated from these projects. Porta would provide the engineering, procurement and construction (“EPC”) servicespetroleum is not cost-competitive with other petrochemical processes for the projects. The production capacitygeneration of these additional plants is still to be determined. Porta is a leading supplier of EPC services to the ethanol industry in South America. As a result, webutenes. We believe that our alliance with Porta will allow us to more quickly achieve commercial-scale production of isobutanol in Argentina and potentially elsewhere in South America.

In November 2015, we entered into a joint development agreement with Praj Industries Limited (“Praj”), which establishes a strategic relationship to: (i) jointly develop our technology for use in certain ethanol plants that utilize certain non-corn based feedstocks (the “Feedstock”); (ii) jointly develop an engineering package for greenfield isobutanol plants and Retrofitting ethanol plants to produce renewable isobutanol from the Feedstock; and (iii) license our technology to build greenfield isobutanol plants and Retrofit certain ethanol plants to produce isobutanol. We and Praj will jointly develop and optimize the parameters to produce isobutanol from the Feedstock. After the development work is completed, we will negotiate commercial license agreements with Praj and third party licensees. Praj has the exclusive right to supply equipment and process engineering services for (i) certain greenfield isobutanol plants covered by the joint development agreement and (ii) the addition of isobutanol capacity for certain ethanol plants that utilize the Feedstock and Praj technology. Praj agreed to meet certain milestones to maintain its exclusive rights. We will negotiate and license ourefficient fermentation technology for producing isobutanol directlywill promote commercial isobutanol dehydration and provide us with the opportunity to access hydrocarbon markets. To assist in accessing these markets, we have developed a hydrocarbon processing demonstration plant (“Hydrocarbons Demo Plant”) near Houston, Texas, in partnership with South Hampton Resources, Inc. (“South Hampton”). The Hydrocarbon Demo Plant can process approximately 6,000 to 7,000 gallons of our isobutanol per month into a variety of renewable hydrocarbons for use as fuels and chemicals. We have been selling products from this plant since 2011.


Our ETO Technology

We have also developed new technologies using ethanol as a feedstock for the production of hydrocarbons, renewable hydrogen, and other chemical intermediates, which we describe as our ethanol-to-olefins (“ETO”) technologies. The process produces tailored mixes of isobutylene, propylene, hydrogen and acetone, which are valuable as standalone molecules, or as feedstocks to produce other chemical products and longer chain alcohols. This technology has the potential to address additional markets in the chemicals and plastics fields, such as renewable polypropylene for automobiles and packaging and renewable hydrogen for use in chemical and fuel cell markets. At this time, this technology has only been operated at a laboratory scale, but if successfully scaled up to commercial level, this technology may provide the estimated 25BGPY global ethanol industry a broader set of end-product market and margin opportunities.

Underpinning the ETO technology is our development of proprietary mixed metal oxide catalysts that produce either polymer grade propylene, isobutylene or acetone in high yields in a single processing step. One of the benefits of the technology is that we can use conventional fuel grade specification ethanol that can be sourced from a variety of feedstocks with no apparent adverse impact on end product yields. Water, which is co-fed with the ethanol, plants covered byis able to be recycled resulting in a process which generates minimal waste. The ethanol and water mixture is vaporized and fed across a fixed catalyst bed resulting in a gaseous product mix consisting of the joint development agreementpropylene, isobutylene or acetone, in addition to hydrogen and will alsocarbon dioxide, along with lesser amounts of methane and ethylene. Separation of gaseous products can be achieved via conventional process technologies and unit operations within the petroleum industry.

We have the right to supply biocatalysts, nutrient packages, and support services to such plants. Praj will be the EPC services supplier for the ethanol plants covered by the joint development agreement and we will be the exclusive seller of all isobutanol produced by such plants.  We believefound that our alliance with Praj will allow us to more quickly achieve commercial-scale production of isobutanol derived from the Feedstock outside of the United States.

In addition, in October 2013, we signed a letter of intent with IGPC Ethanol Inc. to Retrofit its approximately 40 MGPY ethanol plant,ETO technology is effective at converting fusel oils into flavors, fragrances, and in November 2014, we signed a letter of intent with Highlands EnviroFuels, LLC which contemplates Highlands EnviroFuels, LLC obtaining a license from us to produce renewable isobutanol at a plant that would be bolted on to the back-end of a sugar cane and sweet sorghum syrup mill and have a nameplate capacity of approximately 20 to 25 MGPY of isobutanol.

In June 2011, we entered into an isobutanol joint venture agreement with Redfield Energy, LLC, a South Dakota limited liability company (“Redfield”), under which we have agreed to work with Redfield to Retrofit Redfield’s approximately 50 MGPY ethanol production facility located near Redfield, South Dakota (the “Redfield Facility”) for the commercial production of isobutanol. Under the terms of the joint venture agreement, we are responsible for all costs associated with the Retrofit of the Redfield Facility.certain specialty solvents.  We are entitled to a percentage of Redfield’s profits, lossesevaluating the business opportunities and distributions after commercial production of isobutanol has begun. As of December 31, 2015, we have incurred $0.4 million in planning-related costs, such as project engineering and permitting costs, for the future Retrofit of the Redfield Facility. Based on our preliminary engineering estimates, we will need to raise additional debt or equity capital to Retrofit the Redfield Facility, but are not obligated to do so under the Joint Venture Agreement. There are no assurances that we will move forward with the Retrofit of the Redfield Facility.  We do not expect to advance this project during 2016.potential.

Butamax Advanced Biofuels LLC

Between 2011 and 2015, we were involved in an intellectual property dispute with Butamax Advanced Biofuels LLC (“Butamax”).  We believe the dispute was satisfactorily resolved, enabling each of our companies to pursue their respective businesses.

Cross License Agreement

On August 22, 2015, we entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Butamax, Advanced Biofuels LLC (“Butamax”), E.I. du Pont de Nemours & Company (“DuPont”) and BP Biofuels North America LLC (“BP”


and, together with Butamax and DuPont, the “Butamax Parties”), that resolves the various disputes, lawsuits and other proceedings between one or more of the Butamax Parties and us, as previously disclosed and as specifically identified in the Settlement Agreement (the “Subject Litigation”), and creates a new business relationship pursuant to which Butamax and we have granted rights to each other under certain patents and patent applications in accordance with the terms of a Patent Cross-License Agreement (the “License Agreement”) which was entered into by us and Butamax concurrently with the Settlement Agreement  as described in detail below.  For moreadditional information concerning the Settlement Agreement,settlement agreement, please see our Annual Report on Form 10-K for the year-ended December 31, 2015 — Item 3.3 Legal Proceedings.Proceedings.

Pursuant to the terms of the License Agreement, each party receives a non-exclusive license under certain patents and patent applications owned or licensed (and sublicensable) by the other party for the production and use of biocatalysts in the manufacture of isobutanol using certain production process technology for the separation of isobutanol, and to manufacture and sell such isobutanol in any fields relating to the production or use of isobutanol and isobutanol derivatives, subject to the customer-facing field restrictions described below. Each party also receives a non-exclusive license to perform research and development on biocatalysts for the production, recovery and use of isobutanol.

Each party may produce and sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis. Butamax will be the primary customer-facing seller of isobutanol in the field of fuel blending (subject to certain exceptions, the “Direct Fuel Blending” field) and we will be the primary customer-facing seller of isobutanol in the field of jet fuel for use in aviation gas turbines (the “Jet” field, also subject to certain exceptions). As such, subject to each party’s right to sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis, other than with Butamax’s written consent, we will only sell isobutanol through Butamax in the Direct Fuel Blending field subject to a royalty based on the net sales price for each gallon of isobutanol sold or transferred by us, our affiliates or sublicensees within the Direct Fuel Blending field (whether through Butamax or not) and on commercially reasonable terms to be negotiated between the parties and Butamax will only sell isobutanol through us in the Jet field subject to a royalty based on the net sales price for each gallon of isobutanol sold or transferred by Butamax, its affiliates or sublicensees within the Jet field (whether through us or not) and on commercially reasonable terms to be negotiated between the parties; provided, that each party may sell up to fifteen million gallons of isobutanol in a given year directly to customers in the other party’s customer-facing field on a royalty-free basis so long as the isobutanol volumes are within the permitted 30 million gallons of isobutanol sold or otherwise transferred per year in any field described above and, in certain instances, each party may then sell up to the total permitted 30 million gallons per year in the other party’s customer-facing field on a royalty-free basis. In addition, in order to maintain its status


as the primary customer-facing seller in these specific fields, each party must meet certain milestones within the first five years of the License Agreement. If such milestones are not met as determined by an arbitration panel, then a party will have the right to sell directly to customers in the other party’s customer-facing field subject to the payment of certain royalties to the other party on such sales.

In addition to the royalties discussed above for sales of isobutanol in the Direct Fuel Blending field, and subject to our right to sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis, we will pay to Butamax a royalty per gallon of isobutanol sold or transferred by us, our affiliates or sublicensees within the field of isobutylene (a derivative of isobutanol) applications (other than isobutylene for paraxylene, isooctane, Jet, diesel and oligomerized isobutylene applications). Likewise, in addition to the royalties discussed above for sales of isobutanol in the Jet field, and subject to Butamax’s right to sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis, Butamax will pay to us a royalty per gallon of isobutanol sold or transferred by Butamax, its affiliates or sublicensees within the fields of marine gasoline, retail packaged fuels and paraxylene (except for gasoline blending that results in use in marine or other fuel applications). The royalties described above will be due only once for any volume of isobutanol sold or transferred under the License Agreement, and such royalties accrue when such volume of isobutanol is distributed for end use in the particular royalty-bearing field. All sales of isobutanol in other fields will be royalty-free, subject to the potential technology fee described below.

In the event that we, our affiliates or sublicensees choose to employ a certain solids separation technology for the production of isobutanol at one of their respective plants (“Solids Separation Technology”), we are granted an option to license such technology from Butamax on a non-exclusive basis subject to the payment of a one-time technology license fee based on the rated isobutanol capacity for each such plant (subject to additional fees upon expansion of such capacity). We also receive the option to obtain an engineering package from Butamax to implement the Solids Separation Technology on commercially reasonable terms to be negotiated between the parties and subject to the technology fee described above and an additional technology licensing fee for use of the Solids Separation Technology applicable to ethanol capacity as provided in such engineering package from Butamax (which capacity is not duplicative of the rated isobutanol capacity referenced above) in instances where Butamax provides an engineering package for use at a particular plant that will run isobutanol and ethanol production side-by-side using the licensed Solids Separation Technology at such plant.

The License Agreement encompasses both parties’ patents for producing isobutanol, including biocatalysts and separation technologies, as well as for producing hydrocarbon products derived from isobutanol, including certain improvements and new patent applications filed within seven years of the date of the License Agreement. While the parties have cross-licensed their patents for making and using isobutanol, the parties will not share their own proprietary biocatalysts with each other. The parties may use third


parties to manufacture biocatalysts on their behalf and may license their respective technology packages for the production of isobutanol to third parties, subject to certain restrictions. A third party licensee would be granted a sub-license, and would be subject to terms and conditions that are consistent with those under the License Agreement.

Under the License Agreement, the parties have also agreed to certain limitations on the making or participating in a challenge of the other party’s patents that are at issue in the Subject Litigation. The parties have also made certain representations, warranties and covenants to each other including, without limitation, with respect to obtaining certain consents, indebtedness, rights in the licensed patents, and relationships with certain other ethanol plant process technology providers.

The License Agreement will continue in effect until the expiration of the licensed patents, unless earlier terminated by a party as provided in the License Agreement. The parties also have certain termination rights with respect to the term of the license granted to the other party under the License Agreement upon the occurrence of, among other things, a material uncured breach by the other party. In the event that a party’s license is terminated under the License Agreement, such party’s sublicense agreements may be assigned to the other party, subject to certain restrictions.

The parties may not assign the License Agreement or any right or obligation thereunder without the prior written consent of the other party. However, the parties may assign the License Agreement to an affiliate or a person that acquires all of the business or assets of such party, subject to certain restrictions.

Isobutanol Direct Use Markets

Without modification, isobutanol has applications in the specialty chemical and gasoline blendstock markets. Since our potential customers in these markets would not be required to develop any additional infrastructure to use our isobutanol, we believe that selling into these markets will result in a relatively low risk profile and produce attractive margins.

Specialty Chemicals

Isobutanol has direct applications as a specialty chemical. High-purity and chemical-grade isobutanol can be used as a solvent and chemical intermediate. We plan to produce high-purity and chemical-grade isobutanol that can be used in the existing butanol markets as a cost-effective, environmentally sensitive alternative to petroleum-based products.

We believe that our production route will be cost-efficient and will allow for significant expansion of the historical isobutanol markets within existing butanol markets through displacing n-butanol, a related compound to isobutanol that is currently sold into butanol markets.

We estimate the total addressable worldwide market for isobutanol as a specialty chemical to be approximately 1.2 BGPY.

Gasoline Blendstocks

Isobutanol has direct applications as a gasoline blendstock. Fuel-grade isobutanol may be used as a high energy content, low Reid Vapor Pressure (“RVP”), gasoline blendstock and oxygenate. Based on isobutanol’s low water solubility, in contrast with ethanol, we believe that isobutanol will be compatible with existing refinery infrastructure, allowing for blending at the refinery rather than blending at the terminal.

Further, based on isobutanol’s high energy content and low water solubility, as well as testing completed by the National Marine Manufacturers Association, the Outdoor Power Equipment Institute and Briggs & Stratton, we believe that isobutanol has direct applications as a blendstock in high value specialty fuels markets serving marine, off-road vehicles, small engine and sports vehicle markets.

We estimate the total addressable worldwide market for isobutanol as a gasoline blendstock to be approximately 41 BGPY.

Butene and Hydrocarbon Markets Derived from Isobutanol

Beyond direct use as a specialty chemical and gasoline blendstock, isobutanol can be dehydrated to produce butenes which can then be converted into other products such as para-xylene, jet fuel and many other hydrocarbon fuels and specialty blendstocks, offering substantial potential for additional demand. The conversion of isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in multiple markets.


Jet Fuel

We have demonstrated the conversion of our isobutanol into a renewable jet fuel blendstock that meets current ASTM International (“ASTM”) and U.S. military synthetic jet fuel blendstock performance and purity requirements. We have successfully delivered to the U.S. Air Force, the U.S. Army and the U.S. Navy a combined total of approximately 90,000 gallons of jet fuel made from isobutanol. We are working to obtain an ASTM standard specification for the use of such jet fuel blendstock in commercial aviation. We have completed a comprehensive research report and had it reviewed by the ASTM Alternative Jet Fuel Task Force and OEM (Original Equipment Manufacturers) in the Airframe and Jet Engine Industries.  From this data set we have drafted an annex to ASTM specification D7566 for alternative jet fuel and are seeking approval from ASTM.  We expect to receive ASTM approval in 2016.  If such approval is received this would allow our renewable jet fuel to be used as a blending component in standard Jet A-1 for commercial airline use in the United States and around the globe.

Military and commercial airlines are currently looking to form strategic alliances with biofuels companies to meet their renewable fuel needs.

We estimate the global market for jet fuel to be approximately 83 BGPY.

Para-xylene (“PX”) and Polyethylene Terephthalate (“PET”)

Isobutanol can be used to produce PX, polyester and their derivatives, which are used in the beverage, food packaging, textile and fibers markets. PX is a key raw material in PET production.

We estimate the global market for PET to be approximately 50 million metric tons per year of which approximately 30% is used for plastic bottles and containers. We have demonstrated the conversion of our isobutanol into renewable PX at the demonstration plant in Silsbee, TX.  This demonstration plant produced renewable PX from October 2013 through March 2014, and, in May 2014, we shipped renewable PX to Toray Industries, Inc. (“Toray Industries”) under the terms of a supply agreement.

Butenes

Traditionally butenes have been produced as co-products from the process of cracking naphtha in the production of ethylene. Historically, lower natural gas prices and reported reductions in the use of naphtha as the feedstock for the production of ethylene have resulted in a projected reduction in the volume of available butenes. This structural shift in feedstocks increases the potential market opportunity for our isobutanol in the production of butenes.

Isobutanol can be sold to isobutylene and n-butene (butenes) chemicals users for conversion into lubricants, methyl methacrylate and rubber applications.

We estimate the total addressable worldwide market for butenes to be approximately 2.1 BGPY.

Other Hydrocarbon Fuels

Diesel fuel, gasoline, isooctane, isooctene and bunker fuel may also be produced from our isobutanol. We have demonstrated the conversion of isobutanol to isooctane, isooctene and renewable gasoline.  Renewable hydrocarbons such as isooctane, isooctene and renewable gasoline can directly replace petroleum-based hydrocarbons without any compromise of performance. The use of these renewable hydrocarbons enables companies to meet regulatory requirements for renewable content in fuels while satisfying the performance requirements of their customers. We have also converted isobutanol to kerosene with properties that we expect may be fit for diesel blending applications.

Our Production Technology Platform

We have used tools from synthetic biology, biotechnology and process engineering to develop a proprietary fermentation and separation process to cost effectively produce isobutanol from renewable feedstocks. GIFT® is designed to allow for relatively low capital expenditure Retrofits of existing ethanol facilities, enabling a rapid route to isobutanol production from the fermentation of renewable feedstocks, while maintaining the flexibility to revert to the production of ethanol or the simultaneous production of isobutanol and ethanol. GIFT® isobutanol production is very similar to existing ethanol production, except that we replace the ethanol producing biocatalyst with our isobutanol producing biocatalyst and we incorporate well-known equipment into the production process to separate and collect the isobutanol during the fermentation process. We believe that reusing large parts of the ethanol plant without modification is beneficial because the unchanged parts will stay in place and continue to operate after the Retrofit as they did when ethanol was produced. This means that the existing operating staff can continue to manage the production of isobutanol because they will already have experience with the base equipment. We believe this continuity will reduce the risks associated with the


production startup following the Retrofit as most of the process is unchanged and the existing operating staff is available to monitor and manage the production process. In addition, we believe that our GIFT® design will enable us to switch between the production of isobutanol and ethanol, or produce both products simultaneously, which will allow us to optimize asset utilization and cash flows at a facility by taking advantage of fluctuations in market conditions.

We intend to process the spent grain mash from our fermenters to produce isobutanol distiller’s grains (“iDGs™”), relying on established processes in the current ethanol industry. We plan to market our iDGs™ to the dairy, beef, swine and poultry industries as a high-protein, high-energy animal feed. To support these efforts, in December 2011 we entered into an exclusive off-take and marketing agreement with Land O’Lakes Purina Feed for the sale of iDGs™ produced at the Agri-Energy Facility. We believe that our sales of our iDGs™ will allow us and our partners to offset a significant portion of our grain feedstock costs, in the same manner as is practiced by the corn-based ethanol industry today through the sale of dry distiller’s grains.

Biocatalyst Overview

Our biocatalysts are microorganisms that have been designed to metabolize sugars to produce isobutanol. Our technology team developed these proprietary biocatalysts to efficiently convert fermentable sugars of all types into isobutanol by engineering isobutanol pathways into the biocatalysts.  We designed our biocatalysts to equal or exceed the performance of the yeast currently used in commercial ethanol production in yield (percentage of the theoretical maximum percentage of isobutanol that can be made from a given amount of feedstock) and rate (how fast the sugar fed to the fermentation is converted to isobutanol). We initially achieved our target fermentation performance goals with our research biocatalyst at our GIFT® mini-plant and then replicated this performance in a retrofitted one MGPY ethanol demonstration facility located at ICM’s St. Joseph, Missouri site. We select biocatalysts for their projected performance in the GIFT® process, targeting lower cost isobutanol production. We continue to seek to improve the performance parameters of our biocatalyst with a goal of reducing projected capital and operating costs, increasing operating reliability and increasing the volume of isobutanol production.

Continuous improvement of biocatalyst performance is achieved using a variety of synthetic biology and conventional biotechnology tools to minimize the production of unwanted by-products to improve isobutanol yield and rate, thereby reducing capital and operating costs. With our biocatalysts, we have demonstrated that we can produce isobutanol at commercial scale with rates and yields which we believe validate our biotechnology pathways and efficiencies. Our commercial biocatalyst is designed to produce isobutanol from common commercial fermentation ethanol feedstocks, including grains (e.g., corn, wheat, sorghum and barley), sugar cane, and molasses. This feedstock flexibility supports our initial deployment in the U.S. and is designed to enable our future expansion into international markets for production of isobutanol.

Although development work continues, we have shown at laboratory scale and at our one MGPY demonstration facility located at ICM’s St. Joseph, Missouri facility that we can convert hydrolyzed wood feedstocks into isobutanol. We are further improving biocatalysts to efficiently produce isobutanol from cellulosic feedstocks, including crops that are specifically cultivated to be converted into fuels (e.g., switchgrass), forest residues (e.g., waste wood, pulp and sustainable wood), agricultural residues (e.g., corn stalks, leaves, straw and grasses) and municipal green waste (e.g., grass clippings and yard waste). We carefully select our biocatalyst platforms based on their tolerance to isobutanol and other conditions present during an industrial fermentation process, as well as their known utility in large-scale commercial production processes.

Feedstocks

We have designed our biocatalyst platform to be capable of producing isobutanol from any fuel ethanol feedstock currently in commercial use, which we believe, in conjunction with our proprietary isobutanol separation unit, will permit us to Retrofit any existing fuel ethanol facility. We have demonstrated that our biocatalysts are capable of converting the types of sugars in grains and sugar cane to isobutanol at our commercial targets for fermentation time and yield and we believe that they will have the ability to convert these sugars into isobutanol at a commercial scale. The vast majority of fuel ethanol currently produced in the U.S. is produced from corn feedstock, which is abundant according to data from the U.S. Department of Agriculture and the Renewable Fuels Association. Although development work continues to be done, we have shown at laboratory scale and at our one MGPY demonstration facility located at ICM’s St. Joseph, Missouri site that we can convert certain cellulosic sugars into isobutanol.

We expect that our feedstock flexibility will allow our technology to be deployed worldwide and will enable us to offer our customers protection from the raw material cost volatility historically associated with petroleum-based products.

In June 2015, Agri-Energy, our wholly-owned subsidiary, entered into a Price Risk Management, Origination and Merchandising Agreement (the “Origination Agreement”) with FCStone Merchant Services, LLC (“FCStone”) and a Grain Bin Lease Agreement with FCStone (the “Lease Agreement”). Pursuant to the Origination Agreement, FCStone will originate and sell to Agri-Energy, and Agri-Energy will purchase from FCStone, the entire volume of corn grain used by our plant in Luverne, Minnesota. The initial term of the Origination Agreement will continue for a period of eighteen months and will automatically renew for additional


terms of one year unless Agri-Energy gives notice of non-renewal to FCStone. FCStone will receive an origination fee for purchasing and supplying Agri-Energy with all of the corn used by Agri-Energy’s plant in Luverne, Minnesota. As security for the payment and performance of all indebtedness, liabilities and obligations of Agri-Energy to FCStone, Agri-Energy granted to FCStone a security interest in the corn grain stored in grain storage bins owned and operated by Agri-Energy (“Storage Bins”) and leased to FCStone pursuant to the Lease Agreement. Pursuant to the Lease Agreement, FCStone will lease Storage Bins from Agri-Energy to store the corn grain prior to title of the corn grain transferring to Agri-Energy upon Agri-Energy’s purchase of the corn grain. FCStone agrees to lease Storage Bins sufficient to store 700,000 bushels of corn grain and agrees to pay to Agri-Energy $175,000 per year. The term of the Lease Agreement will run concurrently with the Origination Agreement, and will be extended, terminated, or expire in accordance with the Origination Agreement. The Company also entered into an unsecured guaranty (the “Guaranty”) in favor of FCStone whereby the Company guaranteed the obligations of Agri-Energy to FCStone under the Origination Agreement. The Guaranty shall terminate on the earlier to occur of (i) April 15, 2020 or (ii) termination of the Origination Agreement.

GIFT® Improves Fermentation Performance

Our experiments show that the GIFT® fermentation and recovery system provides enhanced fermentation performance as well as efficient recovery of isobutanol and other alcohols. The GIFT® system enables continuous separation of isobutanol from the fermentation tanks while fermentation is in process. Isobutanol is removed from the fermentation broth using a low temperature distillation to continuously remove the isobutanol as it is formed without the biocatalyst being affected. Since biocatalysts have a low tolerance for high isobutanol concentrations in fermentation, the ability of our process to continuously remove isobutanol as it is produced allows our biocatalyst to continue processing sugar into isobutanol at a high rate without being suppressed by rising levels of isobutanol in the fermenter, reducing the time to complete the fermentation. Using our biocatalysts, we have demonstrated that GIFT® enables isobutanol fermentation times equal to, or less than, those achieved in the current conventional production of ethanol, which allows us to fit our technology into existing ethanol fermenters reducing capital expenditures. We have designed a proprietary engineering package to carry out our isobutanol fermentation and recovery process.  

GIFT® requires limited change to existing ethanol production infrastructure. As with ethanol production, feedstock is ground, cooked, treated with enzymes and fermented. Just like ethanol production, after fermentation, a primary product (isobutanol) and a co-product (iDGs™) are recovered for sale. The main modifications of the GIFT® system are replacing the ethanol producing yeast with Gevo’s proprietary isobutanol producing biocatalyst, and adding low temperature distillation equipment for continuous removal and separation of isobutanol.

Conversion of Isobutanol into Hydrocarbons

We have demonstrated conversion of our isobutanol into a wide variety of hydrocarbon products which are currently used to produce plastics, fibers, polyester, rubber and other polymers and hydrocarbon fuels. Hydrocarbon products consist entirely of hydrogen and carbon and are currently derived almost exclusively from petroleum, natural gas and coal. Importantly, isobutanol can be dehydrated to produce butenes, which are an intermediate product in the production of hydrocarbon products with many industrial uses. The straightforward conversion of our isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical. Much of the technology necessary to convert isobutanol into butenes and subsequently into these hydrocarbon products is commonly known and practiced in the chemicals industry today.  For example, the dehydration of ethanol to ethylene, which uses a similar process and technology to the dehydration of isobutanol, is practiced commercially today to serve the ethylene market. The dehydration of isobutanol into butenes is not commercially practiced today because isobutanol produced from petroleum is not cost-competitive with other petrochemical processes for generation of butenes. We believe that our efficient fermentation technology for producing isobutanol will promote commercial isobutanol dehydration and provide us with the opportunity to access hydrocarbon markets. To assist in accessing these markets, we have developed a hydrocarbon processing demonstration plant (“Hydrocarbons Demo Plant”) near Houston, Texas, in partnership with South Hampton Resources, Inc. (“South Hampton”). The Hydrocarbon Demo Plant can process 6,000 to 7,000 gallons of our isobutanol per month into a variety of renewable hydrocarbons for use as fuels and chemicals.

Our ETO Technology

We have also developed new technologies using ethanol as a feedstock for the production of hydrocarbons, renewable hydrogen, and other chemical intermediates, which we describe as our ethanol-to-olefins (“ETO”) technologies. The process produces tailored mixes of isobutylene, propylene, hydrogen and acetone, which are valuable as standalone molecules, or as feedstocks to produce other chemical products and longer chain alcohols. This technology has the potential to address additional markets in the chemicals and plastics fields, such as renewable polypropylene for automobiles and packaging and renewable hydrogen for use in chemical and fuel cell markets. At this time, this technology has only been operated at a laboratory scale, but if successfully scaled up to commercial level, this technology may provide the estimated 25BGPY global ethanol industry a broader set of end-product market and margin opportunities.


Underpinning the ETO technology is our development of proprietary mixed metal oxide catalysts that produce either polymer grade propylene, high purity isobutylene or acetone in high yields in a single processing step. One of the benefits of the technology is that we can use conventional fuel grade specification ethanol that can be sourced from a variety of feedstocks with no apparent adverse impact on end product yields. Water, which is co-fed with the ethanol, is able to be recycled resulting in a process which generates minimal waste. The ethanol and water mixture is vaporized and fed across a fixed catalyst bed resulting in a gaseous product mix consisting of the propylene, isobutylene or acetone, in addition to hydrogen and carbon dioxide, along with lesser amounts of methane and ethylene. Separation of gaseous products can be achieved via conventional process technologies and unit operations within the petroleum industry.

Competition

Our isobutanol is targeted for use in the following markets: direct use as a solvent and gasoline blendstock, use in the chemicals industry for producing rubber, plastics, fibers, polyester and other polymers and use in the production of hydrocarbon fuels. We face competitors in each market, some of which are limited to individual markets, and some of which will compete with us across all of our target markets.  Many of our competitors have greater financial resources than we do.  If we fail to raise sufficient capital for our business and strategy, we may not be able to successfully compete.


Renewable isobutanol. We are a leader in the development of renewable isobutanol via fermentation of renewable plant biomass. While the competitive landscape in renewable isobutanol production is limited at this time, we are aware of other companies that are seeking to develop isobutanol production capabilities, including Butamax with whom we have entered into the License Agreement described above.Agreement.  See Item 1. Business—above—Butamax Advanced Biofuels LLC—Cross License Agreement.

Solvent markets. We also face competition from companies that are focused on the development of n-butanol, a related compound to isobutanol. These companies include Cathay Industrial Biotech Ltd., METabolic EXplorer S.A., Eastman Chemicals Company, and Green Biologics Ltd. We understand that these companies produce n-butanol from an acetone-butanol-ethanol (“ABE”) fermentation process primarily for the small chemicals markets. ABE fermentation using a Clostridia biocatalyst has been used in industrial settings since 1919. As discussed in several academic papers analyzing the ABE process, such fermentation is handicapped in competitiveness by high energy costs due to low concentrations of butanol produced and significant volumes of water processed. It requires high capital and operating costs to support industrial scale production due to the low rates of the Clostridia fermentation, and results in a lower butanol yield because it produces ethanol and acetone as by-products. We believe our proprietary process has many significant advantages over the ABE process because of its limited requirements for new capital expenditures, its production output of only isobutanol as a primary product and its limited water usage in production. We believe these advantages will produce a lower cost isobutanol compared to n-butanol produced by ABE fermentation. N-butanol’s lower octane rating compared to isobutanol gives it a lower value in the gasoline blendstock market, but n-butanol can compete directly in many solvent markets where n-butanol and isobutanol have similar performance characteristics.

Gasoline blendstocks. In the gasoline blendstock market, isobutanol competes with non-renewable alkylate and renewable ethanol. We estimate the total potential global market for isobutanol as a gasoline blendstock to be approximately 4043 BGPY. Alkylate is a premium value gasoline blendstock typically derived from petroleum. However, petroleum feeds for alkylate manufacture are pressured by continued increases in the use of natural gas to generate olefins for the production of alkylate, due to the low relative cost of natural gas compared to petroleum. Isobutanol has fuel properties similar to alkylate and, as such, we expect that isobutanol could be used as a substitute for some alkylate in fuel applications. Ethanol is renewable and has a high octane rating, and although it has a high RVP, ethanol receives a one pound RVP waiver in a large portion of the U.S. gasoline market. Renewability is important in the U.S. because the Renewable Fuels Standard program mandates that a minimum volume of renewable blendstocks be used in gasoline each year. A high octane rating is important for engine performance and is a valuable characteristic because many inexpensive gasoline blendstocks have lower octane ratings. Low RVP is important because the U.S. Environmental Protection Agency (“EPA”) sets maximum permissible RVP levels for gasoline. In markets where low RVP is important, isobutanol can enable refiners to meet fuel specifications at lower cost. Ethanol’s vapor pressure waiver is valuable because it offsets much of the negative value of ethanol’s high RVP. We believe that our isobutanol will be valued for its combination of low RVP, low water solubility, relatively high octane and renewability.

Many production and technology supply companies are working to develop ethanol production from cellulosic feedstocks, including Shell Oil Company, DuPont-Danisco Cellulosic Ethanol LLC, Abengoa Bioenergy, S.A., POET, LLC, ICM, Inc., Mascoma Corporation, Inbicon A/S, INEOS New Planet BioEnergy LLC, Archer Daniels Midland Company, BlueFire Ethanol, IncZeaChemRenewables, Inc., ZeaChem Inc., Iogen Corporation, Qteros, Inc., and many smaller startup companies. Successful commercialization by some or all of these companies will increase the supply of renewable gasoline blendstocks worldwide, potentially reducing the market size or margins available to isobutanol.

Of particular interest to us is the “ethanol free” gasoline blendstock market.  This market segment is estimated by the EIA to be approximately 5 BGPY in non RFG regions.  In the past, ethanol free gasoline could not be sold in RFG areas because RFG areas require oxygen in gasoline.  Isobutanol can now be used in the RFG areas to make an ethanol free gasoline.  The estimated potential of isobutanol blended gasoline is estimated to be about 2 BGPY.   Isobutanol containing gasoline has been successfully introduced in the Houston region. It appears that isobutanol is uniquely suited to address the market for ethanol free gasoline in RFG areas.  We are unaware of any other viable alternative.

Plastics, fibers, polyester, rubber and other polymers. Isobutanol can be dehydrated to produce butenes, hydrocarbon intermediates currently used in the production of plastics, fibers, polyester, rubber and other polymers. The straightforward conversion of our isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in


multiple markets. These markets include butyl rubber, lubricants and additives derived from butenes such as isobutylene, poly methyl methacrylate from isobutanol, propylene for polypropylene from isobutylene, polyesters made via PX from isobutylene and polystyrene made via styrene.

In these markets, we compete with the renewable isobutanol companies and renewable n-butanol producers described previously, and face similar competitive challenges. Our competitive position versus petroleum-derived plastics, fibers, rubber and other polymers varies, but we believe that the high volatility of petroleum prices, often tight supply markets for petroleum-based petrochemical feedstocks and the desire of many consumers for goods made from more renewable sources will enable us to compete effectively. However, petrochemical companies may develop alternative pathways to produce petrochemical-based hydrocarbon


products that may be less expensive than our isobutanol or more readily available or developed in conjunction with major petrochemical, refiner or end user companies. These products may have economic or other advantages over the plastics, fibers, polyester, rubber and other polymers developed from our isobutanol. Further, some of these companies have access to significantly more resources than we do to develop products.

Additionally, Global Bioenergies, S.A. is pursuing the direct production of isobutylene from renewable carbohydrates. Through analysis of the fermentation pathway, we believe that the direct production of butenes such as isobutylene via fermentation will have higher capital and operating costs than production of butenes derived from our isobutanol.

Hydrocarbon fuels. Beyond direct use as a fuel additive, isobutanol can be converted into many hydrocarbon fuels and specialty blendstocks, offering substantial potential for additional demand in the fuels markets. We will compete with the incumbent petroleum-based fuels industry, as well as biofuels companies. The incumbent petroleum-based fuels industry makes the vast majority of the world’s gasoline, jet and diesel fuels and blendstocks. The petroleum-based fuels industry is mature, and includes a substantial base of infrastructure for the production and distribution of petroleum-derived products. However, the industry faces challenges from its dependence on petroleum. High and volatile oil prices will provide an opportunity for renewable producers relying on biobased feedstocks like corn, which in recent years have had lower price volatility than oil, to compete.

Biofuels companies will provide substantial competition in the gasoline market. These biofuels competitors are numerous and include both large established companies and numerous startups. Government tax incentives for renewable fuel producers and regulations such as the RFS2United States Renewable Fuel Standard Program or RFS Program help provide opportunities for renewable fuels producers to compete. In particular, in the gasoline and gasoline blendstock markets, Virent Energy Systems, Inc. (“Virent”) offers a competitive process for making gasoline and gasoline blendstocks. However, we have the advantage of being able to target conversion of isobutanol into specific high-value molecules such as isooctane, which can be used to make gasoline blendstocks with a higher value than whole gasoline, which we do not believe Virent’s process can match. In the jet fuel market, we may face competition from companies such as Synthetic Genomics, Inc., Solazyme, Inc., Sapphire Energy, Inc. and Exxon-Mobil Corporation, which are pursuing production of jet fuel from algae-based technology. Renewable Energy Group, Inc. and others are also targeting production of jet fuels from vegetable oils and animal fats. Red Rock Biofuels LLC, Fulcrum BioEnergy, Inc. and others are planning to produce jet fuel from renewable biomass.  In the diesel fuels market, competitors such as Amyris Biotechnologies, Inc. (“Amyris”) provide alternative hydrocarbon diesel fuel. We believe our technology provides a higher yield on feedstock than the isoprenoid fermentation pathway developed by Amyris, which we believe will yield a production cost advantage.

Ethanol. We compete with numerous ethanol producers located throughout the U.S., many of which have much greater resources than we do, including Archer-Daniels-Midland Company, Green Plains, Inc., POET, LLC and Valero Energy Corporation. Competition for corn supply from other ethanol plants and other corn consumers will likely exist in all areas and regions in which our current and future plants will operate.  We also face competition from foreign producers of ethanol and such competition may increase significantly in the future. Large international companies have developed, or are developing, increased foreign ethanol production capacities. Brazil is the world’s second largest ethanol producing country.  Brazil’s ethanol production is sugarcane-based, as opposed to corn-based, and has historically been less expensive to produce.

Intellectual Property

Our success depends in large part on our proprietary products and technology for which we seek protection under patent, copyright, trademark and trade secret laws. Such protection is also maintained in part using confidential disclosure agreements. Protection of our technologies is important so that we may offer our customers and partners proprietary services and products unavailable from our competitors, and so that we may exclude our competitors from using technology that we have developed or exclusively licensed. If competitors in our industry have access to the same technology, our competitive position may be adversely affected. As of December 31, 2015, we exclusively licensed rights to approximately 92 issued patents and filed patent applications in the U.S. and in various foreign jurisdictions. These licensed patents and patent applications are owned by Cargill and exclusively licensed to us for use in certain fields. These licensed patents and patent applications cover both enabling technologies and products or methods of producing products. Our license to such patents and applications allows us to freely practice the licensed inventions, subject only to the terms of this license.  Effective March 28, 2016, we terminated the License Agreement with Cargill Incorporated,


dated February 19, 2009.  We elected to terminate this agreement because we determined that we no longer needed the Cargill technology for our business.  We do not expect the termination to have an adverse effect on our business.

As of December 31, 2015, weWe have submitted approximately 418hundreds of patent applications in the U.S. and in various foreign jurisdictions. These patent applications are directed to our technologies and specific methods and products that support our business in the biofuel and bioindustrial markets. We continue to file new patent applications, for which terms extend up to 20 years from the filing date in the U.S.

As of December 31, 2015,2017, we have been issued 2624 U.S. patents and 1326 international patents.

In addition to the patents and applications described above, we have a global cross-license to certain patents and applications relating to the production, recovery, and use of isobutanol that are owned or licensed by Butamax.  The global cross-license allows us to freely practice the licensed inventions, subject to the terms of the cross-license. For information regarding this license, see Item 1. Business—Butamaxabove —Butamax Advanced Biofuels LLC—Cross License Agreement.


We will continueintend to file and prosecute patent applications and maintain trade secrets, as is consistent with our business plan, in an ongoing effort to protect our intellectual property. It is possible that our licensors’ current patents, or patents which we may later acquire or license, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents from our filed applications, and may not be able to obtain patents regarding other inventions we seek to protect.  We also may not file patents in each country in which we plan to do business or actually conduct business. Under appropriate circumstances, we may sometimes permit certain intellectual property to lapse or go abandoned. Due to uncertainties inherent in prosecuting patent applications, sometimes patent applications are rejected and we may subsequently abandon them. It is also possible that we will develop products or technologies that will not be patentable or that the patents of others will limit or preclude our ability to do business. In addition, any patent issued to us may provide us with little or no competitive advantage, in which case we may abandon such patent or license it to another entity.

We have obtained registered trademarks for Gevo Integrated Fermentation Technology®TM, GIFT®TM, and Gevo® in the U.S. These registered and pending U.S. trademarks are also registered or pending in certain foreign countries.

Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology or products that are similar to or compete with ours. Patent, trademark and trade secret laws afford only limited protection for our technology platform and products. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the U.S. Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to operate using aspects of our intellectual property or products or to obtain and use information that we regard as proprietary. Third parties may also design around our proprietary rights, which may render our protected technology and products less valuable. In addition, if any of our products or technologies is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions. We cannot assure you that our technology platform and products do not infringe patents held by others or that they will not in the future.

Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement, invalidity, misappropriation or other allegations. Any such litigation could result in substantial costs and diversion of our resources.  We may be unable to finance litigation costs, which may harm our ability to enforce our intellectual property rights.  Any settlement of or adverse judgment resulting from such litigation could require us to obtain a license to continue to make, use or sell the products or technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology.

Customers, Partnerships and Collaborations

We commenced a limited commercial scale campaign for the production of isobutanol in 2014 at our Agri-EnergyLuverne Facility to demonstrate commercial scale capacity and sell the resulting product.  We expect initial commercial production to be directed to serve the high-purity and chemical-grade markets, to provide introductory volumes to the specialty fuel blendstock markets in the U.S. and to be further processed at a demonstration plant near Houston, Texas, to fulfill contracts for various hydrocarbons applications such as alcohol-to-jet fuel (“ATJ”)ATJ and PX. In 2014, we also began producing and selling isobutanol distiller’s grains or iDGs™, as an animal feed co-product, in a similar manner as distiller’s grains are sold in the ethanol industry today.

As of December 31, 2015, we had entered into the following key arrangements:

Mansfield Oil Company of Gainesville, Inc. In August 2011, we entered into a commercial off-take agreement with Mansfield Oil Company of Gainesville, Inc. (“Mansfield”) to distribute isobutanol-based fuel into the petroleum market. Mansfield marketsIn 2017, 2016 and distributes fuel to thousands of commercial customers across the U.S. and has over 900 supply points across the U.S. The agreement allows Mansfield to blend our isobutanol for its own use and to be a distributor of


our isobutanol for a term of five years. We also entered into a three-year supply services agreement, with automatic one-year renewals thereafter, with C&N, a Mansfield subsidiary (“C&N”), which will provide supply chain services including logistics management, customer service support, invoicing and billing services. Substantially all ethanol sold by Agri-Energy since its acquisition in September 2010 was sold to C&N pursuant to a separate ethanol purchase and marketing agreement.  

Land O’Lakes Purina Feed LLC. In December 2011, we entered into a commercial off-take and marketing agreement with Land O’Lakes Purina Feed LLC (“Land O’Lakes Purina Feed”) for the sale of iDGs™ produced by the Agri-Energy Facility. Land O’ Lakes Purina Feed provides farmers and ranchers with an extensive line of agricultural supplies (feed, seed, and crop protection products) and services. Pursuant to the agreement, Land O’Lakes Purina Feed will be the exclusive marketer of our iDGs™ and modified wet distiller’s grains for the animal feed market. The agreement has an initial three-year term following the first commercial sales of iDGs™ with automatic one-year renewals thereafter unless terminated by one of the parties. Further, we plan to work with Land O’Lakes Purina Feed to explore opportunities to upgrade the iDGs™ for special value-added applications in feed markets. Land O’ Lakes Purina Feed also provides marketing services for the sale of our ethanol distiller grains.

Alaska Airlines. In May 2015, we entered into a strategic alliance agreement with Alaska Airlines. Pursuant to the terms of this agreement, Alaska Airlines agreed to purchase an initial quantity of our ATJ when and if we secure D7566 certification. In the event that we do not secure ASTM certification by December 31, 2016, the agreement will automatically terminate unless we and Alaska Airlines agree in writing to an extension. In February 2016, we entered into a purchase agreement with Alaska Airlines to supply an additional 20,000 gallons of ATJ. It is anticipated that Gevo will deliver the 20,000 gallons to Alaska Airlines within 90 days of the ASTM D7566 certification being received. All of the ATJ to be supplied under these agreements is expected to be produced from isobutanol at the Hydrocarbons Demo Plant we developed with our partner South Hampton located near Houston, Texas.

BCD Chemie. In April 2015, we entered into a first purchase order to supply isooctene to BCD Chemie, a subsidiary of Brenntag AG, a leading chemical distributor based in Germany. BCD Chemie is targeting applications in Europe to replace petroleum-based hydrocarbons to enable companies to meet regulatory requirements for renewable content in fuels while satisfying the performance requirements of their customers. We subsequently entered into additional purchase orders to supply isooctene to BCD Chemie into 2016. To date, the total value of the purchase orders to BCD Chemie is over $1 million. 

Total Additives & Special Fuels. In September 2014, we entered into an agreement with Total Additifs Et Carburants Speciaux SAS (”Total ACS”) to supply isooctane for formulation into Formula 1® racing fuel. Total ACS is a subsidiary of Total S.A., the French multinational integrated oil and gas company. The contract provided Total ACS with exclusivity for use of our isooctane for Formula 1® racing. The contract expired on December 31, 2015; however, we anticipate continuing to supply isooctane, and potentially other hydrocarbon fuels, to Total ACS in the future. 

U.S. Military. In September 2011, we were awarded a contract by the Defense Logistics Agency (the “DLA”), to supply ATJ to the U.S. Air Force.  The DLA sources and provides nearly 100% of the consumable items the U.S. military needs to operate. Under the contract, we provided the U.S. Air Force with 11,000 gallons of ATJ which was used to support engine testing and a demonstration flight in an A-10 aircraft. The term of the agreement was through December 30, 2012.  The demonstration flight was successfully completed in June 2012. In September 2012, we were awarded an additional contract for the procurement of up to 45,000 gallons of ATJ.  In March 2013, we entered into a contract with the DLA to supply the U.S. Army with 3,650 gallons of biojet fuel and in May 2013 this initial order was increased by 12,500 gallons.   In September 2013, we entered into a contract with the DLA to supply the U.S. Navy with 20,000 gallons of biojet fuel. All of the ATJ supplied under these contracts was produced from isobutanol at the Hydrocarbons Demo Plant.

Toray Industries. In June 2011, we announced that we had successfully produced fully renewable and recyclable PET in cooperation with Toray. Working directly with Toray Industries, we employed prototypes of commercial operations from the petrochemical and refining industries to make PX from isobutanol. Toray Industries used our bio-para-xylene (“bio-PX”) and commercially available renewable mono ethylene glycol to produce fully renewable PET films and fibers. In June 2012, we entered into a definitive agreement with Toray Industries, as amended in October 2013, for the joint development of an integrated supply chain for the production of bio-PET. Pursuant to the terms of the agreement with Toray Industries, we received $1.0 million which we used for the design and construction of a demonstration plant. Toray Industries was obligated to purchase initial volumes of bio-PX produced at the demonstration plant. In May 2014, we successfully shipped these initial volumes of bio-PX.


The Coca Cola Company.  We have established a working relationship with Coca-Cola to create bio-PX from our isobutanol in an effort to accelerate the development of Coca-Cola’s second generation PlantBottle™ packaging made from 100% plant-based materials. In November 2011, we entered into a joint research, development, license and commercialization agreement with Coca-Cola. Pursuant to this agreement, we have agreed to conduct research and development activities, including engineering to produce bio-PX from isobutanol, with the ultimate goal of producing bio-PET for food-grade bottling. Our work is targeted to take the technology from laboratory-scale to commercial-scale and support Coca- Cola’s efforts to lead the beverage industry away from fossil-fuel based packaging by offering an alternative made completely from renewable raw materials. Pursuant to the terms of the agreement, Coca-Cola paid us a fixed fee for the research program during the first two years of the agreement. The research and development activities under the initial agreement were successfully completed and an amendment was entered into in March 2014 that extended the agreement through the end of 2014. We are in ongoing discussions with Coca-Cola to determine the next steps of the collaboration to scale-up the bio-PX technology.

Northwest Advanced Renewables Alliance.  We are a member of the Northwest Advanced Renewables Alliance (“NARA”) and are providing NARA with technology to enable the commercial scale processing of cellulosic sugars from wood waste into valuable products. The cellulosic jet fuel made using our technologies will be used in a 1,000-gallon renewable fuel demonstration test flight.  Our isobutanol and ATJ-SPK technologies are both licensed by NARA as part of this project. NARA is a five-year project supported by the U.S. Department of Agriculture, National Institute of Food and Agriculture, and is comprised of 22 member organizations from industry, academia and government laboratories. Its mission is to facilitate development of biojet and bioproduct industries in the Pacific Northwest using forest residuals that would otherwise become waste products.

These agreements demonstrate the demand for isobutanol from the Agri-Energy Facility and Hydrocarbons Demo Plant. However, certain of the commitments that we have received are non-binding.  There can be no assurance that we will be able to negotiate final terms with these or other companies in a timely manner, or at all, or attract customers based on our arrangements with the petrochemical companies and large brand owners discussed above.  

In 2015, C&N Ethanol Marketing, LLC accounted for approximately 76%, 71% and 71% of our consolidated revenue, respectively.  In the same years, Land O’Lakes Purina Feed LLC accounted for approximately 70%17%, 17% and 19% of our consolidated revenue, respectively. respectively.  Given our production capacity compared to the overall size of the North American market and the demand for our products, we do not believe that a decline in a specific customer's purchases would have a material adverse long-term effect upon our financial results.

As of December 31, 2017, we had entered into the following key arrangements:  

HCS Holding GmbH – In May 2017, we signed a supply agreement with HCS Holding GmbH (HCS) to supply isooctane under a five-year offtake agreement. HCS is a manufacturer of specialty products and solutions in the hydrocarbons sector, operating under such brands as Haltermann Carless. In the first phase of the supply agreement, HCS will purchase isooctane produced at our demonstration hydrocarbons plant located in Silsbee, Texas, commencing in May 2017. The pricing is fixed over the first phase and Gevo estimates that this could generate up to $2-3 million of gross revenue per year.  In the second phase of the supply agreement, HCS agreed to purchase 300,000 gallons of isooctane per year, with an option to purchase an additional 100,000 gallons of isooctane per year, under a five-year offtake arrangement upon commencement of production at our first commercial hydrocarbon facility. The supply agreement contains a pricing formula which is intended to provide us a fixed margin. We expect to supply this isooctane from its first commercial hydrocarbons facility, which is likely to be built at the Luverne Facility.

Musket Corporation. In June 2016, we entered into an agreement with Musket Corporation (“Musket”) to supply isobutanol for blending with gasoline.  Musket is a national fuel distributor under the umbrella of the Love’s Family of Companies.  In


November 2016, we announced that we had entered the on-road automobile gasoline market in Houston in partnership with Musket.  This marked the first time that our isobutanol had been specifically targeted towards on-road vehicles, a much larger market opportunity for isobutanol than specialty segments.  On February 8, 2018, we announced that we had strengthened our existing relationship with Musket Corporation, a national fuel distributor under the umbrella of the Love’s Family of Companies, by amending our existing isobutanol supply agreement to provide Musket with the exclusive right to sell our renewable isobutanol within a 300 mile radius of Houston, Texas.  This agreement establishes a market region that encompasses Austin, Dallas, Fort Worth, Oklahoma, Louisiana, as well as the majority of South and East Texas.

C&N Ethanol Marketing, LLC. In August 2011, we entered into a renewable fuels supply chain services agreement with C&N Ethanol Marketing Corporation, later changed to C&N Ethanol Marketing, LLC by amendment (“C&N”) to provide supply chain services including logistics management, customer service support, invoicing and billing services. Substantially all ethanol sold by us since September 2010 was sold to C&N.

Land O’Lakes Purina Feed LLC. In December 2011, we entered into a commercial off-take and marketing agreement with Land O’Lakes Purina Feed LLC (“Land O’Lakes Purina Feed”) for the sale of iDGs™ produced by the Luverne Facility. Land O’ Lakes Purina Feed provides farmers and ranchers with an extensive line of agricultural supplies (feed, seed, and crop protection products) and services. Pursuant to the agreement, Land O’Lakes Purina Feed will be the exclusive marketer of our iDGs™ and modified wet distiller’s grains for the animal feed market. The agreement has an initial three-year term following the first commercial sales of iDGs™ with automatic one-year renewals thereafter unless terminated by one of the parties. Further, we plan to work with Land O’Lakes Purina Feed to explore opportunities to upgrade the iDGs™ for special value-added applications in feed markets. Land O’ Lakes Purina Feed also provides marketing services for the sale of our ethanol distiller grains.

BCD Chemie. In April 2015, we entered into a first purchase order to supply isooctene to BCD Chemie, a subsidiary of Brenntag AG, a leading chemical distributor based in Germany. BCD Chemie is targeting applications in Europe to replace petroleum-based hydrocarbons to enable companies to meet regulatory requirements for renewable content in fuels while satisfying the performance requirements of their customers. We subsequently entered into additional purchase orders to supply isooctene to BCD Chemie into 2016. To date, the total value of the purchase orders to BCD Chemie is over $1 million. 

Clariant Corp. Since 2016, we have been working with Clariant Corp., one of the world’s leading specialty chemical companies, to develop catalysts to enable Gevo’s “ETO” technology and improve Gevo’s other hydrocarbon technology.  Gevo’s ETO technology, which uses ethanol as a feedstock, produces tailored mixes of propylene, isobutylene and hydrogen, which are valuable as standalone molecules, or as feedstocks to produce other products such as diesel fuel and commodity plastics, that would be drop-in replacements for their fossil-based equivalents.

Northwest Advanced Renewables Alliance.  We have provided NARA with technology to enable the commercial scale processing of cellulosic sugars from wood waste into valuable products. The cellulosic jet fuel made using our technologies was used in a 1,000-gallon renewable fuel commercial flight flown by Alaska Airlines in November 2016.  Our isobutanol and ATJ technologies were both licensed by NARA as part of this project. NARA was a five-year project supported by the U.S. Department of Agriculture, National Institute of Food and Agriculture, and is comprised of 22 member organizations from industry, academia and government laboratories. Its mission was to facilitate development of biojet and bioproduct industries in the Pacific Northwest using forest residuals that would otherwise become waste products.  The NARA project ended in 2017 after a short-term extension with additional financing of approximately $50,000 was provided in the summer of 2017.

Research and Development

Our strategy depends on continued improvement of our technologies for the production of isobutanol, as well as next generation chemicals and biofuels based on our isobutanol technology. Accordingly, we annually devote significant funds to research and development. The following table shows our research and development costs by function (in thousands).  

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

 

2015

 

Biocatalyst development

$

3,435

 

 

$

8,493

 

 

$

10,177

 

$

1,991

 

 

$

2,867

 

 

$

3,435

 

Process engineering and operation of pilot and demo plants

 

1,344

 

 

 

3,943

 

 

 

8,239

 

 

2,188

 

 

 

1,714

 

 

 

1,344

 

Chemistry and applications development

 

1,831

 

 

 

1,684

 

 

 

1,763

 

 

1,003

 

 

 

635

 

 

 

1,831

 

Total Research and Development Expense

$

6,610

 

 

$

14,120

 

 

$

20,179

 

$

5,182

 

 

$

5,216

 

 

$

6,610

 

 


During 2015, 20142017, 2016 and 2013,2015, we recorded revenue from government grants and cooperative agreements in the amounts of $1.2 million, $0.8$44,000, $0.5 million, and $2.7$1.2 million, respectively, which primarily related to research and development activities performed in our biocatalyst, chemistry, and applications development groups.

Our research and development activities are currently being performed primarily in our corporate headquarters located in Englewood, Colorado and the Hydrocarbons Demo Plant near Houston,in Silsbee, Texas.

Government Regulation - Environmental Compliance Costs

Regulation by governmental authorities in the U.S. and other countries is a significant factor in the development, manufacture and marketing of second-generation biofuels. Our isobutanol and the next generation products isobutanol will be used to produce may require regulatory approval by governmental agencies prior to commercialization. In particular, biofuels are subject to rigorous testing and premarket approval requirements by the EPA’s Office of Transportation and Air Quality, and regulatory authorities in other countries. In the U.S., various federal, and, in some cases, state statutes and regulations also govern or impact the manufacturing,


safety, storage and use of biofuels. The process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations requires the expenditure of substantial resources. Regulatory approval, if and when obtained for any of the next generation products isobutanol is used to produce, may be limited in scope, which may significantly limit the uses for which our isobutanol and these next generation products may be marketed.

When built at a dry-mill facility, our GIFT®GIFT™ fermentation process creates iDGs™, a potential animal feed component, as a co-product. We have undertaken aare currently approved to sell iDGs™ as animal feed through the self-assessed Generally Regarded Asas Safe (“GRAS”) process of the U.S. Food and Drug Administration (the “FDA”) via third party scientific review to support the sale of our iDGs™ as animal feed.review. While we believe we can rely on this review,the GRAS process, as we update our biocatalysts to increase isobutanol production, for further customer assurance, we also intend to pursue approval upon a completed biocatalyst from the Center for Veterinary Medicine of the U.S. Food and Drug Administration (the “FDA”).FDA. Even if we receive such approval, the FDA’s policies may change and additional government regulations may be enacted that could prevent, delay or require regulatory approval of our co-products. We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the U.S. or abroad.

Our process contains a genetically engineered organism which, when used in an industrial process, is considered a new chemical under the EPA’s Toxic Substances Control Act program (“TSCA”). EPA’s Biotechnology Program under TSCA requires the submission of certain information of the Office of Pollution Prevention and Toxic Substances.  Due to the nature of our microorganism we can utilize the TSCA Biotechnology Program Tier I and Tier II exemption criteria at our Luverne, Minnesota manufacturing location.  As we expand our business activities, we will pursue the EPA’s Microbial Commercial Activity Notice process for future plants.  We do not anticipate a material adverse effect on our business or financial condition as a result of our efforts to comply with these requirements. However, the TSCA new chemical submission policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our products. We cannot predict the likelihood, nature or extent of adverse governmental regulations that might arise from future legislative or administrative action, either in the U.S. or abroad.

There are various third-party certification organizations, such as ASTM International and Underwriters’ Laboratories, Inc. (“UL”), involved in certifying the transportation, dispensing and use of liquid fuel in the U.S. and internationally. In 2013, a specification for fuel grade isobutanol titled ASTM D7862 “Standard Specification for Butanol for Blending with Gasoline for Use as Automotive Spark-Ignition Engine Fuel” was published. In April 2016, ASTM International completed its process of approving the revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) to include alcohol to jet synthetic paraffinic kerosene (ATJ-SPK) derived from renewable isobutanol. In addition, UL has published guidance on the use of isobutanol-gasoline blends in its UL87A fuel dispensers.  When ATJ-SPK which meets the specifications of ASTM D7566 is blended at a level of 30% or lower with petroleum based jet fuel which meets the specifications of ASTM D1655, the entire blended product meets the specifications of ASTM D1655, conventional jet fuel.  In other words, the blend containing the ATJ-SPK is completely fungible with any conventional D1655 jet fuel. Voluntary standards development organizations may change and additional requirements may be enacted that could prevent or delay marketing approval of our products. The process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources. We do not anticipate a material adverse effect on our business or financial conditions as a result of our efforts to comply with these requirements, but we cannot predict the likelihood, nature or extent of adverse third-party requirements that might arise from future action, either in the U.S. or abroad.

We are subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials and the health and safety of our employees. These laws and regulations require us to obtain environmental permits and comply with numerous environmental restrictions as we construct and operate isobutanol assets. They may require expensive pollution control


equipment or operation changes to limit actual or potential impacts to the environment. A violation of these laws, regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations and facility shutdowns.

There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we own or operate and at off-site locations where we arrange for the disposal of hazardous substances. If these substances are or have been disposed of or released at sites that undergo investigation or remediation by regulatory agencies, we may be responsible under the Comprehensive Environmental Response, Compensation and Liability Act or other environmental laws for all or part of the costs of investigation and remediation. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from the properties. Some of these matters may require us to expend significant amounts for investigation and cleanup or other costs. We are not aware of any material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported or arranged for the disposal of hazardous substances.

In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make significant additional expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments in environmental controls at our facilities which cannot be estimated at this time. Present and future environmental laws and regulations applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions could all require us to make substantial expenditures. For example, our air emissions are subject to the Clean Air Act, the Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. Under the Clean Air Act, the EPA has promulgated National Emissions Standards for Hazardous Air


Pollutants (“NESHAP”), which could apply to facilities that we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we might still be required to come into compliance with another NESHAP at some future time. New or expanded facilities might be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards may also limit our operating flexibility.

As a condition to granting the permits necessary for operating our facilities, regulators could make demands that increase our construction and operations costs, which might force us to obtain additional financing. For example, unanticipated water discharge limits could sharply increase construction costs for our projects. Permit conditions could also restrict or limit the extent of our operations. We cannot guarantee that we will be able to obtain or comply with the terms of all necessary permits to complete the Retrofit of an ethanol plant. Failure to obtain and comply with all applicable permits and licenses could halt our construction and could subject us to future claims.

Our products benefit from the United States Renewable Fuel Standard Program or RFS Program in that our ethanol and isobutanol are currently eligible for Renewable Identification Numbers or RINS that have value based on the current RFS Program.   The RFS Program could change, impacting our products, positively or negatively.

Various systems are being put in place around the workd to measure carbon intensity and reduction of greenhouse gas emissions, with the intent of creating a system to monetize the value of the reduction of carbon.  LCFS in CA is a good example.  In order to benefit from such systems, companies need to have their products qualified through a regulatory process.  There is no guarantee that any benefit could be gained.  Gevo has not yet attempted to gain approval for programs such as LCFS.  

Segments and Geographic Information

We have determined that we have two operating segments: (i) the Gevo Inc. segment; and (ii) the Gevo Development/Agri-EnergyLuverne segment. We organize our business segments based on the nature of the products and services offered through each of our consolidated legal entities. Transactions between segments including revenue, loss from operations and total assets by segment are eliminated in consolidation. For additional financial information related to our segments, see Note 19 to our consolidated financial statements.18 Segments in Item 8. Financial Statements and Supplemental Data, of this Report

Gevo Inc. Segment. Our Gevo Inc. segment is responsible for all research and development activities related to the future production of isobutanol, including the development of our proprietary biocatalysts, the production and sale of biojet fuel, our Retrofit process and the next generation of chemicals and biofuels that will be based on our isobutanol technology. Our Gevo Inc. segment also develops, maintains and protects our intellectual property portfolio, develops future markets for our isobutanol and provides corporate oversight services.

Gevo Development/Agri-Energy SegmentAgri-Energy. . Our Gevo Development/Agri-Energy segment is currently responsible for the operation of our Agri-EnergyLuverne Facility and the production of ethanol, isobutanol and related products. Substantially all of the ethanol produced from the date of the acquisition of the Agri-EnergyLuverne Facility through December 31, 20152017 was sold through an ethanol marketing company. Sales of


ethanol and related products from our Gevo Development/Agri-EnergyLuverne segment comprised approximately 90% of our consolidated revenue for the fiscal year ended December 31, 2015.2017.

The following table sets forth our revenue by reportable segment (in thousands).

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

2,911

 

 

$

4,718

 

 

$

4,822

 

$

1,097

 

 

$

2,425

 

 

$

2,911

 

Gevo Development / Agri-Energy

 

27,226

 

 

 

23,548

 

 

 

3,422

 

 

26,439

 

 

 

24,788

 

 

 

27,226

 

Consolidated

$

30,137

 

 

$

28,266

 

 

$

8,244

 

$

27,536

 

 

$

27,213

 

 

$

30,137

 

 

Geographic Information.  For both the Gevo Inc. segment and the Gevo Development/Agri-Energy, segments, all revenue is earned and all assets are held in the U.S.

Employees

As of December 31, 2015, Gevo, Inc. and its subsidiaries2017, we employed 5951 employees, 2722 of whom were employed by Gevo, Inc. and wereus in our principal offices located in Englewood, Colorado. Of the Gevo, Inc.our employees, 1613 were engaged in research and development activities and 119 were engaged in general, administrative and business development activities. As of December 31, 2015,2017, our subsidiary, Agri-Energy, employed 3229 employees, all of whom were located in Luverne, Minnesota, and involved in the operations of our production facility. None of our employees are represented by a labor union, and we consider our employee relations to be good.

Corporate Information

We were incorporated in Delaware in June 2005 as a corporation under the name Methanotech, Inc. and filed an amendment to our certificate of incorporation changing our name to Gevo, Inc. on March 29, 2006. Our principal executive offices are located at 345 Inverness Drive South, Building C, Suite 310, Englewood, CO 80112, and our telephone number is (303) 858-8358.


Website Access to SEC Filings

We are subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, we are required to file reports and information with the SEC, including reports on the following forms: annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. These reports and other information concerning us may be accessed through the SEC’s website at http://www.sec.gov and on our website at www.gevo.com. Such filings are placed on our website as soon as reasonably practical after they are filed with the SEC. Any information contained in, or that can be accessed through our website, is not incorporated by reference into, nor is it in any way part of, this Report.

 



Item 1A.

Risk Factors

You should carefully consider these risk factors described below before you decide to invest in our securities. The risks described below are not the only ones facing us. Our business is also subject to the risks that affect many other companies, such as competition, technological obsolescence, labor relations, general economic conditions, geopolitical changes and international operations. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations and our liquidity. The risks described below could cause our actual results to differ materially from those contained in the forward-looking statements we have made in this Report, the information incorporated herein by reference and those forward-looking statements we may make from time to time.

Risks Relating to our Business and Strategy

We have substantial indebtedness outstanding and may incur additional indebtedness in the future. Our indebtedness exposes us to risks that could adversely affect our business, financial condition and results of operations.

As of December 31, 2015, the aggregate amount of the outstanding principal and final payments under our amended and restated loan and security agreement with TriplePoint Capital LLC (“TriplePoint”) was approximately $0.5 million and2017, we had $26.1approximately $16.7 million in outstanding 10%12% Convertible Senior Notes, due 2017,2020, which were issued to WB Gevo, Ltd. (“Whitebox”) in June 20142017 (the “2017 Notes”), and $22.4 million in outstanding 7.5% Convertible Senior Notes due 2022, which were issued in July 2012 (the “2022 Notes” and, together with the 2017 Notes, the “Convertible“2020 Notes”). In addition, we and any current and future subsidiaries of ours may incur substantial additional debt in the future, subject to the specified limitations in our existing financing documents and the indenturesindenture governing the Convertible2020 Notes. If new debt is added to our or any of our subsidiaries’ debt levels, the risks described in this “Certain Risks Related to Owning Our Securities” section could intensify.

Our current and future indebtedness could have significant negative consequences for our business, results of operations and financial condition, including:

 

increasing our vulnerability to adverse economic and industry conditions;

 

limiting our ability to obtain additional financing;

 

requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, thereby reducing the amount of our cash flow available for other purposes;

 

limiting our flexibility in planning for, or reacting to, changes in our business; and

 

placing us at a possible competitive disadvantage with less leveraged competitors and competitors that may have better access to capital resources.

We cannot assure you that we will continue to maintain sufficient cash reserves or that our business will generate cash flow from operations at levels sufficient to permit us to pay principal, premium, if any, and interest on our indebtedness, or that our cash needs will not increase. If we are unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments, or if we fail to comply with the various requirements of our existing indebtedness or any other indebtedness which we may incur in the future, we would be in default, which could permit the holders of our indebtedness, including the Convertible Notes, to accelerate the maturity of such indebtedness. Any default under such indebtedness could have a material adverse effect on our business, results of operations and financial condition.

In particular, our indebtedness with Whitebox and TriplePoint is secured by liens on substantially all of our assets, including our intellectual property. If we are unable to satisfy our obligations under such instruments, Whitebox or TriplePoint, as applicable, could foreclose on our assets, including our intellectual property. Any such foreclosure could force us to substantially curtail or cease our operations which could have a material adverse effect on our business, financial condition and results of operations.


There is substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain further financing.

Our audited financial statements for the year ended December 31, 2015,2017, were prepared under the assumption that we would continue our operations as a going concern.  Our independent registered public accounting firm for the year ended December 31, 20152017 included a “going concern” emphasis of matter paragraph in its report on our financial statements as of, and for the year ended, December 31, 2015,2017, indicating that the amount of working capital at December 31, 20152017 was not sufficient to meet the cash requirements to fund planned operations  through December 31, 2016the period that is one year after the date our 2017 financial statements are issued without additional sources of cash, which raises substantial doubt about our ability to continue as a going concern. Uncertainty concerning our ability to continue as a going concern may hinder our ability to obtain future financing. Continued operations and our ability to continue as a going concern are dependent on our ability to obtain additional funding in the near future and thereafter, and there are no assurances that such funding will be available to us at all or will be available in sufficient amounts or on reasonable terms.


Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. Based on our current operating plan, existing working capital at December 31, 2017 was not sufficient to meet the cash requirements to fund planned operations through the period that is one year after the date our 2017 financial statements are issued unless we are able to restructure and extend our debt obligations and/or raise additional capital to fund operations. Without additional funds from private and/or public offerings of debt or equity securities, sales of assets, sales of our licenses of intellectual property or technologies, or other transactions, we will exhaust our resources and will be unable to continue operations. If we cannot continue as a viable entity, our stockholders would likely lose most or all of their investment in us.

We have a history of net losses, and we may not achieve or maintain profitability.

We have incurred net losses of $36.2$24.6 million, $41.1$37.2 million, and $66.8$36.2 million during the years ended December 31, 2015, 20142017, 2016 and 2013,2015, respectively. As of December 31, 2015,2017, we had an accumulated deficit of $339.5$401.4 million. We expect to incur losses and negative cash flows from operating activities for the foreseeable future. We currently derive revenue primarily from the sale of isobutanol, ethanol and related products at the Agri-EnergyLuverne Facility, although over certain periods of time, we may and have operated the plant for the sole production of ethanol and related products to maximize cash flows. 

Additionally, we have generated limited revenue from the sale of products such as ATJ, fuelisooctane and isooctene produced from isobutanol that has been used for commercial flights with Alaska Airlines, jet engine qualification and flight demonstration by the U.S. Air Force and other branches of the U.S. military. If our existingmilitary, as well as specialty gasoline applications such as racing fuel.  We have also generated revenue through grants and cooperative agreements are canceled prior to the expected end dates oragreements.  If we are unable to obtain new grants, cooperative agreements or product supply contracts, our revenues could be adversely affected.

Furthermore, we expect to spend significant amounts on the further development and commercial implementation of our technology. We also expect to spend significant amounts acquiring and deploying additional equipment to attain final product specifications that may be required by future customers, acquiring or otherwise gaining access to additional ethanol plants and Retrofitting them for isobutanol production, on marketing, general and administrative expenses associated with our planned growth, on management of operations as a public company, and on debt service obligations. In addition, the cost of preparing, filing, prosecuting, maintaining and enforcing patent, trademark and other intellectual property rights and defending ourselves against claims by others that we may be violating their intellectual property rights may be significant.

In particular, over time, costs related to defending the validity of our issued patents and challenging the validity of the patents of others at the U.S. Patent and Trademark Office (“USPTO”) may be significant. As a result, even if our revenues increase substantially, we expect that our expenses will exceed revenues for the foreseeable future. We do not expect to achieve profitability during the foreseeable future, and may never achieve it. If we fail to achieve profitability, or if the time required to achieve profitability is longer than we anticipate, we may not be able to continue our business. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

We will require substantial additional financing to achieve our goals, and a failure to obtain this capital when needed or on acceptable terms could force us to delay, limit, reduce or terminate our development and commercialization efforts.

Significant portions of our resources have been dedicated to research and development, as well as demonstrating the effectiveness of our technology through the Retrofit of the Agri-EnergyLuverne Facility. We believe that we will continue to expend substantial resources for the foreseeable future on further developing our technologies, developing future markets for our isobutanol and accessing and Retrofitting facilities necessary for the production of isobutanol on a commercial scale. These expenditures may include costs associated with research and development, accessing existing ethanol plants, Retrofitting or otherwise modifying the plants to produce isobutanol, obtaining government and regulatory approvals, acquiring or constructing storage facilities and negotiating supply agreements for the isobutanol we produce. In addition, other unanticipated costs may arise. Because the costs of developing our technology at a commercial scale are highly uncertain, we cannot reasonably estimate the amounts necessary to successfully commercialize our production.

To date, we have funded our operations primarily through equity offerings, issuances of debt, borrowing under our secured debt financing arrangements and revenues earned primarily from the sale of ethanol. Based on our current plans and expectations, we will


require additional funding to achieve our goals. In addition, the cost of preparing, filing, prosecuting, maintaining and enforcing patent, trademark and other intellectual property rights and defending against claims by others that we may be violating their intellectual property rights may be significant. Moreover, our plans and expectations may change as a result of factors currently unknown to us, and we may need additional funds sooner than planned and may seek to raise additional funds through public or private debt or equity financings in the near future. We may also choose to seek additional capital sooner than required due to favorable market conditions or strategic considerations.


Our future capital requirements will depend on many factors, including:

 

the timing of, and costs involved in developing and optimizing our technologies for full-scale commercial production of isobutanol;

 

the timing of, and costs involved in accessing existing ethanol plants;

 

the timing of, and costs involved in Retrofitting the plants we access with our technologies;

 

the costs involved in establishing enhanced yeast seed trains, including at the Agri-EnergyLuverne Facility;

 

the costs involved in acquiring and deploying additional equipment to attain final product specifications including at the Agri-EnergyLuverne Facility, that may be required by future customers;

 

the costs involved in increasing our isobutanol production capacity, including at the Agri-EnergyLuverne Facility;

the cost and timing to expand the Luverne Facility into our first commercial hydrocarbons facility;

 

the cost of operating, maintaining and increasing production capacity of the Retrofitted plants;

 

our ability to negotiate agreements supplying suitable biomass to our plants, and the timing and terms of those agreements;

 

the timing of, and the costs involved in developing adequate storage facilities for the isobutanol we produce;

 

our ability to gain market acceptance for isobutanol as a specialty chemical, gasoline blendstock and as a raw material for the production of hydrocarbons;

 

our ability to negotiate supply agreements for the isobutanol we produce, and the timing and terms of those agreements, including terms related to sales price;

 

our ability to negotiate sales of our isobutanol for full-scale production of butenes and other industrially useful chemicals and fuels, and the timing and terms of those sales, including terms related to sales price;

 

our ability to sell the iDGs™ left as a co-product of fermenting isobutanol from corn as animal feedstock;

 

our ability to establish and maintain strategic partnerships, licensing or other arrangements and the timing and terms of those arrangements; and

 

the cost of preparing, filing, prosecuting, maintaining, defending and enforcing patent, trademark and other intellectual property claims, including litigation costs and the outcome of such litigation.

Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. In addition, our ability to raise additional funds will be subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox and/or TriplePoint.the 2020 Notes. If needed funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate:

 

our research and development activities;

 

our plans to access and/or Retrofit existing ethanol facilities;

 

our production of isobutanol at Retrofitted plants;plants, including at the Luverne Facility;

any plans to further expand production of isobutanol or other products at the Luverne Facility;

 

our production of hydrocarbons at ourthe demonstration plant located at the South Hampton facility near Houston, TX, or any other future facilities;

 

our efforts to prepare, file, prosecute, maintain and enforce patent, trademark and other intellectual property rights and defend against claims by others that we may be violating their intellectual property rights; and/or

 

our activities in developing storage capacity and negotiating supply agreements that may be necessary for the commercialization of our isobutanol production.

We may need to cease production at the Luverne Facility due to the condition of two of our fermentation vessels.

As an older production facility, the Luverne Facility is more susceptible to maintenance issues that result in production challenges than newer production facilities.  In the second quarter of 2017, we hired a third-party engineering firm to test the structural integrity of two of our oldest fermentation vessels.  These fermentation vessels are fabricated from carbon steel and are dedicated to ethanol production. Currently it is estimated that these two fermentation vessels likely have approximately two years and three months, respectively, of useful life remaining under the current operating strategy unless they are replaced or repaired. It is possible that the condition of the two affected fermentation vessels could force us to cease isobutanol production or to completely cease all production


activities at the Luverne Facility for an extended period of time.  Any such production stoppages or costs incurred to repair or replace such vessels could have a material adverse effect on our business, financial condition and results of operations.

We may be unable to successfully negotiate final, binding terms related to our current non-binding isobutanol, ATJ and other hydrocarbon supply and distribution agreements, which could harm our commercial prospects.

From time-to-time, we agree to preliminary terms regarding supplying isobutanol or the products derived from it to various companies for their use or further distribution. We may be unable to negotiate final terms with these or other companies in a timely manner, or at all, and there is no guarantee that the terms of any final agreement will be the same or similar to those currently contemplated in our preliminary agreements. Final terms may include less favorable pricing structures or volume commitments, more expensive delivery or purity requirements, reduced contract durations and other adverse changes. Delays in negotiating final contracts could slow our initial isobutanol commercialization, and failure to agree to definitive terms for sales of sufficient volumes of isobutanol could prevent us from growing our business. To the extent that terms in our initial supply and distribution contracts may influence negotiations regarding future contracts, the failure to negotiate favorable final terms related to our current preliminary agreements could have an especially negative impact on our growth and profitability. Additionally, we have not demonstrated that we can meet the production levels contemplated in our current non-binding supply agreements. If our production scale-up proceeds more slowly than we expect, or if we encounter difficulties in successfully completing plant Retrofits, potential customers, including those with whom we have current letters of intent, may be less willing to negotiate definitive supply agreements, or demand terms less favorable to us, and our performance may suffer.

Our Retrofit of the Agri-EnergyLuverne Facility is our first commercial Retrofit and, as a result, our full-scale commercial production of isobutanol at the Agri-EnergyLuverne Facility could be delayed or we could experience significant cost overruns in comparison to our current estimates.

In September 2010, we acquired ownership of the Agri-EnergyLuverne Facility in Luverne, Minnesota. To date, we have successfully demonstrated fermentation operations at commercial scale combined with the use of our GIFT ®separation system using corn mash feedstock at the Agri-EnergyLuverne Facility. We may incur additional costs in order to further optimize the production of isobutanol, or both isobutanol and ethanol simultaneously, at the Agri-EnergyLuverne Facility.  We may determine that it is necessary to incur additional costs to further optimize the Agri-EnergyLuverne Facility or to increase production of isobutanol or other products at the Luverne Facility, but the funds necessary may not be available when we need them, on terms that are acceptable to us or at all. In addition, our ability to raise additional funds will be subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox and/or TriplePoint.the 2020 Notes. If additional funding is not available to us, or not available on terms acceptable to us, our ability to optimize the isobutanol production technology currently in place at the Agri-EnergyLuverne Facility and achieve full-scale commercial production at this facility may be limited. Such a result could reduce the scope of our business plan and have an adverse effect on our results of operations.

The Agri-EnergyLuverne Facility is our first commercial isobutanol production facility, and, as such, we may be unable to produce planned quantities of isobutanol and any such production may be more costly than we anticipate.

Since commencing initial startup operations for the production of isobutanol at the Agri-EnergyLuverne Facility in May 2012, we have encountered some production challenges, including contamination issues, which have resulted in lower than planned isobutanol production.  While we have resumed limited production of isobutanol at the Agri-EnergyLuverne Facility, this is our first commercial isobutanol production facility and we may encounter further production challenges, including, but not limited to, being unable to manage plant contamination, and we may need to add additional processing steps or incur additional capital expenditures to achieve our target customers’ product specifications.specifications and/or to increase production levels at the facility. In addition, the Luverne Facility was constructed in 1998.  As an older production facility, the Luverne Facility may be more susceptible to maintenance issues that result in production challenges than newer production facilities.  Any such production challenges may delay our ramp up of production capacity, prevent us from producing significant quantities of isobutanol, significantly increase our cost to produce isobutanol, or cause us to switch to producing ethanol or produce both products simultaneously, which could have a material adverse effect on our business, financial condition and results of operations.

Some of our Retrofits, including the Retrofit of the Agri-EnergyLuverne Facility, may include additional equipment that we believe will allow us to switch between ethanol and isobutanol production, or produce both products simultaneously, but we cannot guarantee that we will be successful in switching between isobutanol and ethanol production, or producing both products simultaneously, in a timely or efficient manner at these facilities.

In July 2014, we began more consistent co-production of isobutanol and ethanol at our Agri-EnergyLuverne Facility with one fermenter utilized for isobutanol production and three fermenters utilized for ethanol production.  We believe that the capability to switch between ethanol and isobutanol production, or produce both products simultaneously (as evidenced by our Agri-EnergyLuverne Facility) will, subject to regulatory factors and depending on market conditions, mitigate certain significant risks associated with startup operations for isobutanol production, but there can be no assurance that we will be able to revert to ethanol production, or produce both products


simultaneously at future plants, or that it will make sense, based on the then-current economic conditions for the production of ethanol, to do so. Even if we are able to revert to ethanol production, or produce both products simultaneously at certain facilities, those facilities may produce ethanol less efficiently or in lower volumes than they did prior to the Retrofit and such ethanol production may not generate positive economic returns. If we are unable to produce isobutanol at the volumes, rates and costs that we expect and are unable to revert to ethanol production at full capacity, or produce both products simultaneously, we would be unable to match the facility’s historical economic performance and our business, financial condition and results of operations would be materially adversely affected.

Fluctuations in the price of corn and other feedstocks may affect our cost structure.

Our approach to the biofuels and chemicals markets will be dependent on the price of corn and other feedstocks that will be used to produce ethanol and isobutanol. A decrease in the availability of plant feedstocks or an increase in the price may have a material adverse effect on our financial condition and operating results. At certain levels, prices may make these products uneconomical to use and produce, as we may be unable to pass the full amount of feedstock cost increases on to our customers.

The price and availability of corn and other plant feedstocks may be influenced by general economic, market and regulatory factors. These factors include weather conditions, farming decisions, government policies and subsidies with respect to agriculture and international trade, and global demand and supply. For example, corn prices may increase significantly in response to drought conditions in the Midwestern region of the U.S. and any resulting decrease in the supply of corn could lead to the restriction of corn supplies, which in turn could cause further increases in the price of corn. The significance and relative impact of these factors on the price of plant feedstocks is difficult to predict, especially without knowing what types of plant feedstock materials we may need to use.


Fluctuations in the price and availability of natural gas may harm our performance.

The ethanol facilities that we have Retrofitted or plan to Retrofit to produce isobutanol use significant amounts of natural gas to produce ethanol. After Retrofit with our GIFT ® technology, these facilities will continue to require natural gas to produce isobutanol and/or ethanol. Accordingly, our business is dependent upon natural gas supplied by third parties. The prices for and availability of natural gas are subject to volatile market conditions. These market conditions are affected by factors beyond our control, such as weather conditions, overall economic conditions and governmental regulations. Should the price of natural gas increase, our performance could suffer. Likewise, disruptions in the supply of natural gas could have a material impact on our business and results of operations.

Fluctuations in petroleum prices and customer demand patterns may reduce demand for biofuels and bio-based chemicals.

We anticipate marketing our biofuel as an alternative to petroleum-based fuels. Therefore, if the price of oil falls, any revenues that we generate from biofuel products could decline, and we may be unable to produce products that are a commercially viable alternative to petroleum-based fuels. Additionally, demand for liquid transportation fuels, including biofuels, may decrease due to economic conditions or otherwise. We will encounter similar risks in the chemicals industry, where declines in the price of oil may make petroleum-based hydrocarbons less expensive, which could reduce the competitiveness of our bio-based alternatives.

Changes in the prices of distiller’s grains and iDGs™ could have a material adverse effect on our financial condition.

We sell distiller’s grains as a co-product from the production of ethanol at the Agri-EnergyLuverne Facility during any period in which the production of isobutanol is temporarily paused and our management decides based on the then-current economic conditions for the production of ethanol, that the Agri-EnergyLuverne Facility will be temporarily reverted to ethanol production, or during periods in which we produce both isobutanol and ethanol simultaneously. We may also sell distiller’s grains produced by other ethanol facilities that we acquire, enter into a joint venture or tolling arrangement with, or license to in the future. We also sell the iDGs™ that are produced as a co-product of our commercial isobutanol production. Distiller’s grains and iDGs™ compete with other animal feed products, and decreases in the prices of these other products could decrease the demand for and price of distiller’s grains and iDGs™. Additionally, we have produced limited quantities of commercial iDGs™ and, as such, there is a risk that our iDGs™ may not meet market requirements. If the price of distiller’s grains and iDGs™ decreases or our iDGs™ do not meet market requirements, our revenue from the sale of distiller’s grains and future revenue from the sale of iDGs™ could suffer, which could have a material adverse effect on our financial condition.

To the extent that we produce ethanol before commencing isobutanol production, or during periods in which we make the strategic decision to revert to ethanol production, or produce both products simultaneously, we will be vulnerable to fluctuations in the price of and cost to produce ethanol.

We believe that, like the Agri-EnergyLuverne Facility, the other third-party ethanol production facilities we access can continue to produce ethanol during most of the Retrofit process. In certain cases, we may obtain income from this ethanol production. Further, we have


designed our isobutanol production technology (including the Retrofit of the Agri-EnergyLuverne Facility) to allow us to revert to ethanol production at certain facilities, or produce both products simultaneously, when the economic conditions for ethanol production make such production desirable. Our earnings from ethanol revenue will be dependent on the price of, demand for and cost to produce ethanol. Decreases in the price of ethanol, whether caused by decreases in gasoline prices, changes in regulations, seasonal fluctuations or otherwise, will reduce our revenues, while increases in the cost of production will reduce our margins. To the extent that ethanol production costs increase or price decreases, earnings from ethanol production could suffer, which could have a material adverse effect on our business.

In recent years, the spread between ethanol and corn prices has fluctuated widely. Fluctuations are likely to continue to occur. Unfavorable weather conditions led to a smaller than expected corn harvest across affected areas of the U.S. Midwest region in the fall of 2012. This, along with smaller corn carryover in 2010 and 2011 and higher export demand for corn led to higher corn prices during 2012 and the first half of 2013 and increased corn price volatility. The price of ethanol during that time did not keep pace with rising corn prices which resulted in lower and, in some instances negative, operating margins in the ethanol industry. As a result, during the fourth quarter of 2012, our management determined that the production of ethanol at the Agri-Energy Facility would not produce a positive margin versus maintaining the Agri-Energy Facility at idle. Likewise, the recent decline in oil prices has translated into lower gasoline prices in the U.S., which have resulted in lower ethanol prices and ethanol profit margins. It is unclear when or if ethanol prices may rebound, and consequently, when or if near-term ethanol margins will increase from current levels. Our inability to rely on ethanol production as an alternative revenue source due to rising corn prices or otherwise could have a material adverse effect on our business, financial condition and results of operations.


Sustained narrow commodity margins may cause us to operate at a loss or to reduce or suspend production of ethanol and/or isobutanol at the Agri-EnergyLuverne Facility, and we may or may not be able to recommence production when margins improve.

Our results from operations will be substantially dependent on commodity prices. Many of the risks associated with volatile commodity prices, including fluctuations in feedstock costs and natural gas costs, apply both to the production of ethanol and isobutanol. Sustained unfavorable commodity prices may cause our combined revenues from sales of ethanol, isobutanol and related co-products to decline below our marginal cost of production. As market conditions change, our management may decide to reduce or suspend production of ethanol and/or isobutanol at the Agri-EnergyLuverne Facility.

The decision to reduce or suspend production at a facility may create additional costs related to continued maintenance, termination of staff, certain unavoidable fixed costs, termination of customer contracts and increased costs to increase or recommence production in the future. These costs may make it difficult or impractical to increase or recommence production of ethanol and/or isobutanol at the Agri-EnergyLuverne Facility even if margins improve. In addition, any reduction or suspension of the production of ethanol and/or isobutanol at the Agri-EnergyLuverne Facility may slow or stop our commercialization process, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be successful in the development of individual steps in, or an integrated process for, the production of commercial quantities of isobutanol from plant feedstocks in a timely or economic manner, or at all.

As of the date of this filing, we have produced only limited quantities of isobutanol at commercial scale and we may not be successful in increasing our production from these limited startup production levels to nameplate production levels. The production of isobutanol requires multiple integrated steps, including:

 

obtaining the plant feedstocks;

 

treatment with enzymes to produce fermentable sugars;

 

fermentation by organisms to produce isobutanol from the fermentable sugars;

 

distillation of the isobutanol to concentrate and separate it from other materials;

 

purification of the isobutanol; and

 

storage and distribution of the isobutanol.

Our future success depends on our ability to produce commercial quantities of isobutanol in a timely and economic manner. Our biocatalysts have not yet produced isobutanol at nameplate production levels. While we have produced isobutanol using our biocatalysts at our laboratories in Colorado, at the one MGPY demonstration facility and at the Agri-EnergyLuverne Facility in commercial-scale fermenters, such production wasour biocatalysts have not yet produced isobutanol at full nameplate capacity offully optimized levels at a commercial facility. Our production since the fourth quarter of 2013 has utilized a corn mash feedstock, but risk still exists for achieving nameplate capacity at the Agri-Energy Facility. The risk of contamination and other problems rises as we increase the scale of our isobutanol production. If we are unable to successfully manage these risks, we may encounter difficulties in achieving our target isobutanol production yield, rate, concentration or purity at a commercial scale, which could delay or increase the costs involved in commercializing our isobutanol production. In addition, we have limited experience sourcing large quantities of feedstocks and in storing and/or distributing significant volumes of isobutanol. The technological and logistical challenges associated with each of the processes involved in production, sale and distribution of isobutanol are extraordinary, and we may not be able to resolve any difficulties that arise in a timely or cost effective manner, or at all. Even if we are successful in developing an economical process for converting plantfirst generation carbohydrate feedstocks such as corn and sugar cane into commercial quantities of isobutanol, we may not be able to adapt such process to other biomass raw materials, including cellulosic biomass.

Prior to commencement of the Agri-EnergyLuverne Facility Retrofit, we had never built (through Retrofit or otherwise) or operated a commercial isobutanol facility. We assumebelieve that we understand how the engineering and process characteristics of the one MGPY demonstration facility willnecessary to successfully scale up to larger facilities, and we expect to incur additional capital expenditures to increase isobutanol production levels at the Luverne Facility, but these assumptions may prove to be incorrect. Accordingly, we cannot be certain that we can consistently produce isobutanol in an economical manner in commercial quantities. If our costs to build large-scale commercial isobutanol facilities are significantly higher than we expect or if we fail to consistently produce isobutanol economically on a commercial scale or in


commercial volumes, our commercialization of isobutanol and our business, financial condition and results of operations will be materially adversely affected.

We have entered into a licensing agreement with Porta Hnos S.A. (“Porta”) to Retrofit their facility in Argentina, and the production of isobutanol at the Porta facility could be delayed and, as a result, any royalties or other revenues expected to be derived from the licensing agreement may be delayed.

In January 2016, we entered into a license agreement and joint development agreement with Porta to construct multiple isobutanol plants in Argentina using corn as a feedstock, the first of which is expected to be wholly owned by Porta (the “Porta


Facility”) and is anticipated to begin producing isobutanol in 2017..  The plant is expected to have a production capacity of up to five million gallons of isobutanol per year. Once the plant is operational, Gevo expects to generate revenues from this licensing arrangement, through royalties, sales and marketing fees, and other revenue streams such as yeast sales.  The agreements also contemplate Porta constructing at least three additional isobutanol plants for certain of their existing ethanol plant customers. For these projects, Gevo would be the direct licensor of its technology and the marketer for any isobutanol produced, and would expect to receive all royalties and sales and marketing fees generated from these projects. Porta would provide the engineering, procurement and construction (“EPC”) services for the projects. The production capacity of these additional plants is still to be determined.

Although we will be able to apply our experience from the Retrofit of the Agri-EnergyLuverne Facility, no two ethanol facilities are exactly alike, and each Retrofit or construction project will require individualized engineering and design work.  Unexpected difficulties unique to the Porta Facility may cause delays in commencing production, and there is no guarantee that we will be successful in properly completing the project. Any such unexpected difficulties could delay or limit the revenues that we are able to derive from the licensing arrangement with Porta.  Moreover, there can be no assurances that the Retrofit of the Porta facility will ever be completed or Porta will construct other isobutanol plants as contemplated.  If the Porta Facility project is not completed or if Porta does not construct additional isobutanol facilities, Gevo will not generate any revenue.  In addition, if GevoPorta experiences delays or is unsuccessful in completing the Porta Facility project, this may limit Gevo’s ability to license its technology to others, which could reduce the scope of Gevo’s business plan and have a material adverse effect on Gevo’s results of operations. In addition, if we experience delays or are unsuccessful in completing the Porta Facility project, this may limit our ability to license our technology to others, which could reduce the scope of our business plan and have a material adverse effect on our results of operations.

Our development strategy relies on our relationships with partners such as Praj Industries Limited (“Praj”) and Porta.

In November 2015, we entered into a joint development agreement and a development license agreementwith Praj with the goal for Praj to adapt our isobutanol technology to using non-corn based sugars and lignocellulose feedstocks. Praj is one of the leading suppliers of EPC services to the ethanol industry globally, having provided such services to approximately 350 ethanol plants across 65 countries. As a result, we believe that our alliance with Praj will allow us to more quickly achieve commercial-scale production of isobutanol derived from the Feedstockfeedstock outside of the U.S. Porta is a leading supplier of EPC services to the ethanol industry in South America. As a result, we believe that our alliance with Porta will allow us to more quickly achieve commercial-scale production of isobutanol in Argentina and potentially elsewhere in South America. However, Praj and Porta may fail to fulfill their obligations to us under our agreements with them such as failing to meet milestones associated with our joint development agreement. If Praj and Porta fail to fulfill their obligations to us under our agreements, our ability to realize continued development and commercial benefits from our alliance could be affected and our business and prospects could be harmed.

In addition, we may be unable to secure other partners beyond Praj and Porta to assist us in developing commercial isobutanol projects globally. If we are unable to secure such additional partnerships, our business and prospects could be harmed.

We may not be able to successfully identify and acquire access to additional ethanol production facilities suitable for efficient Retrofitting, or acquire access to sufficient capacity to be commercially viable or meet customer demand.

Our strategy currently includes accessing and Retrofitting, either independently or with potential development partners or licensees, existing ethanol facilities for the production of large quantities of isobutanol for commercial distribution and sale. In addition to the Agri-EnergyLuverne Facility, we have signed licensing agreements with Porta and Praj and acquired access to a 50 MGPY ethanol plant pursuant to our joint venture with Redfield.Praj. However, we may not find future development partners with whom we can implement this growth strategy, and we may not be able to identify facilities suitable for joint venture, acquisition, lease or license.

Even if we successfully identify a facility suitable for efficient Retrofitting, we may not be able to acquire access to such facility in a timely manner, if at all. The owners of the ethanol facility may reach an agreement with another party, refuse to consider a joint venture, acquisition, lease or license, or demand more or different consideration than we are willing to provide. In particular, if the profitability of ethanol production increases, plant owners may be less likely to consider modifying their production, and thus may be less willing to negotiate with us or agree to allow us to Retrofit their facilities for isobutanol production. We may also find that it is necessary to offer special terms, incentives and/or rebates to owners of ethanol facilities that allow us to access and Retrofit their


facilities while our production technology is being proven on a commercial scale. Even if the owners of a facility are interested in reaching an agreement that grants us access to the plant, negotiations may take longer or cost more than we expect, and we may never achieve a final agreement. Further, our ability to raise additional funds will be subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox, and/or TriplePoint, and we may not be able to raise capital on acceptable terms, or at all, to finance our joint venture, acquisition, participation or lease of facilities.

Even if we are able to access and Retrofit several facilities, we may fail to access enough capacity to be commercially viable or meet the volume demands or minimum requirements of our customers, including pursuant to definitive supply or distribution agreements that we may enter into, which may subject us to monetary damages. Failure to acquire access to sufficient capacity in a timely manner and on favorable terms may slow or stop our commercialization process, which could have a material adverse effect on our business, financial condition and results of operations.


Once we acquire access to ethanol facilities, we may be unable to successfully Retrofit them to produce isobutanol, or we may not be able to Retrofit them in a timely and cost-effective manner.

For each ethanol production facility to which we acquire access, we will be required to obtain numerous regulatory approvals and permits to Retrofit and operate the facility. In the U.S., these include such items as a modification to the air permit, fuel registration with the EPA, ethanol excise tax registration and others. These requirements may not be satisfied in a timely manner, or at all. Later-enacted federal and state governmental requirements may also substantially increase our costs or delay or prevent the completion of a Retrofit, which could have a material adverse effect on our business, financial condition and results of operations.

No two ethanol facilities are exactly alike, and each Retrofit will require individualized engineering and design work. There is no guarantee that we or any contractor we retain will be able to successfully design a commercially viable Retrofit, or properly complete the Retrofit once the engineering plans are completed. Prior to commencement of the Agri-EnergyLuverne Facility Retrofit, we had never built, via Retrofit or otherwise, a full-scale commercial isobutanol facility. Despite our experience with the Retrofit of the Agri-EnergyLuverne Facility, our estimates of the capital costs that we will need to incur to Retrofit a commercial-scale ethanol facility may prove to be inaccurate, and each Retrofit may cost materially more to engineer and build than we currently anticipate. For example, our estimates assume that each plant we Retrofit will be performing at full production capacity, and we may need to expend substantial sums to repair or modify underperforming facilities prior to Retrofit.

Furthermore, the Retrofit of acquired facilities will be subject to the risks inherent in the build-out of any manufacturing facility, including risks of delays and cost overruns as a result of factors that may be out of our control, such as delays in the delivery of equipment and subsystems or the failure of such equipment to perform as expected once delivered. In addition, we will depend on third-party relationships in expanding our isobutanol production capacity and such third parties may not fulfill their obligations to us under our arrangements with them. Delays, cost overruns or failures in the Retrofit process will slow our commercial production of isobutanol and harm our performance.

Though our Retrofit design for certain facilities will include the capability to switch between isobutanol and ethanol production, or produce both products simultaneously (as demonstrated by our Agri-EnergyLuverne Facility), we may be unable to successfully revert to ethanol production, or produce both products simultaneously at certain facilities, or such facilities may produce ethanol less efficiently or in lower volumes than they did before the Retrofit. In addition, we may be unable to secure the necessary regulatory approvals and permits to switch between isobutanol and ethanol production, or produce both products simultaneously, in a timely manner, or at all. Thus, if we fail to achieve commercial levels of isobutanol production at a Retrofitted facility, we may be unable to rely on ethanol production as an alternative or additional revenue source, which could have a material adverse effect on our prospects.

Our facilities and process may fail to produce isobutanol at the volumes, rates and costs we expect.

Some or all of the facilities we choose to Retrofit may be in locations distant from corn or other feedstock sources, which could increase our feedstock costs or prevent us from acquiring sufficient feedstock volumes for commercial production. General market conditions might also cause increases in feedstock prices, which could likewise increase our production costs.

Even if we secure access to sufficient volumes of feedstock, the facilities we Retrofit for isobutanol production may fail to perform as expected. The equipment and subsystems installed during the Retrofit may never operate as planned. Our systems may prove incompatible with the original facility, or require additional modification after installation. Our biocatalyst may perform less efficiently than it did in testing, if at all. Contamination of plant equipment may require us to replace our biocatalyst more often than expected, require unplanned installation or replacement of equipment, or cause our fermentation process to yield undesired or harmful by-products. Likewise, our feedstock may contain contaminants like wild yeast, which naturally ferments feedstock into ethanol. The presence of contaminants, such as wild yeast, in our feedstock could reduce the purity of the isobutanol that we produce and require us to invest in more costly isobutanol separation processes or equipment. Unexpected problems may force us to cease or delay production and the time and costs involved with such delays may prove prohibitive. Any or all of these risks could prevent us from achieving the


production throughput and yields necessary to achieve our target annualized production run rates and/or to meet the volume demands or minimum requirements of our customers, including pursuant to definitive supply or distribution agreements that we may enter into, which may subject us to monetary damages. Failure to achieve these rates or meet these minimum requirements, or achieving them only after significant additional expenditures, could substantially harm our commercial performance.

We may be unable to produce isobutanol, ATJ or other products in accordance with customer specifications.

Even if we produce isobutanol, ATL or other products at our targeted rates, we may be unable to produce isobutanol that meetsthese products to meet customer specifications, including those defined in ASTM D7862 “Standard Specification for Butanol for Blending with Gasoline for Use as Automotive Spark-Ignition Engine Fuel.”Fuel’ or ASTM D7566 “Standard Specifications for Aviation Turbine Fuel Containing Synthesized Hydrocarbons”. We may need to add additional processing steps or incur capital expenditures in order to meet customer specifications which could add significant costs to our production process. For example, at the Agri-EnergyLuverne Facility we intend to acquire and install a product purification column, which we believe will allow us to achieve our target customers’ product


specifications without continuing to rely on third-party contract tolling providers. If we fail to meet specific product or volume specifications contained in a supply agreement, the customer may have the right to seek an alternate supply of isobutanol and/or terminate the agreement completely, and we could be required to pay shortfall fees or otherwise be subject to damages. A failure to successfully meet the specifications of our potential customers could decrease demand, and significantly hinder market adoption of our products.

We lack significant experience operating commercial-scale ethanol and isobutanol facilities, and may encounter substantial difficulties operating commercial plants or expanding our business.

We have very limited experience operating commercial-scale ethanol and isobutanol facilities. Accordingly, we may encounter significant difficulties operating at a commercial scale. We believe that our future facilities will, like the Agri-EnergyLuverne Facility, be able to continue producing ethanol during much of the Retrofit process. We will need to successfully administer and manage this production. ThoughAlthough Porta and the employees of Agri-Energy and Redfieldat the Luverne facility are experienced in the operation of ethanol facilities, and our future development partners or the entities that we acquire may likewise have such experience, we may be unable to manage ethanol-producing operations, especially given the possible complications associated with a simultaneous Retrofit. Once we complete a commercial Retrofit, operational difficulties may increase, because neither we nor anyone else has significant experience operating a pure isobutanol fermentation facility at a commercial scale. The skills and knowledge gained in operating commercial ethanol facilities or small-scale isobutanol plants may prove insufficient for successful operation of a large-scale isobutanol facility, and we may be required to expend significant time and money to develop our capabilities in isobutanol facility operation. We may also need to hire new employees or contract with third parties to help manage our operations, and our performance will suffer if we are unable to hire qualified parties or if they perform poorly.

We may face additional operational difficulties as we further expand our production capacity. Integrating new facilities with our existing operations may prove difficult. Rapid growth, resulting from our operation of, or other involvement with, isobutanol facilities or otherwise, may impose a significant burden on our administrative and operational resources. To effectively manage our growth and execute our expansion plans, we will need to expand our administrative and operational resources substantially and attract, train, manage and retain qualified management, technicians and other personnel. We may be unable to do so. Failure to meet the operational challenges of developing and managing increased production of isobutanol and/or ethanol, or failure to otherwise manage our growth, may have a material adverse effect on our business, financial condition and results of operations.

We may have difficulty adapting our technology to commercial-scale fermentation, which could delay or prevent our commercialization of isobutanol.

While we have demonstrated the ability to produce isobutanol under the demonstration plant operating conditions and under commercial scale operating conditions at the Agri-EnergyLuverne Facility, and we have succeeded in reaching our commercial fermentation performance targets for isobutanol concentration, fermentation productivity and isobutanol yield in laboratory tests, we have not yet reached all performance targets in a commercial plant environment. Ultimately, our yeast biocatalyst may not be able to meet the commercial performance targets at nameplate production capacity in a timely manner, or ever. In addition, the risk of contamination and other problems may increase as we seek to ramp up our production capacity, which could negatively impact our cost of production or require additional capital expenditures to solve for these problems. If we encounter difficulties in optimizing our production, our commercialization of isobutanol and our business, financial condition and results of operations will be materially adversely affected.

We may have difficulties gaining market acceptance and successfully marketing our isobutanol and other hydrocarbon products to customers, including chemical producers, fuel distributors and refiners.

A key component of our business strategy is to market our isobutanol and other hydrocarbon products to chemical producers, fuels distributors, refiners and refiners.other fuel and chemical industry market participants. We have no experience marketing isobutanol on a commercial scale and we may fail to successfully negotiate marketing agreements in a timely manner or on favorable terms. If we fail


to successfully market our isobutanol to refiners, fuels distributors, and chemical producers and others, our business, financial condition and results of operations will be materially adversely affected.

We also intend to market our isobutanol to chemical producers for use in making various chemicals such as isobutylene, a type of butene that can be produced through the dehydration of isobutanol. Although a significant market currently exists for isobutylene produced from petroleum, which is widely used in the production of plastics, specialty chemicals, alkylate for gasoline blending and high octane aviation gasoline, no one has successfully created isobutylene on a commercial scale from bio-isobutanol. Therefore, to gain market acceptance and successfully market our isobutanol to chemical producers, we must show that our isobutanol can be converted into isobutylene at a commercial scale. As no company currently dehydrates commercial volumes of isobutanol into isobutylene, we must demonstrate the large-scale feasibility of the process and potentially reach agreements with companies that are willing to invest in the necessary dehydration infrastructure. Failure to reach favorable agreements with these companies, or the inability of their plants to convert isobutanol into isobutylene at sufficient scale, willmay slow our development in the chemicals market and could significantly affect our profitability.


Obtaining market acceptance in the chemicals industry is complicated by the fact that many potential chemicals industry customers have invested substantial amounts of time and money in developing petroleum-based production channels. These potential customers generally have well-developed manufacturing processes and arrangements with suppliers of chemical components, and may display substantial resistance to changing these processes. Pre-existing contractual commitments, unwillingness to invest in new infrastructure, distrust of new production methods and lengthy relationships with current suppliers may all slow market acceptance of isobutanol.

A very limited market currently exists for isobutanol as a fuel or as a gasoline blendstock. Therefore, to gain market acceptance and successfully market our isobutanol to fuels distributors and refiners, we must effectively demonstrate the commercial advantages of using isobutanol over other biofuels and blendstocks, as well as our ability to produce isobutanol reliably on a commercial scale at a sufficiently low cost. We must show that isobutanol is compatible with existing infrastructure and does not damage pipes, engines, storage facilities or pumps. We must also overcome marketing and lobbying efforts by producers of other biofuels and blendstocks, including ethanol, many of whom may have greater resources than we do. If the markets for isobutanol as a fuel or as a gasoline blendstock do not develop as we currently anticipate, or if we are unable to penetrate these markets successfully, our revenue and growth rate could be materially and adversely affected.

We believe that consumer demand for environmentally sensitive products will drive demand among large brand owners for isobutanol and renewable hydrocarbon sources. One of our marketing strategies is to leverage this demand to obtain commitments from large brand owners to purchase products made from our isobutanol by third parties. We believe these commitments will, in turn, promote chemicals industry demand for our isobutanol.isobutanol and hydrocarbon products. If consumer demand for environmentally sensitive products fails to develop at sufficient scale or if such demand fails to drive large brand owners to seek sources of renewable isobutanol or hydrocarbons, our revenue and growth rate could be materially and adversely affected.

We may have difficulties scaling up our hydrocarbon technology, and, as such, we may be unable to produce commercial quantities of our hydrocarbons, and any such production may be more costly than we anticipate

We have developed a hydrocarbon processing demonstration plant (“Hydrocarbons Demo Plant”) in Silsbee, Texas, in partnership with South Hampton Resources, Inc. The Hydrocarbon Demo Plant can process approximately 6,000 to 7,000 gallons of our isobutanol per month into a variety of renewable hydrocarbons for use as fuels and chemicals. We have demonstrated the ability to convert our isobutanol at this level into products such as ATJ, isooctane, isooctene and par-xylene.

The production and sale of commercial volumes of hydrocarbons such as ATJ, isooctane and isooctene, produced from our isobutanol is anticipated to be an important part of our future business plans. However, we may encounter challenges in scaling up our process to convert isobutanol into hydrocarbon products successfully. In addition, the cost to construct commercial hydrocarbons facilities or the production costs associated with the operation of such facilities may be higher than we project. If we encounter such difficulties, this may significantly impact the development of the markets for our hydrocarbon products and could significantly affect our profitability.

We may be reliant on Butamax to develop certain markets for isobutanol.

As part of the License Agreement entered into with Butamax, it was agreed that Butamax would take the lead in developing the markets for on-road gasoline blendstocks. This would entail progressing the required approvals for these markets, as well as managing the marketing and distribution of our isobutanol and our potential licensee’s isobutanol in these markets beyond certain minimum volumes. If Butamax is unable to obtain the necessary approvals to sell isobutanol into the on-road gasoline blendstock markets, or if it is unsuccessful in building market demand for isobutanol as an on-road gasoline blendstock, our revenue and growth rate could be materially and adversely affected.


We may be required to pay Butamax royalties for selling isobutanol into certain markets, which could hinder our ability to competitively sell our isobutanol into those markets.

As part of the License Agreement entered into with Butamax, it was agreed that we, and our potential licensees, may be required to pay Butamax royalties for selling isobutanol into the on-road gasoline blendstock markets and the chemical isobutylene applications markets beyond certain minimum volumes. The addition of these royalties may make our isobutanol uncompetitive from a price perspective, which may hinder our ability to sell into these markets. If this is the case, our revenue and growth rate could be materially and adversely affected.

We may be unable to successfully negotiate final, binding terms related to our current non-binding isobutanol supply and distribution agreements, which could harm our commercial prospects.

In addition to a limited number of definitive supply and distribution agreements, we have agreed to preliminary terms regarding supplying isobutanol or the products derived from it to various companies for their use or further distribution. We may be unable to negotiate final terms with these or other companies in a timely manner, or at all, and there is no guarantee that the terms of any final agreement will be the same or similar to those currently contemplated in our preliminary agreements. Final terms may include less favorable pricing structures or volume commitments, more expensive delivery or purity requirements, reduced contract durations and other adverse changes. Delays in negotiating final contracts could slow our initial isobutanol commercialization, and failure to agree to definitive terms for sales of sufficient volumes of isobutanol could prevent us from growing our business. To the extent that terms in our initial supply and distribution contracts may influence negotiations regarding future contracts, the failure to negotiate favorable final terms related to our current preliminary agreements could have an especially negative impact on our growth and profitability. Additionally, we have not demonstrated that we can meet the production levels contemplated in our current non-binding supply agreements. If our production scale-up proceeds more slowly than we expect, or if we encounter difficulties in successfully completing plant Retrofits, potential customers, including those with whom we have current letters of intent, may be less willing to negotiate definitive supply agreements, or demand terms less favorable to us, and our performance may suffer.


Even if we are successful in consistently producing isobutanol and our hydrocarbon products on a commercial scale, we may not be successful in negotiating sufficient supply agreements for our production.

We expect that many of our customers will be large companies with extensive experience operating in the fuels or chemicals markets. As an early stage company, we lack commercial operating experience, and may face difficulties in developing marketing expertise in these fields. Our business model relies upon our ability to successfully negotiate and structure long-term supply agreements for the isobutanol and other products we produce. Certain agreements with existing and potential customers may initially only provide for the purchase of limited quantities from us. For example, our agreement with Alaska Airlines entered into in May 2015 provides for the initial purchase of a limited quantity of our ATJ fuel, and does not obligate Alaska Airlines to purchase any additional quantity of jet fuel in addition to the amount to be initially purchased. Our ability to increase our sales will depend in large part upon our ability to expand these existing customer relationships into long-term supply agreements. Maintaining and expanding our existing relationships and establishing new ones can require substantial investment without any assurance from customers that they will place significant orders. In addition, many of our potential customers may be more experienced in these matters than we are, and we may fail to successfully negotiate these agreements in a timely manner or on favorable terms which, in turn, may force us to slow our production, delay our acquiring and Retrofitting of additional plants, dedicate additional resources to increasing our storage capacity and/or dedicate resources to sales in spot markets. Furthermore, should we become more dependent on spot market sales, our profitability will become increasingly vulnerable to short-term fluctuations in the price and demand for petroleum-based fuels and competing substitutes.

Even if we are successful in consistently producing isobutanol and our hydrocarbon products on a commercial scale, we may not be successful in negotiating pricing terms sufficient to generate positive results from operations at the Agri-EnergyLuverne Facility.

We expect that many of our customers will be large companies with extensive experience operating in the fuels or chemicals markets. As an early stage company, we lack commercial operating experience, and may face difficulties in developing marketing expertise in these fields. Our business model relies upon our ability to negotiate pricing terms for the isobutanol and other products we produce that generate positive results from the operations of the Agri-EnergyLuverne Facility. Many of our potential customers may be more experienced in these matters than we are. We may fail to negotiate these agreements in a timely manner, which may force us to dedicate resources to sales in spot markets. If we become more dependent on spot market sales our profitability will become increasingly vulnerable to short-term fluctuations in the price and demand for our products.

Our isobutanol may be less compatible with existing refining and transportation infrastructure than we believe, which may hinder our ability to market our product on a large scale.

We developed our business model based on our belief that our isobutanol is fully compatible with existing refinery infrastructure. For example, when making isobutanol blends, we believe that gasoline refineries will be able to pump our isobutanol through their pipes and blend it in their existing facilities without damaging their equipment. If our isobutanol proves unsuitable for such handling, it will be more expensive for refiners to use our isobutanol than we anticipate, and they may be less willing to adopt it as a gasoline blendstock, forcing us to seek alternative purchasers.

Likewise, our plans for marketing our isobutanol are based upon our belief that it will be compatible with the pipes, tanks and other infrastructure currently used for transporting, storing and distributing gasoline. If our isobutanol or products incorporating our isobutanol cannot be transported with this equipment, we will be forced to seek alternative transportation arrangements, which will make our isobutanol and products produced from our isobutanol more expensive to transport and less appealing to potential customers. Reduced compatibility with either refinery or transportation infrastructure may slow or prevent market adoption of our isobutanol, which could substantially harm our performance.

A sustained low oil price environment may negatively impact the price we receive for the sale of our isobutanol, ethanol and hydrocarbon products.

Many of our end-products such as isobutanol, ethanol and hydrocarbon products have some level of price correlation with crude oil. If crude oil prices were to remain at low levels over a sustained period of time, this may have an impact on the pricing that we are


able to achieve in the marketplace for many of those end-products. This may cause us to operate at a lower, or negative, operating margins and, as a result, our management may decide to reduce or suspend production of ethanol and/or isobutanol at the Agri-EnergyLuverne Facility. Unfavorable operating margins may also impact our ability to access and Retrofit, either independently or with potential development partners or licensees, existing ethanol facilities for the production of isobutanol for commercial distribution and sale.


If we engage in additional acquisitions, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.

If appropriate opportunities become available, we may acquire businesses, assets, technologies or products to enhance our business in the future. In connection with any future acquisitions, we could, subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox and/or TriplePoint:Whitebox:

 

issue additional equity securities which would dilute our current stockholders;

 

incur substantial debt to fund the acquisitions; or

 

assume significant liabilities.

Acquisitions involve numerous risks, including problems integrating the purchased operations, technologies or products, unanticipated costs and other liabilities, diversion of management’s attention from our core business, adverse effects on existing business relationships with current and/or prospective partners, customers and/or suppliers, risks associated with entering markets in which we have no or limited prior experience and potential loss of key employees. Other than our acquisition of Agri-Energy,Luverne, we have not engaged in acquisitions in the past, and do not have experience in managing the integration process. Therefore, we may not be able to successfully integrate any businesses, assets, products, technologies or personnel that we might acquire in the future without a significant expenditure of operating, financial and management resources, if at all. The integration process could divert management time from focusing on operating our business, result in a decline in employee morale and cause retention issues to arise from changes in compensation, reporting relationships, future prospects or the direction of the business. In addition, we may acquire companies that have insufficient internal financial controls, which could impair our ability to integrate the acquired company and adversely impact our financial reporting. If we fail in our integration efforts with respect to acquisitions and are unable to efficiently operate as a combined organization, our business, financial condition and results of operations may be materially adversely affected.

If we engage in additional joint ventures, we will incur a variety of costs and may potentially face numerous risks that could adversely affect our business and operations.

If appropriate opportunities become available, we may enter into joint ventures with the owners of existing ethanol production facilities in order to acquire access to additional isobutanol production capacity, such as the agreement we entered into with Redfield.capacity. We currently anticipate that in each such joint venture, the ethanol producer would contribute access to its existing ethanol production facility and we would be responsible for Retrofitting such facility to produce isobutanol. Upon completion of the Retrofit, and in some cases the attainment of certain performance targets, both parties to the joint venture would receive a portion of the profits from the sale of isobutanol, consistent with our business model. In connection with these joint ventures, we could incur substantial debt to fund the Retrofit of the accessed facilities and we could assume significant liabilities.

Realizing the anticipated benefits of joint ventures, including projected increases to production capacity and additional revenue opportunities, involves a number of potential challenges. The failure to meet these challenges could seriously harm our financial condition and results of operations. Joint ventures are complex and time-consuming and we may encounter unexpected difficulties or incur unexpected costs related to such arrangements, including:

 

difficulties negotiating joint venture agreements with favorable terms and establishing relevant performance metrics;

 

difficulties completing the Retrofits of the accessed facilities using our integrated fermentation technology;

 

the inability to meet applicable performance targets related to the production of isobutanol;

 

difficulties obtaining the permits and approvals required to produce and sell our products in different geographic areas;

 

complexities associated with managing the geographic separation of accessed facilities;

 

diversion of management attention from ongoing business concerns to matters related to the joint ventures;

 

difficulties maintaining effective relationships with personnel from different corporate cultures; and

 

the inability to generate sufficient revenue to offset Retrofit costs.

Additionally, our joint venture partners may have liabilities or adverse operating issues that we fail to discover through due diligence prior to entering into the joint ventures. In particular, to the extent that our joint venture partners failed to comply with or


otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations, we may suffer financial harm and/or reputational harm for these violations or otherwise be adversely affected.

Our joint venture partners may have significant amounts of existing debt and may not be able to service their existing debt obligations, which could cause the failure of a specific project and the loss by us of any investment we have made to Retrofit the


facilities owned by the joint venture partner. In addition, if we are unable to meet specified performance targets related to the production of isobutanol at a facility owned by one of our joint venture partners, we may never become eligible to receive a portion of the profits of the joint venture and may be unable to recover the costs of Retrofitting the facility.

Additionally, we plan to be a leading marketer for all isobutanol and co-products produced using our proprietary technology and sold in markets other than on-road gasoline blendstocks including, without limitation, all isobutanol that is produced by any facilities that we access via joint venture. Marketing agreements can be very complex and the obligations that we assume as a leading marketer of isobutanol may be time consuming. We have no experience marketing isobutanol on a commercial scale and we may fail to successfully negotiate marketing agreements in a timely manner or on favorable terms. If we fail to successfully market the isobutanol produced using our proprietary technology to refiners and chemical producers, our business, financial condition and results of operations will be materially adversely affected.

If we lose key personnel, including key management personnel, or are unable to attract and retain additional personnel, it could delay our product development programs and harm our research and development efforts, we may be unablemake it more difficult to pursue partnerships or develop our own products and it may trigger an event of default under the agreements governingor otherwise have a material adverse effect on our indebtedness, including our secured indebtedness with TriplePoint.business.

Our business is complex and we intend to target a variety of markets. Therefore, it is critical that our management team and employee workforce are knowledgeable in the areas in which we operate. The loss of any key members of our management, including our named executive officers, or the failure to attract or retain other key employees who possess the requisite expertise for the conduct of our business, could prevent us from developing and commercializing our products for our target markets and entering into partnerships or licensing arrangements to execute our business strategy. In addition, the loss of any key scientific staff, or the failure to attract or retain other key scientific employees, could prevent us from developing and commercializing our products for our target markets and entering into partnerships or licensing arrangements to execute our business strategy. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other technology-based businesses, particularly in the advanced biofuels area, or due to the limited availability of personnel with the qualifications or experience necessary for our renewable chemicals and advanced biofuels business. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to meet the demands of our partners and customers in a timely fashion or to support our internal research and development programs. In particular, our product and process development programs are dependent on our ability to attract and retain highly skilled scientists. Competition for experienced scientists and other technical personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. Additionally, certain changes in our management could trigger an event of default under the agreements governing our indebtedness, including our secured indebtedness with TriplePoint, and we could be forced to pay the outstanding balance of the loan(s) in full. All of our employees are at-will employees, meaning that either the employee or we may terminate their employment at any time.

Our planned activities will require additional expertise in specific industries and areas applicable to the products and processes developed through our technology platform or acquired through strategic or other transactions, especially in the end markets that we seek to penetrate. These activities will require the addition of new personnel, and the development of additional expertise by existing personnel. The inability to attract personnel with appropriate skills or to develop the necessary expertise could impair our ability to grow our business.

Our government grants are subject to uncertainty, which could harm our business and results of operations.

We have received various government grants, including a cooperative agreement, to complement and enhance our own resources. We may seek to obtain government grants and subsidies in the future to offset all or a portion of the costs of Retrofitting existing ethanol manufacturing facilities and the costs of our research and development activities. We cannot be certain that we will be able to secure any such government grants or subsidies. Any of our existing grants or new grants that we may obtain may be terminated, modified or recovered by the granting governmental body under certain conditions.

We may also be subject to audits by government agencies as part of routine audits of our activities funded by our government grants. As part of an audit, these agencies may review our performance, cost structures and compliance with applicable laws, regulations and standards. Funds available under grants must be applied by us toward the research and development programs specified by the granting agencies, rather than for all of our programs generally. If any of our costs are found to be allocated improperly, the costs may not be reimbursed and any costs already reimbursed may have to be refunded. Accordingly, an audit could result in an adjustment to our revenues and results of operations.


We may face substantial competition from companies with greater resources and financial strength which could adversely affect our performance and growth.

We may face substantial competition in the markets for isobutanol, ethanol, polyester, rubber, plastics, fibers, other polymers and hydrocarbon fuels. Our competitors include companies in the incumbent petroleum-based industry as well as those in the nascent biorenewable industry. The incumbent petroleum-based industry benefits from a large established infrastructure, production capability and business relationships. The incumbents’ greater resources and financial strength provide significant competitive advantages that we may not be able to overcome in a timely manner. Academic and government institutions may also develop technologies which will compete with us in the chemicals, solvents and blendstock markets.

The biorenewable industry is characterized by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological development by others may impact the competitiveness of our products in the marketplace. Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense.

In the production of isobutanol, we face competition from Butamax. Additionally, a number of companies including Cathay Industrial Biotech, Ltd., Green Biologics Ltd., METabolic Explorer, S.A. and Eastman Chemical Company (which acquired TetraVitae Bioscience, Inc. in November 2011) are developing n-butanol production capability from a variety of renewable feedstocks.

In the ethanol market, we operate in a highly competitive industry in the U.S. According to the Renewable Fuels Association, there are over 200 ethanol facilities in the U.S. with an installed nameplate capacity of almost 15 billion gallons. Some of the key competitors in the U.S. include Archer-Daniels-Midland Company, POET, LLC and Valero Energy Corporation. We also face competition from foreign producers of ethanol. Brazil is believed to be the world’s second largest ethanol producing country. Many producers have much larger production capacities and operate at a lower cost of production than we do. As a result, these companies may be able to compete more effectively in narrower commodity margin environments.

In the polyester, rubber, plastics, fibers and other polymers markets, we face competition from incumbent petroleum-derived products, other renewable isobutanol producers and renewable n-butanol producers. Our competitive position versus the incumbent petroleum-derived products and other renewable butanol producers may not be favorable. Petroleum-derived products have dominated the market for many years and there is substantial existing infrastructure for production from petroleum sources, which may impede our ability to establish a position in these markets. Other isobutanol and n-butanol companies may develop technologies that prove more effective than our isobutanol production technology, or such companies may be more adept at marketing their production. Additionally, one company in France, Global Bioenergies, S.A., is pursuing the production of isobutylene from renewable carbohydrates directly. Since conversion of isobutanol to butenes such as isobutylene is a key step in producing many polyester, rubber, plastics, fibers and other polymers from our isobutanol, this direct production of renewable isobutylene, if successful, could limit our opportunities in these markets.

In the gasoline blendstock market, we will compete with our isobutanol against renewable ethanol producers (including those working to produce ethanol from cellulosic feedstocks), producers of alkylate from petroleum and producers of other blendstocks, all of whom may reduce our ability to obtain market share or maintain our price levels. For example, Coskata, Inc. is developing a hybrid thermochemical-biocatalytic process to produce ethanol from a variety of feedstocks. If any of these competitors succeed in producing blendstocks more efficiently, in higher volumes or offering superior performance than our isobutanol, our financial performance may suffer. Furthermore, if our competitors have more success marketing their products or reach development or supply agreements with major customers, our competitive position may also be harmed.

In the production of other biofuels, key competitors include Shell Oil Company, BP, DuPont-Danisco Cellulosic Ethanol LLC, Abengoa Bioenergy, S.A., POET, LLC, ICM, Mascoma Corporation, Inbicon A/S, INEOS New Planet BioEnergy LLC, Archer Daniels Midland Company, BlueFire Ethanol, Inc., ZeaChem Inc., Iogen Corporation, Qteros, Inc., and many smaller startup companies. If these companies are successful in establishing low cost cellulosic ethanol or other fuel production, it could negatively impact the market for our isobutanol as a gasoline blendstock. In the markets for the hydrocarbon fuels that we plan to produce from our isobutanol, we will face competition from the incumbent petroleum-based fuels industry. The incumbent petroleum-based fuels industry makes the vast majority of the world’s gasoline, jet and diesel fuels and blendstocks. It is a mature industry with a substantial base of infrastructure for the production and distribution of petroleum-derived products. The size, established infrastructure and significant resources of many companies in this industry may put us at a substantial competitive disadvantage and delay or prevent the establishment and growth of our business in the market for hydrocarbon fuels.

Biofuels companies may also provide substantial competition in the hydrocarbon fuels market. With respect to production of renewable gasoline, biofuels competitors are numerous and include both large established companies and numerous startups. For example, Virent Energy Systems, Inc. has developed a process for making gasoline and gasoline blendstocks and Kior, Inc. has developed a technology platform to convert biomass into renewable crude oil. Many other competitors may do so as well. In the jet


fuel market, we will face competition from companies such as Synthetic Genomics, Inc., Solazyme, Inc., Sapphire Energy, Inc. and Exxon-Mobil Corporation that are pursuing production of jet fuel from algae-based technology.  Renewable Energy Group, Inc. and others are also targeting production of jet fuels from vegetable oils and animal fats.  Red Rock Biofuels LLC and others are planning to produce jet fuel from renewable biomass. We may also face competition from companies working to produce jet fuel from hydrogenated fatty acid methyl esters. In the diesel fuels market, competitors such as Amyris Biotechnologies, Inc. and Renewable Energy Group, Inc. have developed technologies for production of alternative hydrocarbon diesel fuel.

In the polyester, rubber, plastics, fibers and other polymers markets and the hydrocarbon fuels market, we expect to face vigorous competition from existing technologies. The companies we may compete with may have significantly greater access to resources, far more industry experience and/or more established sales and marketing networks. Additionally, since we do not plan to produce most of these products directly, we will depend on the willingness of potential customers to purchase and convert our isobutanol into their products. These potential customers generally have well-developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may have a resistance to changing these processes and components. These potential customers frequently impose lengthy and complex product qualification procedures on their suppliers, influenced by consumer preference, manufacturing considerations such as process changes and capital and other costs associated with transitioning to alternative components, supplier operating history, regulatory issues, product liability and other factors, many of which are unknown to, or not well understood by, us. Satisfying these processes may take many months or years. If we are unable to convince these potential customers that our isobutanol is comparable or superior to the alternatives that they currently use, we will not be successful in entering these markets and our business will be adversely affected.

We also face challenges in marketing our isobutanol or products derived from our isobutanol. Though we intend to enhance our competitiveness through partnerships and joint development agreements, some competitors may gain an advantage by securing more valuable partnerships for developing their hydrocarbon products than we are able to obtain. Such partners could include major petrochemical, refiner or end-user companies. Additionally, petrochemical companies may develop alternative pathways for hydrocarbon production that may be less expensive, and may utilize more readily available infrastructure than that used to convert our isobutanol into hydrocarbon products.

We plan to enter into partnerships through which we will sell significant volumes of our isobutanol to partners who will convert it into useful hydrocarbons or use it as a fuel or as a gasoline blendstock. However, if any of these partners instead negotiate supply agreements with other buyers for the isobutanol they purchase from us, or sell it into the open market, they may become competitors of ours in the field of isobutanol sales. This could significantly reduce our profitability and hinder our ability to negotiate future supply agreements for our isobutanol, which could have an adverse effect on our performance.

Our ability to compete successfully will depend on our ability to develop proprietary products that reach the market in a timely manner and are technologically superior to and/or are less expensive than other products on the market. Many of our competitors have substantially greater production, financial, research and development, personnel and marketing resources than we do. In addition, certain of our competitors may also benefit from local government subsidies and other incentives that are not available to us. As a result, our competitors may be able to develop competing and/or superior technologies and processes, and compete more aggressively and sustain that competition over a longer period of time than we could. Our technologies and products may be rendered obsolete or uneconomical by technological advances or entirely different approaches developed by one or more of our competitors. As more companies develop new intellectual property in our markets, the possibility of a competitor acquiring patent or other rights that may limit our products or potential products increases, which could lead to litigation. Furthermore, to secure purchase agreements from certain customers, we may be required to enter into exclusive supply contracts, which could limit our ability to further expand our sales to new customers. Likewise, major potential customers may be locked into long-term, exclusive agreements with our competitors, which could inhibit our ability to compete for their business.

In addition, various governments have recently announced a number of spending programs focused on the development of clean technologies, including alternatives to petroleum-based fuels and the reduction of carbon emissions. Such spending programs could lead to increased funding for our competitors or a rapid increase in the number of competitors within those markets.

Our limited resources relative to many of our competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures. This failure could reduce our competitiveness and market share, adversely affect our results of operations and financial position and prevent us from obtaining or maintaining profitability.

Our future success will depend on our ability to maintain a competitive position with respect to technological advances.

The biorenewable industry is characterized by rapid technological change. Our future success will depend on our ability to maintain a competitive position with respect to technological advances. Technological development by others may impact the competitiveness of our products in the marketplace. Competitors and potential competitors who have greater resources and experience than we do may develop products and technologies that make ours obsolete or may use their greater resources to gain market share at our expense.

We may face significant and substantial competition as it relates to our proprietary biofuels which could adversely affect our performance and growth.

In the production of isobutanol, we face competition from Butamax. Additionally, a number of companies including Cathay Industrial Biotech, Ltd., Green Biologics Ltd., METabolic Explorer, S.A. and Eastman Chemical Company (which acquired TetraVitae Bioscience, Inc. in November 2011) are developing n-butanol production capability from a variety of renewable feedstocks.

In the ethanol market, we operate in a highly competitive industry in the U.S. According to the Renewable Fuels Association, there are over 200 ethanol facilities in the U.S. with an installed nameplate capacity of almost 15 billion gallons. Some of the key competitors in the U.S. include Archer-Daniels-Midland Company, Green Plains, Inc., POET, LLC and Valero Energy Corporation. We also face competition from foreign producers of ethanol. Brazil is believed to be the world’s second largest ethanol producing country. Many producers have much larger production capacities and operate at a lower cost of production than we do. As a result, these companies may be able to compete more effectively in narrower commodity margin environments.

In the gasoline blendstock market, we will compete with our isobutanol against renewable ethanol producers (including those working to produce ethanol from cellulosic feedstocks), producers of alkylate from petroleum and producers of other blendstocks, all of whom may reduce our ability to obtain market share or maintain our price levels.  If any of these competitors succeed in producing blendstocks more efficiently, in higher volumes or offering superior performance than our isobutanol, our financial performance may suffer. Furthermore, if our competitors have more success marketing their products or reach development or supply agreements with major customers, our competitive position may also be harmed.


In the production of other biofuels, including our hydrocarbon products, key competitors include Shell Oil Company, BP, Neste Corporation, Altair Engineering, Inc., Fulcrum Bioenergy, Inc., Red Rocks Biofuels LLC,  POET, LLC, ICM, Inc., Mascoma Corporation, Inbicon A/S, INEOS New Planet BioEnergy LLC, Archer Daniels Midland Company, BlueFire Renewables, Inc., Iogen Corporation, and many smaller startup companies. If these companies are successful in establishing low cost cellulosic ethanol or other fuel production, it could negatively impact the market for our isobutanol as a gasoline blendstock. In the markets for the hydrocarbon fuels that we plan to produce from our isobutanol, we will face competition from the incumbent petroleum-based fuels industry. The incumbent petroleum-based fuels industry makes the vast majority of the world’s gasoline, jet and diesel fuels and blendstocks. It is a mature industry with a substantial base of infrastructure for the production and distribution of petroleum-derived products. The size, established infrastructure and significant resources of many companies in this industry may put us at a substantial competitive disadvantage and delay or prevent the establishment and growth of our business in the market for hydrocarbon fuels.

Biofuels companies may also provide substantial competition in the hydrocarbon fuels market. With respect to production of renewable gasoline, biofuels competitors are numerous and include both large established companies and numerous startups. For example, Virent Energy Systems, Inc. has developed a process for making gasoline and gasoline blendstocks. Many other competitors may do so as well. In the jet fuel market, we will face competition from companies such as Synthetic Genomics, Inc., and Exxon-Mobil Corporation that are pursuing production of jet fuel from algae-based technology.  Renewable Energy Group, Inc. and others are also targeting production of jet fuels from vegetable oils and animal fats.  Red Rock Biofuels LLC and others are planning to produce jet fuel from renewable biomass. We may also face competition from companies working to produce jet fuel from hydrogenated fatty acid methyl esters. In the diesel fuels market, competitors such as Amyris Biotechnologies, Inc., Renewable Energy Group, Inc., Fulcrum Bioenergy, Inc., Neste Corporation and Altair Engineering, Inc.,  have developed technologies for production of alternative hydrocarbon diesel fuel.

Our competitive position in the polyester, rubber, plastics, fibers and other polymers markets versus the incumbent petroleum-derived products and other renewable butanol producers may not be favorable.

In the polyester, rubber, plastics, fibers and other polymers markets, we face competition from incumbent petroleum-derived products, other renewable isobutanol producers and renewable n-butanol producers. Our competitive position versus the incumbent petroleum-derived products and other renewable butanol producers may not be favorable. Petroleum-derived products have dominated the market for many years and there is substantial existing infrastructure for production from petroleum sources, which may impede our ability to establish a position in these markets. Other isobutanol and n-butanol companies may develop technologies that prove more effective than our isobutanol production technology, or such companies may be more adept at marketing their production. Additionally, one company in France, Global Bioenergies, S.A., is pursuing the production of isobutylene from renewable carbohydrates directly. Since conversion of isobutanol to butenes such as isobutylene is a key step in producing many polyester, rubber, plastics, fibers and other polymers from our isobutanol, this direct production of renewable isobutylene, if successful, could limit our opportunities in these markets.

In the polyester, rubber, plastics, fibers and other polymers markets, we expect to face vigorous competition from existing technologies. The companies we may compete with may have significantly greater access to resources, far more industry experience and/or more established sales and marketing networks. Additionally, since we do not plan to produce most of these products directly, we will depend on the willingness of potential customers to purchase and convert our isobutanol into their products. These potential customers generally have well-developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may have a resistance to changing these processes and components. These potential customers frequently impose lengthy and complex product qualification procedures on their suppliers, influenced by consumer preference, manufacturing considerations such as process changes and capital and other costs associated with transitioning to alternative components, supplier operating history, regulatory issues, product liability and other factors, many of which are unknown to, or not well understood by, us. Satisfying these processes may take many months or years. If we are unable to convince these potential customers that our isobutanol is comparable or superior to the alternatives that they currently use, we will not be successful in entering these markets and our business will be adversely affected.

Business interruptions could delay us in the process of developing our products and could disrupt our sales.

We are vulnerable to natural disasters and other events that could disrupt our operations, such as riots, civil disturbances, war, terrorist acts, floods, infections in our laboratory or production facilities or those of our contract manufacturers and other events beyond our control. We do not have a detailed disaster recovery plan. In addition, we may not carry sufficient business interruption


insurance to compensate us for losses that may occur. Any losses or damages we incur could have a material adverse effect on our cash flows and success as an overall business.


Our business and operations would suffer in the event of system failures.

Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer viruses, human error, unauthorized access, natural disasters, intentional acts of vandalism, terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breach that causes interruptions in our operations could result in a material disruption of our business. To the extent that any disruption or security breach results in a loss or damage to our data or inappropriate disclosure of confidential or proprietary information, we may incur liability, reputation damage and harm to our business operations.

We may engage in hedging transactions, which could harm our business.

We have historically engaged in hedging transactions to offset some of the effects of volatility in commodity prices. We have generally followed a policy of using exchange-traded futures contracts to reduce our net position in agricultural commodity inventories and forward purchase contracts to manage price risk. Hedging activities may cause us to suffer losses, such as if we purchase a position in a declining market or sell a position in a rising market. Furthermore, hedging exposes us to the risk that we may have under- or over-estimated our need for a specific commodity or that the other party to a hedging contract may default on its obligation. If there are significant swings in commodity prices, or if we purchase more corn for future delivery than we can process, we may have to pay to terminate a futures contract, resell unneeded corn inventory at a loss, or produce our products at a loss, all of which would have a material adverse effect on our financial performance. We may vary the hedging strategies we undertake, which could leave us more vulnerable to increases in commodity prices or decreases in the prices of isobutanol, distiller’s grains, iDGs™ or ethanol. Losses from hedging activities and changes in hedging strategy could have a material adverse effect on our operations.

Ethical, legal and social concerns about genetically engineered products and processes, and similar concerns about feedstocks grown on land that could be used for food production, could limit or prevent the use of our products, processes and technologies and limit our revenues.

Some of our processes involve the use of genetically engineered organisms or genetic engineering technologies. Additionally, our feedstocks may be grown on land that could be used for food production, which subjects our feedstock sources to “food versus fuel” concerns. If we are not able to overcome the ethical, legal and social concerns relating to genetic engineering or food versus fuel, our products and processes may not be accepted. Any of the risks discussed below could result in increased expenses, delays or other impediments to our programs or the public acceptance and commercialization of products and processes dependent on our technologies or inventions.

Our ability to develop and commercialize one or more of our technologies, products, or processes could be limited by the following factors:

 

public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and genetically engineered products and processes, which could influence public acceptance of our technologies, products and processes;

 

public attitudes regarding and potential changes to laws governing ownership of genetic material, which could harm our intellectual property rights with respect to our genetic material and discourage others from supporting, developing or commercializing our products, processes and technologies;

 

public attitudes and ethical concerns surrounding production of feedstocks on land which could be used to grow food, which could influence public acceptance of our technologies, products and processes;

 

governmental reaction to negative publicity concerning genetically engineered organisms, which could result in greater government regulation of genetic research and derivative products; and

 

governmental reaction to negative publicity concerning feedstocks produced on land which could be used to grow food, which could result in greater government regulation of feedstock sources.

The subjects of genetically engineered organisms and food versus fuel have received negative publicity, which has aroused public debate. This adverse publicity could lead to greater regulation and trade restrictions on imports of genetically engineered products or feedstocks grown on land suitable for food production.

The biocatalysts that we develop have significantly enhanced characteristics compared to those found in naturally occurring enzymes or microbes. While we produce our biocatalysts only for use in a controlled industrial environment, the release of such biocatalysts into uncontrolled environments could have unintended consequences. Any adverse effect resulting from such a release could have a material adverse effect on our business and financial condition, and we may be exposed to liability for any resulting harm.


As isobutanol has not previously been used as a commercial fuel in significant amounts, its use subjects us to product liability risks, and we may have difficulties obtaining product liability insurance.

Isobutanol has not previously been used as a commercial fuel and research regarding its impact on engines and distribution infrastructure is ongoing. Though we intend to test our isobutanol further before its commercialization, there is a risk that it may damage engines or otherwise fail to perform as expected. If isobutanol degrades the performance or reduces the lifecycle of engines, or causes them to fail to meet emissions standards, market acceptance could be slowed or stopped, and we could be subject to product


liability claims. Furthermore, due to isobutanol’s lack of commercial history as a fuel, we are uncertain as to whether we will be able to acquire product liability insurance on reasonable terms, or at all. A significant product liability lawsuit could substantially impair our production efforts and could have a material adverse effect on our business, reputation, financial condition and results of operations.

We may not be able to use some or all of our net operating loss carry-forwards to offset future income.

We have net operating loss carryforwards due to prior period losses, which if not utilized will begin to expire at various times over the next 20 years. If we are unable to generate sufficient taxable income to utilize our net operating loss carryforwards, these carryforwards could expire unused and be unavailable to offset future income tax liabilities.

In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period) is subject to limitation on its ability to utilize its pre-change net operating loss carry-forwards, or net operating losses, to offset future taxable income. We may have experienced one or more ownership changes in prior years, and the issuance of shares in connection with our initial public offering may itself have triggered an ownership change. In addition, future changes in our stock ownership, which may be outside of our control, may trigger an ownership change, as may future equity offerings or acquisitions that have equity as a component of the purchase price. If an ownership change has occurred or does occur in the future, our ability to utilize our net operating losses to offset income if we attain profitability may be limited.

If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) requires us to evaluate and report on our internal control over financial reporting and have our principal executive officer and principal financial officer certify as to the accuracy and completeness of our financial reports. The process of maintaining our internal controls and complying with Section 404 is expensive and time consuming, and requires significant attention of management. We cannot be certain that these measures will ensure that we maintain adequate controls over our financial processes and reporting in the future. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of their inherent limitations, our internal controls over financial reporting may not prevent or detect fraud or misstatements. Failure to maintain required controls or implement new or additional controls as circumstances warrant, or difficulties encountered in maintaining or implementing controls, could harm our results of operations or cause us to fail to meet our reporting obligations.

Our management has concluded that there are no material weaknesses in our internal controls over financial reporting as of December 31, 2015.2017. However, there can be no assurance that our controls over financial processes and reporting will be effective in the future or that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future. If we, or our independent registered public accounting firm, discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including SEC action, ineligibility for short form resale registration, the suspension or delisting of our common stock from the stock exchange on which it is listed and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.

We may enter into letters of intent, memoranda of understanding and other largely non-binding agreements with potential customers or partners that may not result in legally binding, definitive agreements.

From time to time, we may enter into letters of intent, memoranda of understanding and other largely non-binding agreements or understandings with potential customers or partners in order to develop our business and the markets that we serve. We can make no assurance that legally binding, definitive agreements reflecting the terms of such non-binding agreements will be completed with such customers or partners, or at all.


Competiveness for our products for fuel use in the U.S. depends in part on the United States Renewable Fuel Standard Program or RFS Program at the federal level, and the benefits to our products derived from the RFS Program could change.

The RFS Program and policy are currently being discussed by policy makers.  The RFS Program and policy could change impacting the RIN benefits our products could receive, making our products less competitive to the incumbent products made from petroleum.

We may not qualify for significant carbon value benefit in those states, regions, and countries where renewable carbon value in fuel products is being assigned.  

The possibility exists that our products may not qualify for benefits of the Low Carbon Fuel Standard Program (LCFS) in California or similar programs in other states and countries.  Failure of our products to qualify for LCFS or other similar programs could have a material adverse effect on our business.  

Risks Related to Intellectual Property

Our ability to compete may be adversely affected if we are unsuccessful in defending against any claims by competitors or others that we are infringing upon their intellectual property rights.

The various bioindustrial markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the renewable energy industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. As a result, we may be required to defend against claims of intellectual property infringement that may be asserted by our competitors against us and, if the outcome of any such litigation is adverse to us, it may affect our ability to compete effectively.


Litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside of the U.S. may divert management time from focusing on business operations, could cause us to spend significant amounts of money and may have no guarantee of success. Any future intellectual property litigation could also force us to do one or more of the following:

 

stop selling, incorporating, manufacturing or using our products that use the subject intellectual property;

 

obtain from a third party asserting its intellectual property rights, a license to sell or use the relevant technology, which license may not be available on reasonable terms, or at all;

 

redesign those products or processes, such as our process for producing isobutanol, that use any allegedly infringing or misappropriated technology, which may result in significant cost or delay to us, or which redesign could be technically infeasible;

 

pay attorneys’ fees and expenses; or

 

pay damages, including the possibility of treble damages in a patent case if a court finds us to have willfully infringed certain intellectual property rights.

We are aware of a significant number of patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties. We cannot assure you that we will ultimately prevail if any of this third-party intellectual property is asserted against us.

Our ability to compete may be adversely affected if we do not adequately protect our proprietary technologies or if we lose some of our intellectual property rights through costly litigation or administrative proceedings.

Our success will depend in part on our ability to obtain patents and maintain adequate protection of our intellectual property covering our technologies and products and potential products in the U.S. and other countries. We have adopted a strategy of seeking patent protection in the U.S. and in certain foreign countries with respect to certain of the technologies used in or relating to our products and processes. As such, as of December 31, 2015, we ownedWe own rights to approximately 418hundreds of issued patents and filed patent applications in the U.S. and in various foreign jurisdictions. When and if issued, patents would expire at the end of their term and any patent would only provide us commercial advantage for a limited period of time, if at all. Our patent applications are directed to our enabling technologies and to our methods and products which support our business in the advanced biofuels and renewable chemicals markets. We intend to continue to apply for patents relating to our technologies, methods and products as we deem appropriate.

Only approximately 39some of the patent applications that we have filed in the U.S. or in any foreign jurisdictions, and only certain of the patent applications filed by third parties in which we own rights, have been issued. A filed patent application does not guarantee a patent will issue and a patent issuing does not guarantee its validity, nor does it give us the right to practice the patented technology or commercialize the patented product. Third parties may have or obtain rights to “blocking patents” that could be used to prevent us from commercializing our products or practicing our technology. The scope and validity of patents and success in prosecuting patent


applications involve complex legal and factual questions and, therefore, issuance, coverage and validity cannot be predicted with any certainty. Patents issuing from our filed applications may be challenged, invalidated or circumvented. Moreover, third parties could practice our inventions in secret and in territories where we do not have patent protection. Such third parties may then try to sell or import products made using our inventions in and into the U.S. or other territories and we may be unable to prove that such products were made using our inventions. Additional uncertainty may result from implementation of the Leahy-Smith America Invents Act, enacted in September 2011, as well as other potential patent reform legislation passed by the U.S. Congress and from legal precedent handed down by the Federal Circuit Court and the U.S. Supreme Court, as they determine legal issues concerning the scope, validity and construction of patent claims. Because patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publication of discoveries in the scientific literature often lags behind the actual discoveries, there is additional uncertainty as to the validity of any patents that may issue and the potential for “blocking patents” coming into force at some future date. Accordingly, we cannot ensure that any of our currently filed or future patent applications will result in issued patents, or even if issued, predict the scope of the claims that may issue in our and other companies’ patents. Currently, one of our issued patents is being challenged in regulatory proceedings before the USPTO. These proceedings may result in the claims being amended or canceled. If the claims are amended or canceled, the scope of our patents claims may be narrowed, which may reduce the scope of protection afforded by our patent portfolio. Given that the degree of future protection for our proprietary rights is uncertain, we cannot ensure that (i) we were the first to make the inventions covered by each of our filed applications, (ii) we were the first to file patent applications for these inventions, (iii) the proprietary technologies we develop will be patentable, (iv) any patents issued will be broad enough in scope to provide commercial advantage and prevent circumvention, and (v) competitors and other parties do not have or will not obtain patent protection that will block our development and commercialization activities.

These concerns apply equally to patents we have licensed, which may likewise be challenged, invalidated or circumvented, and the licensed technologies may be obstructed from commercialization by competitors’ “blocking patents.” In addition, we generally do


not control the patent prosecution and maintenance of subject matter that we license from others. Generally, the licensors are primarily or wholly responsible for the patent prosecution and maintenance activities pertaining to the patent applications and patents we license, while we may only be afforded opportunities to comment on such activities. Accordingly, we are unable to exercise the same degree of control over licensed intellectual property as we exercise over our own intellectual property and we face the risk that our licensors will not prosecute or maintain it as effectively as we would like.

In addition, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, particularly where, as here, the end products reaching the market generally do not reveal the processes used in their manufacture, and particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the U.S., so we cannot be certain that the steps we have taken in obtaining intellectual property and other proprietary rights will prevent unauthorized use of our technology. If competitors are able to use our technology without our authorization, our ability to compete effectively could be adversely affected. Moreover, competitors and other parties such as universities may independently develop and obtain patents for technologies that are similar to or superior to our technologies. If that happens, the potential competitive advantages provided by our intellectual property may be adversely affected. We may then need to license these competing technologies, and we may not be able to obtain licenses on reasonable terms, if at all, which could cause material harm to our business. Accordingly, litigation may be necessary for us to assert claims of infringement, enforce patents we own or license, protect trade secrets or determine the enforceability, scope and validity of the intellectual property rights of others.

Our commercial success also depends in part on not infringing patents and proprietary rights of third parties, and not breaching any licenses or other agreements that we have entered into with regard to our technologies, products and business. We cannot be certain that patents have not or will not issue to third parties that could block our ability to obtain patents or to operate our business as we would like, or at all. There may be patents in some countries that, if valid, may block our ability to commercialize products in those countries if we are unsuccessful in circumventing or acquiring rights to these patents. There may also be claims in patent applications filed in some countries that, if granted and valid, may also block our ability to commercialize products or processes in these countries if we are unable to circumvent or license them.

As is commonplace in the biotechnology industries, some of our directors, employees and consultants are or have been employed at, or associated with, companies and universities that compete with us or have or will develop similar technologies and related intellectual property. While employed at these companies, these employees, directors and consultants may have been exposed to or involved in research and technology similar to the areas of research and technology in which we are engaged. Though we have not received such a complaint, we may be subject to allegations that we, our directors, employees or consultants have inadvertently or otherwise used, misappropriated or disclosed alleged trade secrets or confidential or proprietary information of those companies. Litigation may be necessary to defend against such allegations and the outcome of any such litigation would be uncertain.

Under some of our research agreements, our partners share joint rights in certain intellectual property we develop. Such provisions may limit our ability to gain commercial benefit from some of the intellectual property we develop, and may lead to costly or time-consuming disputes with parties with whom we have commercial relationships over rights to certain innovations.


If any other party has filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in interference, derivation or other proceedings declared by the USPTO to determine priority of invention and, thus, the right to the patents for these inventions in the U.S. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, such a proceeding may result in the loss of certain claims. Even successful outcomes of such proceedings could result in significant legal fees and other expenses, diversion of management time and efforts and disruption in our business. Uncertainties resulting from initiation and continuation of any patent or related litigation could harm our ability to compete.

If our biocatalysts, or the genes that code for our biocatalysts, are stolen, misappropriated or reverse engineered, others could use these biocatalysts or genes to produce competing products.

Third parties, including our contract manufacturers, customers and those involved in shipping our biocatalysts, may have custody or control of our biocatalysts. If our biocatalysts, or the genes that code for our biocatalysts, were stolen, misappropriated or reverse engineered, they could be used by other parties who may be able to reproduce these biocatalysts for their own commercial gain. If this were to occur, it would be difficult for us to discover or challenge this type of use, especially in countries with limited intellectual property protection.

During the ordinary course of business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.

From time to time, we may in the ordinary course of business be named as a defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things, compensation for alleged personal injury, worker’s compensation, employment discrimination, breach of contract, property damages, civil penalties and other losses of injunctive or declaratory relief. In


the event that such actions or indemnities are ultimately resolved unfavorably at amounts exceeding our accrued liability, or at material amounts, the outcome could materially and adversely affect our reputation, business and results of operations. In addition, payments of significant amounts, even if reserved, could adversely affect our liquidity position.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the U.S. Many companies have encountered significant problems in protecting and enforcing intellectual property rights in certain foreign jurisdictions, and, particularly as we move forward in our partnerships with Porta, Praj, and future international partners, we may face new and increased risks and challenges in protecting and enforcing our intellectual property rights abroad. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to bioindustrial technologies. This could make it difficult for us to stop the infringement of our patents or misappropriation of our other intellectual property rights. Proceedings to enforce our patents and other proprietary rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to enforce our intellectual property rights in such countries may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop.

Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information.

We rely in part on trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that know-how and inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, these agreements may not be enforceable, our proprietary information may be disclosed, third parties could reverse engineer our biocatalysts and others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. In addition, an unauthorized breach in our information technology systems may expose our trade secrets and other proprietary information to unauthorized parties.

We have received funding from U.S. government agencies, which could negatively affect our intellectual property rights.

Some of our research has been funded by grants from U.S. government agencies. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents and technical data, generally including, at a


minimum, a nonexclusive license authorizing the government to use the invention or technical data for noncommercial purposes. U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions will normally be subject to government license rights, periodic progress reporting, foreign manufacturing restrictions and march-in rights. March-in rights refer to the right of the U.S. government, under certain limited circumstances, to require us to grant a license to technology developed under a government grant to a responsible applicant or, if we refuse, to grant such a license itself. March-in rights can be triggered if the government determines that we have failed to work sufficiently towards achieving practical application of a technology or if action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. If we breach the terms of our grants, the government may gain rights to the intellectual property developed in our related research. The government’s rights in our intellectual property may lessen its commercial value, which could adversely affect our performance.

Legal and Regulatory Risks

We may face substantial delays in obtaining regulatory approvals for use of our isobutanol and hydrocarbon products in the fuels and chemicals markets, which could substantially hinder our ability to commercialize our products.

Large-scale commercialization of our isobutanol may require approvals from state and federal agencies. Before we can sell isobutanol as a fuel or as a gasoline blendstock directly to large petroleum refiners, we must receive EPA fuel certification. We have filed anOn March 15, 2018, the EPA Part 79 registrationpublished a notice for public comment on the EPA’s intent to register isobutanol for blending into gasoline which would allow us to sell isobutanol as a fuel or as a gasoline blendstock directly to large petroleum refiners and would move our small business registration to a full registration (including Tier 1 EPA testing), but thetesting. Final approval process may require significant time. Approval can be delayed for years,has not yet occurred,  and there is no guarantee of receiving it.

Additionally, California requires that fuels meet both its fuel certification requirements and a separate state low-carbon fuel standard. Any delay in receiving approval will slow or prevent the commercialization of our isobutanol for fuel markets, which could have a material adverse effect on our business, financial condition and results of operations.


With respect to the chemicals markets, we plan to focus on isobutanol production and sell to companies that can convert our isobutanol into other chemicals, such as isobutylene. However, should we later decide to produce these other chemicals ourselves, we may face similar requirements for EPA and other regulatory approvals. Approval, if ever granted, could be delayed for substantial amounts of time, which could significantly harm the development of our business and prevent the achievement of our goals.

Our isobutanol fermentation process utilizes a genetically modified organism which, when used in an industrial process, is considered a new chemical under the EPA’s Toxic Substances Control Act (“TSCA”). The TSCA requires us to comply with the EPA’s Microbial Commercial Activity Notice process to operate plants producing isobutanol using our biocatalysts. The TSCA’s new chemicals submission policies may change and additional government regulations may be enacted that could prevent or delay regulatory approval of our isobutanol production.

There are various third-party certification organizations, such as ASTM and Underwriters’ Laboratories, Inc., involved in standard-setting regarding the transportation, dispensing and use of liquid fuel in the U.S. and abroad. These organizations may change the current standards and additional requirements may be enacted that could prevent or delay approval of our products. The process of seeking required approvals and the continuing need for compliance with applicable standards may require the expenditure of substantial resources, and there is no guarantee that we will satisfy these standards in a timely manner, if ever.

In addition, to Retrofit or otherwise modify ethanol facilities and operate the Retrofitted and modified plants to produce isobutanol, we will need to obtain and comply with a number of permit requirements. As a condition to granting necessary permits, regulators may make demands that could increase our Retrofit, modification or operations costs, and permit conditions could also restrict or limit the extent of our operations, which could delay or prevent our commercial production of isobutanol. We cannot guarantee that we will be able to meet all regulatory requirements or obtain and comply with all necessary permits to complete our planned ethanol plant Retrofits, and failure to satisfy these requirements in a timely manner, or at all, could have a substantial negative effect on our performance.

Jet fuels must meet various statutory and regulatory requirements before they may be used in commercial aviation. In the U.S., the useaviation, including regulations of specific jet fuels is regulated by the Federal Aviation Administration (“FAA”). Rather than directly approving specific fuels, and specifications determined by ASTM International. Currently, our renewable jet fuel meets the FAA certifies individual aircraft for flight. This certification includes authorization for an aircraft to use the types of fuels specified in its flight manual. To be included in an aircraft’s flight manual, the fuel must meet standards set by ASTM. The current ASTM requirements do not permit the use of jet fuel derived from isobutanol, and we will need to give ASTM sufficient data to justify creating a new standard applicable to ATJ fuel. Though our work testing isobutanol-based ATJ fuel with the U.S. Air Force Research Laboratory has provided us with data we believe ASTM will take into consideration, the process of seeking required approvalsregulations and the continuing need for compliance withASTM International specifications.  However, changes to applicable statutesregulations and regulations will requirespecifications.in the expenditure of substantial resources. The full ASTM specification for our ATJ fuel is expected to be approved and issued in April 2016 but due to inherent uncertainty in the regulatory process we cannot guarantee that ASTM certification will be received in a timely manner, or at all. Failure to obtain regulatory approval in a timely manner, or at all, couldfuture might have a significant negativematerial adverse effect on our operations.business if such changes resulted in our renewable jet fuel not being eligible for use in commercial aviation.  


Our isobutanol and hydrocarbon products may encounter physical or regulatory issues, which could limit its usefulness as a gasoline blendstock.

In the gasoline blendstock market, isobutanol can be used in conjunction with, or as a substitute for, ethanol and other widely used fuel oxygenates, and we believe our isobutanol will be physically compatible with typical gasoline engines. However, there is a risk that under actual engine conditions, isobutanol will face significant limitations, making it unsuitable for use in high percentage gasoline blends. Additionally, current regulations limit gasoline blends to low percentages of isobutanol, and also limit combination isobutanol-ethanol blends. Government agencies may maintain or even increase the restrictions on isobutanol gasoline blends. As we believe that the potential to use isobutanol in higher percentage blends than is feasible for ethanol will be an important factor in successfully marketing isobutanol to refiners, a low blend wall could significantly limit commercialization of isobutanol as a gasoline blendstock.

We may be required to obtain additional regulatory approvals for use of our iDGs™ as animal feed, which could delay our ability to sell iDGs™ increasing our net cost of production and harming our operating results.

Many of the ethanol plants we initially plan to Retrofit use dry-milled corn as a feedstock. We plan to sell, as animal feed, the iDGs™ left as a co-product of fermenting isobutanol from dry-milled corn. We believe that this will enable us to offset a significant portion of the expense of purchasing corn for fermentation. We are currently approved to sell iDGs™ as animal feed through athe self-assessed Generally Regarded as Safe (“GRAS”) process of the U.S. Federal Drug Administration (the “FDA”) via third party scientific review.  In order to improve the value of our iDGs™, we are working with The Association of American Feed Control Officials (“AAFCO”) to establish a formal definition for our iDGs™ as well as clearance for the materials into animal feed.  We believe obtaining AAFCO approval will increase the value of our iDGs™ by offering customers of our iDGs™ further assurance of the safety of our iDGs™. If we make certain changes in our biocatalyst whereby we can no longer rely on our GRAS process, we would be required to obtain U.S. Federal Drug Administration (the “FDA”)FDA approval for marketing our iDGs™.  While we believe we can rely on the GRAS process, as we update our biocatalysts to increase isobutanol production, for further customer assurance, we also intend to pursue approval upon a completed biocatalyst from the Center for Veterinary Medicine of the FDA.  FDA testing and approval can take a significant amount of time, and there is no guarantee that we


will ever receive such approval. While we have sold initial quantities of our iDGs TM  from the Agri-EnergyLuverne Facility, if FDA or AAFCO approval is delayed or never obtained, or if we are unable to secure market acceptance for our iDGs™, our net cost of production will increase, which may hurt our operating results.

Reductions or changes to existing regulations and policies may present technical, regulatory and economic barriers, all of which may significantly reduce demand for biofuels or our ability to supply isobutanol.

The market for biofuels is heavily influenced by foreign, federal, state and local government regulations and policies. For example, in 2007, the U.S. Congress passed an alternative fuels mandate that required nearly 14 billion gallons of liquid transportation fuels sold in 2011 to come from alternative sources, including biofuels, a mandate that grows to 36 billion gallons by 2022. Of this amount, a minimum of 21 billion gallons must be advanced biofuels as defined by the U.S. Congress. In the U.S., and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. Any reduction in mandated requirements for fuel alternatives and additives to gasoline may cause the demand for biofuels to decline and deter investment in the research and development of biofuels. For example, the Energy and Commerce Committee of the U.S. House of Representatives has undertaken an assessment of the Renewable Fuel Standard program and has published five white papers on the subject during the current congressional period. The EPA has also said that it plans to assess the E10 blendwall and current infrastructure and market-based limitations to the consumption of ethanol in gasoline-ethanol blends above E10. In particular, the EPA is proposing to cut the volume requirements for advanced biofuels by more than 40% when compared to the requirements currently written into the statute. This proposal has created significant concerns throughout the biofuels industry, many of which were voiced by the biofuels industry during the public comment period. This type of legislative activity can create concern in the marketplace about the long-term sustainability of governmental policies. The absence of tax credits, subsidies and other incentives in the U.S. and foreign markets for biofuels, or any inability of our customers to access such credits, subsidies and incentives, may adversely affect demand for our products, which would adversely affect our business. The resulting market uncertainty regarding current and future standards and policies may also affect our ability to develop new renewable products or to license our technologies to third parties and to sell products to our end customers.

Concerns associated with biofuels, including land usage, national security interests and food crop usage, continue to receive legislative, industry and public attention. This attention could result in future legislation, regulation and/or administrative action that could adversely affect our business. Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our business, financial condition and results of operations.

Additionally, like the ethanol facilities that we Retrofit, our isobutanol plants will emit greenhouse gases. Any changes in state or federal emissions regulations, including the passage of cap-and-trade legislation or a carbon tax, could limit our production of


isobutanol and iDGs™ and increase our operating costs, which could have a material adverse effect on our business, financial condition and results of operations.

The recent U.S. elections could lead to changes in federal or state laws and regulations that could have a material adverse effect on our business, prospects, financial condition and results of operations.

We use hazardous materials in our business and we must comply with environmental laws and regulations. Any claims relating to improper handling, storage or disposal of these materials or noncompliance with applicable laws and regulations could be time consuming and costly and could adversely affect our business and results of operations.

Our research and development processes involve the use of hazardous materials, including chemical, radioactive and biological materials. Our operations also produce hazardous waste. We cannot eliminate entirely the risk of accidental contamination or discharge and any resultant injury from these materials. Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of, and human exposure to, these materials. We may be sued for any injury or contamination that results from our use or the use by third parties of these materials, and our liability may exceed our total assets. Although we believe that our activities conform in all material respects with environmental laws, there can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present, or future laws could result in the imposition of fines, third-party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business.

Enacted and proposed changes in securities laws and regulations have increased our costs and may continue to increase our costs in the future.

In recent years, there have been several changes in laws, rules, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Sarbanes-


Oxley Act of 2002 and various other new regulations promulgated by the SEC and rules promulgated by the national securities exchanges.

The Dodd-Frank Act, enacted in July 2010, expands federal regulation of corporate governance matters and imposes requirements on publicly-held companies, including us, to, among other things, provide stockholders with a periodic advisory vote on executive compensation and also requires compensation committee reforms and enhanced pay-for-performance disclosures. While some provisions of the Dodd-Frank Act are effective upon enactment, others will be implemented upon the SEC’s adoption of related rules and regulations. The scope and timing of the adoption of such rules and regulations is uncertain and accordingly, the cost of compliance with the Dodd-Frank Act is also uncertain.  These and other new or changed laws, rules, regulations and standards are, or will be, subject to varying interpretations in many cases due to their lack of specificity. As a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Our efforts to comply with evolving laws, regulations and standards are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities. Further, compliance with new and existing laws, rules, regulations and standards may make it more difficult and expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. Members of our board of directors and our principal executive officer and principal financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may have difficulty attracting and retaining qualified directors and executive officers, which could harm our business. We continually evaluate and monitor regulatory developments and cannot estimate the timing or magnitude of additional costs we may incur as a result of such developments.

Our expanded international activities may increase our exposure to potential liability under anti-corruption, trade protection, tax and other laws and regulations.

In the course of our relationships with Praj, Porta and future international partners, we may become subject to certain foreign tax, environmental, and health and safety regulations that did not previously apply to us or our products. Such regulations may be unclear, not consistently applied and subject to sudden change.  Implementation of compliance policies could result in additional operating costs, and our failure to comply with such laws, even inadvertently, could result in significant fines and/or penalties.

Additionally, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations (“Anti-Corruption Laws”) prohibit corrupt payments by our employees, vendors or agents. Even with implementation of policies, training and internal controls designed to reduce the risk of corrupt payments, our employees, vendors or agents may violate our policies. Our international partnerships may significantly increase our exposure to potential liability. Our failure to comply with Anti-Corruption Laws could result in significant fines and penalties, criminal sanctions against us, our officers or our employees, prohibitions on the conduct of our business, and damage to our reputation.


Risks Related to Owning Our Securities.

We may not be able to comply with all applicable listing requirements or standards of the Nasdaq Capital Market and Nasdaq could delist our common stock.

Our common stock is listed on the Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards.

On June 21, 2017, we received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market, notifying us that, for the prior 30 consecutive business days, the closing bid price of our common stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, we had an initial compliance period of 180 calendar days, to regain compliance with this requirement. On December 20. 2017, the Nasdaq Stock Market granted us an additional 180 calendar days, or until June 18, 2018, to regain compliance. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before June 18, 2018. The Nasdaq determination to grant the second compliance period was based on our meeting of the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the exception of the bid price requirement, and our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

We cannot provide any assurance that our stock price will recover within the permitted grace period. In the event that our common stock is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely be a reduction in our coverage by security analysts and the news media, which could cause the price of our common stock to decline further. In addition, it may be difficult for us to raise additional capital if we are not listed on a major exchange.

Furthermore, it would be a fundamental change under the indenture governing our 2020 Notes if our common stock is not listed on a national securities exchange. In such circumstance we would be required to offer to repurchase the 2020 Notes at 100% of principal plus accrued and unpaid interest to, but not including, the repurchase date. We would also be required to pay the holders of the 2020 Notes a fundamental change make-whole payment equal to the aggregate amount of interest that would have otherwise been payable on such 2020 Notes, to, but not including, the maturity date of such 2020 Notes.

Future issuances of our common stock or instruments convertible or exercisable into our common stock, including in connection with conversions of 2020 Notes or exercises of warrants, may materially and adversely affect the price of our common stock and cause dilution to our existing stockholders.

In order to fund our business over the past few years, we have raised capital by issuing common stock and warrants in underwritten public offerings because no other reasonable sources of capital were available.  These underwritten public offerings of common stock and warrants have materially and adversely affected the prevailing market prices of our common stock and caused significant dilution to our stockholders.  We anticipate that for the foreseeable future we will continue to raise capital through these dilutive underwritten public offerings of common stock and warrants.

We may obtain additional funds through public or private debt or equity financings in the near future, subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox. If we issue additional shares of common stock or instruments convertible into common stock, it may materially and adversely affect the price of our common stock. In addition, the conversion of some or all of the 2020 Notes and/or the exercise of some or all of the warrants may dilute the ownership interests of our stockholders, and any sales in the public market of any of our common stock issuable upon such conversion or exercise could adversely affect prevailing market prices of our common stock. Additionally, under the terms of certain warrants in the event that a warrant is exercised at a time when we do not have an effective registration statement covering the underlying shares of common stock on file with the SEC, such warrant may be net exercised, which will dilute the ownership interests of existing stockholders without any corresponding benefit of a cash payment for the exercise price of such warrant.

As of December 31, 2017, we had approximately $16.7 million in outstanding 2020 Notes, which were convertible into 28.8 million shares of our common stock at the conversion rate in effect on December 31, 2017. The 28.8 million shares includes 6.1 million shares of common stock that may be issuable from time to time in the event that we pay a portion of the interest on the 2020 Notes in kind or elects to pay make-whole payments due upon conversion of the 2020 Notes, if any, in shares of common stock. The anticipated conversion of the outstanding 2020 Notes (including any interest that is paid in kind) into shares of our common stock could depress the trading price of our common stock. In addition, subject to certain restrictions, we have the option to issue common


stock to any converting holder in lieu of making any required make-whole payment in cash. If we elect to issue our common stock for such payment, it will be at the same conversion rate that is applicable to conversions of the principal amount of the 2020 Notes. If we elect to issue additional shares of our common stock for such payments, this may cause significant additional dilution to our existing stockholders.

Our stock price may be volatile, and your investment in our securities could suffer a decline in value.

The market price of shares of our common stock has experienced significant price and volume fluctuations. For example, since February 19, 2011, when we became a public company, through March 1, 2016, the closing sales price for one share of our common stock has reached a high of $383.27 and a low of $0.33.

We cannot predict whether the price of our common stock will rise or fall. A variety of factors may have a significant effect on our stock price, including:

 

actual or anticipated fluctuations in our financial condition and operating results;

 

the position of our cash and cash equivalents;

 

actual or anticipated changes in our growth rate relative to our competitors;

 

actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;

 

announcements of technological innovations by us, our partners or our competitors;

 

announcements by us, our partners or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

the entry into, modification or termination of licensing arrangements, marketing arrangements, and/or research, development, commercialization, supply, off-take or distribution arrangements;


 

our ability to consistently produce commercial quantities of isobutanol at the Agri-EnergyLuverne Facility and ramp up production to nameplate capacity;

 

additions or losses of customers or partners;

 

our ability to obtain certain regulatory approvals for the use of our isobutanol in various fuels and chemicals markets;

 

commodity prices, including oil, ethanol and corn prices;

 

additions or departures of key management or scientific personnel;

 

competition from existing products or new products that may emerge;

 

issuance of new or updated research reports by securities or industry analysts;

 

fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

litigation involving us, our general industry or both;

 

disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;

 

announcements or expectations of additional financing efforts or the pursuit of strategic alternatives;

 

changes in existing laws, regulations and policies applicable to our business and products, including the Renewable Fuel Standard program, and the adoption of or failure to adopt carbon emissions regulation;

 

sales of our common stock or equity-linked securities, such as warrants, by us or our stockholders;

 

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

general market conditions in our industry; and

 

general economic and market conditions.

Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock, regardless of our operating performance, and cause the value of your investment to decline. Because our Convertible2020 Notes are convertible into our common stock and our warrants are exercisable into our common stock, volatility or a reduction in the market price of our common stock could have an adverse effect on the trading price of our Convertible2020 Notes and our warrants. Holders who receive common stock upon exercise of the warrants will also be subject to the risk of volatility and a


reduction in the market price of our common stock. In addition, the existence of our Convertible2020 Notes and our outstanding warrants may encourage short selling in our common stock by market participants because the conversion of the Convertible2020 Notes or exercise of the warrants could depress the price of our common stock.

Additionally, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation or other derivative shareholder lawsuits. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business regardless of the outcome.

The price of our common stock could also be affected by possible sales of common stock by investors who view our Convertible2020 Notes or warrants as a more attractive means of equity participation in us and by hedging or arbitrage activity involving our common stock. The hedging or arbitrage could, in turn, affect the trading prices of the warrants, or any common stock that holders receive upon exercise of the warrants.

Sales of a substantial number of shares of our common stock or securities linked to our common stock, such as our Convertible2020 Notes and warrants, in the public market could occur at any time. These sales, or the perception in the market that such sales may occur, could reduce the market price of our common stock.

In addition, certain holders of our outstanding common stock (including shares of our common stock issuable upon the conversion of certain Convertible2020 Notes or upon exercise of certain outstanding warrants) have rights, subject to certain conditions, to require us to file registration statements covering their shares and to include their shares in registration statements that we may file for ourselves or other stockholders.


We may not be able to comply with all applicable listing requirements or standards of The NASDAQ Capital Market and NASDAQ could delist our common stock.

Our common stock is listed on The NASDAQ Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards.

On January 25, 2016, we received a deficiency letter from the Listing Qualifications Department of the NASDAQ Stock Market (“NASDAQ”), notifying us that, for the prior 30 consecutive business days, the closing bid price of our common stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on The NASDAQ Capital Market. In accordance with NASDAQ Listing Rules, we have an initial compliance period of 180 calendar days, or until July 25, 2016, to regain compliance with this requirement. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before July 25, 2016.  If we regain compliance,  NASDAQ will have provided written notification and close the matter.

If we do not regain compliance by July 25, 2016, we may be eligible for an additional 180 calendar day compliance period.  To qualify, the Company would need to meet the continued listing requirement for market value of publicly held shares ($1 million), and all other initial listing standards, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency, or if the Company is otherwise not eligible, NASDAQ would notify the company that its securities would be subject to delisting.  In the event of such a notification, the Company may appeal the NASDAQ’s determination to delist its securities, but there can be no assurance the NASDAQ would grant the Company’s request for continued listing.

We cannot provide any assurance that our stock price will recover within the permitted grace period. If our common stock is delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer a material decline. Delisting may also impair our ability to raise capital.

In the event that our common stock is not eligible for quotation on another market or exchange, trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely be a reduction in our coverage by security analysts and the news media, which could cause the price of our common stock to decline further. In addition, it may be difficult for us to raise additional capital if we are not listed on a major exchange.

Furthermore, it would be a fundamental change under the indentures governing the Convertible Notes if our common stock is not listed on a national securities exchange. In such circumstance we would be required to offer to repurchase the Convertible Notes at 100% of principal plus accrued and unpaid interest to, but not including, the repurchase date. We would also be required to pay the holders of the 2017 Notes a fundamental change make-whole payment equal to the aggregate amount of interest that would have otherwise been payable on such notes, to, but not including, the maturity date of such notes. Repurchase offers for the 2022 Notes would be prohibited by the agreements governing our secured indebtedness with TriplePoint.

Our quarterly operating results may fluctuate in the future. As a result, we may fail to meet or exceed the expectations of investment research analysts or investors, which could cause our stock price to decline.

Our financial condition and operating results have varied significantly in the past and may continue to fluctuate from quarter to quarter and year to year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations are described elsewhere in this report and other reports that we have filed with the SEC. Accordingly, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.

Future issuances of our common stock or instruments convertible or exercisable into our common stock, including in connection with conversions of Convertible Notes or exercises of warrants, may materially and adversely affect the price of our common stock and cause dilution to our existing stockholders.

We may obtain additional funds through public or private debt or equity financings in the near future, subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox and/or TriplePoint. If we issue additional shares of common stock or instruments convertible into common stock, it may materially and adversely affect the price of our common stock. In addition, the conversion of some or all of the Convertible Notes and/or the exercise of some or all of the warrants may dilute the ownership interests of our stockholders, and any sales in the public market of any of our common stock issuable upon such conversion or exercise could adversely affect prevailing market prices of our common stock. Additionally, under the terms of certain warrants in the event that a warrant is exercised at a time when we do not have an effective registration statement covering the underlying shares of common stock on file with the SEC, such warrant may be net exercised, which will dilute the


ownership interests of existing stockholders without any corresponding benefit to the Company of a cash payment for the exercise price of such warrant.

As of December 31, 2015, we had $22.4 million in outstanding 2022 Notes, which were convertible into 4,434,535 shares of common stock at the conversion rate in effect on December 31, 2015 (which amount includes 4,172,202 shares of common stock issuable in full satisfaction of the coupon make-whole payments due in connection therewith). The anticipated conversion of the $22.4 million in outstanding 2022 Notes into shares of our common stock could depress the trading price of our common stock. In addition, we have the option to issue common stock to any converting holder in lieu of making any required coupon make-whole payment in cash. If we elect to issue our common stock for such payment, the stock will be valued at 90% of the simple average of the daily volume weighted average prices of our common stock for the 10 trading days ending on and including the trading day immediately preceding the conversion date. If our stock price decreases, the number of shares we would be required to deliver in connection with the coupon make-whole payments would increase. Given that the agreements governing our indebtedness, including our secured indebtedness with TriplePoint, may prohibit us from paying, repurchasing or redeeming the 2022 Notes or making cash payments in respect of the coupon make-whole payments due upon a conversion, we may be unable to make such payment in cash. If we issue additional shares of our common stock in satisfaction of such payments, this may cause significant additional dilution to our existing stockholders.

As of December 31, 2015, we had $26.1 million in outstanding 2017 Notes, which were convertible into 1,689,533 shares of our common stock at the conversion rate in effect on December 31, 2015. The 1,689,533 shares includes 185,712 shares of common stock that may be issuable from time to time in the event that the Company pays a portion of the interest on the 2017 Notes in kind or elects to pay make-whole payments due upon conversion of the 2017 Notes, if any, in shares of common stock. The anticipated conversion of the outstanding 2017 Notes (including any interest that is paid in kind) into shares of our common stock could depress the trading price of our common stock. In addition, subject to certain restrictions, we have the option to issue common stock to any converting holder in lieu of making any required make-whole payment in cash. If we elect to issue our common stock for such payment, it will be at the same conversion rate that is applicable to conversions of the principal amount of the 2017 Notes. If we elect to issue additional shares of our common stock for such payments, this may cause significant additional dilution to our existing stockholders.

The indebtedness under our 20172020 Notes and our loan agreement with TriplePoint are secured by substantially all of our assets. As a result of these security interests, such assets would only be available to satisfy claims of our general creditors or to holders of our equity securities if we were to become insolvent to the extent the value of such assets exceeded the amount of our indebtedness and other obligations.

Indebtedness under our 20172020 Notes is secured by a first lien, and TriplePoint is secured by a second lien, on substantially all of our assets. Accordingly, if an event of default were to occur under our credit facilities, holders of our 20172020 Notes and then TriplePoint would have a priority right to our assets, to the exclusion of our general creditors, in the event of our bankruptcy, insolvency, liquidation, or reorganization. In that event, our assets would first be used to repay in full all indebtedness and other obligations secured by them, resulting in all or a portion of our assets being unavailable to satisfy the claims of our unsecured indebtedness. Only after satisfying the claims of our unsecured creditors and our subsidiaries’ unsecured creditors would any amount be available for distribution to holders of our equity securities

The terms of the agreements governing our indebtedness, including our secured indebtedness with Whitebox and/or TriplePoint and the indenturesindenture governing the Convertible2020 Notes, may restrict our ability to engage in certain transactions.

The terms of the agreements governing our indebtedness, including our secured indebtedness with Whitebox and/or TriplePoint and the indenturesindenture governing the Convertible2020 Notes, may prohibit us from engaging in certain actions, including disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain kinds of additional indebtedness, acquiring or merging with other entities, or making dividends and other restricted payments unless we receive the prior approval of the requisite lenders or the requisite holders of the Convertible2020 Notes. If we are unable to obtain such approval, we could be prohibited from engaging in transactions which could be beneficial to our business and our stockholders or could be forced to repay such indebtedness in full.

The indenturesindenture governing the Convertible2020 Notes may prohibit us from engaging in certain mergers or acquisitions and if a fundamental change of the Company occurs prior to the maturity date of the Convertible2020 Notes, holders of the Convertible2020 Notes will have the right, at their option, to require us to repurchase all or a portion of their Convertible2020 Notes and, in certain circumstances, to pay the holders of Convertible2020 Notes a make-whole payment equal to the aggregate amount of interest that would have been payable on such Convertible2020 Notes from the repurchase date through the maturity date of such Convertible Notes.2020 Notes.. With respect to the 2022 Notes, if a fundamental change occurs prior to the maturity date of the 2022 Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its 2022 Notes in connection with such fundamental change. With respect to the 20172020 Notes, the Company has the right to increase the conversion rate of the 20172020 Notes by any amount for a period of at least 20 business days if the Company’s board of directors


determines that such increase would be in the Company’s best interest. In


addition, if a fundamental transaction occurs, some holders of warrants will have the right, at their option, to require us to repurchase the unexercised portion of such warrants for an amount in cash equal to the value of the warrants, as determined in accordance with the Black Scholes option pricing model and the terms of the warrants. These and other provisions could prevent or deter a third party from acquiring us, even where the acquisition could be beneficial to you.

The conversion or exercise prices, as applicable, of the Convertible2020 Notes and warrants can fluctuate under certain circumstances which, if triggered, can result in potentially material further dilution to our stockholders.

The conversion price of the 2022 Notes can fluctuate in certain circumstances, including in the event that we undertake certain stock dividends, splits, combinations or distributions, or if there is a fundamental change prior to the maturity date of the 2022 Notes. In such instances, the conversion price of the 2022 Notes can fluctuate materially lower than the current conversion price of $85.39 per share. The conversion price of the 20172020 Notes can fluctuate in certain circumstances, including in the event that there is a dividend or distribution paid on shares of our common stock or a subdivision, combination or reclassification of our common stock. In such instances, the conversion price of the 20172020 Notes can fluctuate materially lower than the current conversion price of $17.36$0.7359 per share.share or 1.3589 shares per $1.00 of principal.

The number of shares of common stock for which certain of our warrants, are exercisable may be adjusted in the event that we undertake certain stock dividends, splits, combinations, distributions, and the price at which such shares of common stock may be purchased upon exercise of the warrants may be adjusted in the event that we undertake certain issuances of common stock or convertible securities at prices lower than the then-current exercise price for the warrants. These provisions could result in substantial dilution to investors in our common stock.

The interest rates of the Convertible2020 Notes can fluctuate under certain circumstances which, if triggered, can result in potentially material further dilution to our stockholders.

The interest rates of the Convertible2020 Notes can fluctuate in certain circumstances, including in the event of a default of our obligations under the indenturesindenture governing the Convertible2020 Notes or the registration rights agreements, if any, entered into in connection with such notes. In addition, the interest on the 20172020 Notes willmay be payable 50% in cash and 50% in-kind if (i) no event of default has occurred and is continuing under the indentures governing the 2017 Notes and (ii) the last reported sales price of our common stock on the 10th trading day immediately preceding the relevant interest payment date is more than $16.50 per share.in-kind. As the Company may be required to pay a portion of the interest on the 20172020 Notes in kind, by either increasing the principal amount of the outstanding 20172020 Notes or issuing additional 20172020 Notes, any increase to the interest rate applicable to the 20172020 Notes could result in additional dilution to investors in our common stock.

We may not have the ability to pay interest on the Convertible2020 Notes or to repurchase or redeem the Convertible2020 Notes.

If a fundamental change (as defined in the indenturesindenture governing the Convertible2020 Notes) occurs, holders of the Convertible2020 Notes may require us to repurchase, for cash, all or a portion of their Convertible2020 Notes. In such circumstance we would be required to offer to repurchase the Convertible2020 Notes at 100% of principal plus accrued and unpaid interest to, but not including, the repurchase date. We would also be required to pay the holders of the 20172020 Notes a fundamental change make-whole payment equal to the aggregate amount of interest that would have otherwise been payable on such notes to, but not including, the maturity date of such notes. If we elect to redeem the Convertible2020 Notes prior to their maturity, the redemption price of any Convertible2020 Notes redeemed by us will be paid for in cash. Our ability to pay the interest on the Convertible2020 Notes, to repurchase or redeem the Convertible2020 Notes, to refinance our indebtedness and to fund working capital needs and planned capital expenditures depends on our ability to generate cash flow in the future. To some extent, this is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that we will maintain sufficient cash reserves or that our business will generate cash flow from operations at levels sufficient to permit us to pay the interest on the Convertible2020 Notes, to repurchase or redeem the Convertible2020 Notes or to pay any cash amounts that may become due upon conversion of the Convertible2020 Notes, or that our cash needs will not increase. In addition, any such repurchase or redemption of the Convertible2020 Notes, even if such action would be in our best interests, may result in a default under the agreements governing our indebtedness including our secured indebtedness with TriplePoint, unless we are able to obtain the applicable lender’s consent prior to the taking of such action.

Our failure to repurchase tendered Convertible2020 Notes at a time when the repurchase is required by the indenture governing such notes would constitute a default under such notes and would permit holders of such notes to accelerate our obligations under such notes. Such default may also lead to a default under the agreements governing any of our current and future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay such indebtedness and repurchase the Convertible2020 Notes or make cash payments upon conversions thereof.

If we are unable to generate sufficient cash flow from operations in the future to service our indebtedness and meet our other needs, we may have to refinance all or a portion of our indebtedness, obtain additional funds through public or private debt or equity financings, reduce expenditures or sell assets that we deem necessary to our business. Our ability to take some or all of these actions


will be subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox, and/or TriplePoint, and we cannot assure you that any of these measures would be possible or that any additional financing could be obtained on favorable terms, or at all. The inability to obtain additional financing on commercially reasonable terms could have a material adverse effect on our financial condition, which could cause the value of your investment to decline. Additionally, if we were to conduct a public or private offering of securities, any new offering would be likely to dilute our stockholders’ equity ownership.


Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our technologies.

We may, subject to certain limitations in the agreements governing our indebtedness, including our secured indebtedness with Whitebox, and/or TriplePoint, seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and licensing arrangements. To the extent that we raise additional capital through the sale or issuance of equity, warrants or convertible debt securities, the ownership interest of our existing shareholders will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect their rights as a stockholder. If we raise capital through debt financing, it may involve agreements that include covenants further limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships or licensing agreements with third parties, we may have to relinquish valuable rights to our technologies, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our development and commercialization efforts.

The issuance of share-based payment awards under our stock incentive plan may cause dilution to our existing stockholders and may affect the market price of our common stock.

We have used, and in the future we may continue to use, stock options, stock grants and other equity-based incentives, either pursuant to the 2010 Plan, or outside of the 2010 Plan, to provide motivation and compensation to our directors, officers, employees and key independent consultants. The award of any such incentives will result in an immediate and potentially substantial dilution to our existing shareholders and could result in a decline in the value of our stock price.

As of December 31, 2015,2017, there were 481,78646,431 shares subject to outstanding options that are or will become eligible for sale in the public market to the extent permitted by any applicable vesting requirements and Rules 144 and 701 under the Securities Act. The exercise of these options and the sale of the underlying shares of common stock and the sale of stock issued pursuant to stock grants may have an adverse effect upon the price of our common stock, which in turn may have an adverse effect upon the trading price of the warrants.

As of December 31, 2015,2017, there were 59,316133,607 shares of common stock available for future grant under our 2010 Plan and 76,6293,802 shares of common stock reserved for issuance under our Employee Stock Purchase Plan. These shares can be freely sold in the public market upon issuance and once vested.

We may pay vendors in stock as consideration for their services; this may result in additional costs and may cause dilution to our existing stockholders.

In order for us to preserve our cash resources, we may in the future pay vendors, including technology partners, in shares, warrants or options to purchase shares of our common stock rather than cash. Payments for services in stock may materially and adversely affect our stockholders by diluting the value of outstanding shares of our common stock. In addition, in situations where we agree to register the shares issued to a vendor, this will generally cause us to incur additional expenses associated with such registration.

Except as set forth in the applicable warrant, holders of our warrants will have no rights as common stockholders until such holders exercise their warrants and acquire our common stock.

Until you acquire shares of our common stock upon exercise of your warrants, you will have no rights with respect to the shares of our common stock underlying such warrants, except for those rights set forth in the applicable warrant. Upon exercise of your warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

The exercise prices for our warrants will not be adjusted for all dilutive events.

The exercise prices of certain warrants are subject to adjustment for certain events, including the issuance of stock dividends on our common stock and, in certain instances, the issuance of our common stock at a price per share less than the exercise price of such


warrants. However, the exercise prices will not be adjusted for other events, including the issuance of certain rights, options or warrants, distributions of capital stock, indebtedness, or assets and cash dividends. Accordingly, an event that adversely affects the value of the warrants may occur, and that event may not result in an adjustment to the exercise prices.


We may not be permitted by the agreements governing our indebtedness, including our secured indebtedness with Whitebox, and/or TriplePoint, to repurchase our warrants, and we may not have the ability to do so.

Under certain circumstances, if a “fundamental transaction” or “extraordinary transaction” (as such terms are defined in our various warrants) occurs, holders of our warrants may require us to repurchase, for cash, the remaining unexercised portion of such warrants for an amount of cash equal to the value of the warrant as determined in accordance with the Black Scholes option pricing model and the terms of the warrants. Our ability to repurchase the warrants depends on our ability to generate cash flow in the future. To some extent, this is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that we will maintain sufficient cash reserves or that our business will generate cash flow from operations at levels sufficient to permit us to repurchase the warrants. In addition, any such repurchase of the warrants may result in a default under the agreements governing our indebtedness, including our secured indebtedness with Whitebox, and/or TriplePoint, unless we are able to obtain such lender’s consent prior to the taking of such action. If we were unable to obtain such consent, compliance with the terms of the warrants would trigger an event of default under such agreements.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

Under the terms of the agreements governing our indebtedness with TriplePoint, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if the following conditions are satisfied: (i) the Retrofit of the Agri-Energy Facility is complete and the facility is producing commercial volumes of isobutanol, (ii) its net worth is greater than or equal to $10.0 million, and (iii) no event of default has occurred and is continuing under the agreement. Agri-Energy is also permitted to make dividends and distributions to Gevo, Inc. for certain defined purposes related to the Convertible Notes. Accordingly, even if we decide to pay cash dividends in the future, we may not be able to access cash generated by Agri-Energy if amounts are then outstanding pursuant to such agreements.

We have never paid cash dividends on our common stock and we do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our stock price and trading volume could decline. The trading market for our common stock will be influenced by the research and reports that securities or industry analysts publish about us or our business.

We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our stock price would likely decline which in turn would likely cause a decline in the value of the warrants and Convertible2020 Notes. If one or more of these analysts cease coverage of the Company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price and the price of the warrants to decline or the trading volume of such securities to decline.

We are subject to anti-takeover provisions in our amended and restated certificate of incorporation, our amended and restated bylaws and under Delaware law that could delay or prevent an acquisition of the Company, even if the acquisition would be beneficial to our stockholders.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may delay or prevent an acquisition of the Company. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws provide for a board of directors that is divided into three classes with staggered three-year terms, provide that all stockholder action must be effected at a duly called meeting of the stockholders and not by a consent in writing, and further provide that only our board of directors may call a special meeting of the stockholders. These provisions may also frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management team. Furthermore, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits, with some exceptions, stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us. Finally, our charter documents establish advance notice requirements for nominations for election to our board of directors and for proposing matters that can be acted upon at stockholder meetings. Although we believe these provisions together provide an


opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer to acquire the Company may be considered beneficial by some stockholders.

Item 1B.

Unresolved Staff Comments

None.

 

 

Item 2.

Properties

Our corporate headquarters and research and development laboratories, included in our Gevo, Inc. segment, are located in Englewood, Colorado, where we currently occupy approximately 29,865 square feet of office and laboratory space.  Our lease for this facility expires in July 2016.Colorado. In January 2016, we amended our lease to extend the term until July 2021 and to reduce the amount of leased space from 29,865 square feet to approximately 19,241 square feet, effective July 2016.  We believe that the facility with the reduced


square footage will be adequate for our needs for the immediate future and that, should it be needed, additional space can be leased to accommodate any future growth.

Our subsidiary, Agri-Energy,Luverne, included in our Gevo Development/Agri-EnergyLuverne segment, owns and operates an ethanol and isobutanol production facility in Luverne, Minnesota on approximately 55 acres of land and contains approximately 50,000 square feet of building space. The production facility was originally constructed in 1998. The land and buildings are owned by Agri-Energy,Luverne, which granted to Whitebox and TriplePoint a mortgage lien and security interest in such property to secure its obligations under Whitebox Notes Indenture and the Amended Agri-Energy Loan Agreement with TriplePoint.Indenture.

Item 3.

Legal Proceedings

On January 14, 2011, Butamax filedFrom time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. We are not presently a complaint (the “Complaint”)party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us in the United States Court for the District of Delaware (the “Delaware District Court”), as Case No. 1:11-cv-00054-SLR, alleging that we were infringing onebelieve could have a material adverse effect on our business, operating results, financial condition or more claims made in U.S. Patent No. 7,851,188, entitled “Fermentive Production of Four Carbon Alcohols.”

On August 11, 2011, Butamax amended the Complaint to include allegations that we were infringing one or more claims made in U.S. Patent No. 7,993,889, also entitled “Fermentive Production of Four Carbon Alcohols”. On March 12, 2012, Butamax filed a complaint in the Delaware District Court, as Case No. 1:12-cv-00298-SLR, alleging that we were infringing one or more claims made in U.S. Patent No. 8,129,162, entitled “Ketol-Acid Reductoisomerase Using NADH.”

On May 15, 2012, Butamax filed a complaint in the Delaware District Court, as Case No. 1:12-cv-00602-SLR, alleging that we were infringing one or more claims made in U.S. Patent No. 8,178,328, entitled “Fermentive Production of Four Carbon Alcohols.”

On August 6, 2012, Butamax filed a complaint in the Delaware District Court, as Case No. 1:12-cv-01014-SLR, alleging that we were infringing U.S. Patent No. 8,222,017, entitled “Ketol-Acid Reductoisomerase Using NADH.”

On August 14, 2012, Butamax filed a complaint in the Delaware District Court, as Case No. 1:12-cv-01036-SLR, alleging that we were infringing U.S. Patent No. 8,241,878, entitled “Recombinant Yeast Host Cell with Fe-S Cluster Proteins and Methods of Using Thereof.”

On September 25, 2012, Butamax filed a complaint in the Delaware District Court, as Case No. 1:12-cv-01200-SLR, alleging that we were infringing U.S. Patent No. 8,273,558, entitled “Fermentive Production of Four Carbon Alcohols.”

On October 8, 2012, Butamax filed a complaint in the Delaware District Court, as Case No. 1:12-cv-01300-SLR, alleging that we were infringing U.S. Patent No. 8,283,144, entitled “Fermentive Production of Four Carbon Alcohols.”

On August 22, 2015, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with Butamax, E.I. du Pont de Nemours & Company (“DuPont”) and BP Biofuels North America LLC (“BP” and, together with Butamax and DuPont, the “Butamax Parties”), that resolves the various disputes, lawsuits and other proceedings between one or more of the Butamax Parties and the Company mentioned above (the “Subject Litigation”), and creates a new business relationship pursuant to which Butamax and the Company have granted rights to each other under certain patents and patent applications in accordance with the terms of the License Agreement which was entered into by the Company and Butamax concurrently with the Settlement Agreement.  

Pursuant to the terms of the Settlement Agreement, the parties filed a joint motion of dismissal with prejudice subject to certain continuing permitted activities such as the rights of each of the Company and Butamax to take further actions in connection withcash flows.


existing appeals and reexaminations for purposes of resolving existing disputes.  The Delaware District Court vacated and withdrew its decisions and orders concerning certain of the parties’ substantive motions, specifically the Delaware District Court’s Claim Construction Memorandum Opinion and Order in matter 11-54, dated March 19, 2013, and the Delaware District Court’s memorandum Opinion and Order dated August 3, 2015 in matters 12-1036, 12-1300 and 12-1200.

The Butamax Parties have also agreed to release, on behalf of themselves and their affiliates, the Company and its affiliates from and against all claims that the Butamax Parties have or may have with respect to any matter arising from or related to the Subject Litigation.  Likewise, the Company has agreed to release, on behalf of itself and its affiliates, the Butamax Parties and their affiliates from and against all claims that the Company has or may have with respect to any matter arising from or related to the Subject Litigation.  The parties have also agreed to certain limitations on the making or participating in a challenge of the other party’s patents that are at issue in the Subject Litigation.  

The Settlement Agreement will continue in effect until the expiration of the licensed patents, unless earlier terminated by all parties in writing, except that certain obligations under the Settlement Agreement including the mutual release and obligations to pay royalties and other fees under the License Agreement will survive the termination of the Settlement Agreement.

Item 4.

Mine Safety Disclosures

Not Applicable.

 

 

 


PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for Common Stock

In December 2014, the Company received a positive determination from the Listing Qualifications department of The NASDAQ Stock Market (“NASDAQ”), granting approval of the Company's request to transfer its listing to The NASDAQ Capital Market from The NASDAQ Global Market in order to continue to pursue compliance with NASDAQ’s minimum bid price requirement. The Company's securities began trading on the NASDAQ Capital Market effective at the start of trading on January 5, 2015.  The transfer of the Company's listing to the NASDAQ Capital Marketcommon stock is not expected to have any impact on trading in the Company's securities, and the Company's securities will continue to tradelisted on the NASDAQ Capital Market under the symbol 'GEVO'. Prior to January 5, 2015 and since February 9, 2011, our common stock had been traded on the NASDAQ Global Market under the symbol “GEVO”.

The following table sets forth, for the period indicated, the high and low sales prices for our common stock, as reported by the NASDAQ Global Market and NASDAQ CapitalStock Market, for the periods indicated below. The table below has been adjusted to reflect the January 5, 2017 one-for-twenty reverse stock split.

 

Common Stock

 

Common Stock

 

Price 2015

 

 

Price 2014

 

2017

 

 

2016

 

High

 

 

Low

 

 

High

 

 

Low

 

High

 

 

Low

 

 

High

 

 

Low

 

First Quarter

$

5.25

 

 

$

1.80

 

 

$

23.25

 

 

$

17.10

 

$

4.09

 

 

$

0.93

 

 

$

13.33

 

 

$

5.20

 

Second Quarter

 

5.46

 

 

 

2.01

 

 

 

20.10

 

 

 

10.95

 

 

1.13

 

 

 

0.58

 

 

 

19.19

 

 

 

4.46

 

Third Quarter

 

3.26

 

 

 

1.72

 

 

 

13.95

 

 

 

4.50

 

 

0.81

 

 

 

0.56

 

 

 

16.00

 

 

 

9.11

 

Fourth Quarter

 

2.21

 

 

 

0.61

 

 

 

8.10

 

 

 

3.75

 

 

0.72

 

 

 

0.59

 

 

 

9.63

 

 

 

3.46

 

 

Holders of Record

The last sale price of our common stock on March 28, 2016, as reported by the NASDAQ Capital Market, was $0.46 per share. As of March 25, 2016,6, 2018, there were approximately 7530 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”

Dividends

No cash dividends have been paid on our common stock to date, nor do we anticipate paying dividends in the foreseeable future.

UnderAny future determination to declare cash dividends on our common stock will be made at the termsdiscretion of the Amended Agri-Energy Loan Agreement,our Board of Directors, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if the following conditions are satisfied: (i) the Retrofit of the Agri-Energy Facility is completecompliance and the facility is producing commercial volumes of isobutanol, (ii) its net worth is greater than or equal to $10.0 million, and (iii) no event of default has occurred and is continuinglimitations under the agreement.

Equity Compensation Plan Information

The information required to be disclosed under Item 201 of Regulation S-K is included in this Report under Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Mattersour debt arrangements..

Performance Graph

Set forth below is a graph comparing the yearlyannual change in the cumulative total return of Gevo’s common stock with the cumulative total return of the Standard & Poor’s SmallCap 600 Value Index and with the NASDAQ Clean Edge Green Energy Index over the period from the initiation of public trading of the Company’s common stock in FebruaryDecember 31, 2011 through December 31, 2015.2017.

It is assumed in the graph that $100 was invested (i) in our common stock; (ii) in the stocks of the companies in the Standard & Poor’s SmallCap 600 Value Index; and (iii) in the stocks of the NASDAQ Clean Edge Green Energy Index.


The stock price performance shown on the following graph is not indicative of future price performance.performance

 

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.


Item 6.

Selected Financial Data

The following selected historical consolidated financial data should be read together with our consolidated financial statements and the accompanying notes appearing in Part II, Item 8 of this Report, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected historical consolidated financial data in this section is not intended to replace our historical consolidated financial statements and the accompanying notes. Our historical results are not necessarily indicative of our future results.

We derived the consolidated statements of operations data for the years ended December 31, 2015, 2014,2017, 2016, and 20132015 and the consolidated balance sheet data as of December 31, 20152017 and 20142016 from our audited consolidated financial statements in Part II, Item 8 of this Report. The consolidated statements of operations data for the years ended December 31, 20122013 and 20112012 and the consolidated balance sheet data as of December 31, 2014, 2013 2012 and 20112012 has been derived from our audited consolidated financial statements not included in this Report. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information included herein.

 

(In thousands except share and  per share amounts)

Years Ended December 31,

 

Consolidated statement of operations data:

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

Total revenue (1) (2)

$

30,137

 

 

$

28,266

 

 

$

8,224

 

 

$

24,385

 

 

$

64,549

 

Costs of goods and corn sold

 

38,762

 

 

 

35,582

 

 

 

17,913

 

 

 

32,410

 

 

 

60,588

 

Operating expenses

 

23,302

 

 

 

32,461

 

 

 

45,826

 

 

 

63,412

 

 

 

48,654

 

Loss from operations

 

(31,927

)

 

 

(39,777

)

 

 

(55,515

)

 

 

(71,437

)

 

 

(44,693

)

Net loss (3) (4) (5) (6) (7)

 

(36,194

)

 

 

(41,145

)

 

 

(66,806

)

 

 

(60,712

)

 

 

(48,214

)

Net loss per share - basic and diluted

 

(2.58

)

 

 

(7.67

)

 

 

(22.23

)

 

 

(27.92

)

 

 

(31.57

)

Weighted-average number of common shares

   outstanding - basic and diluted

 

14,025,048

 

 

 

5,366,162

 

 

 

3,004,775

 

 

 

2,174,606

 

 

 

1,527,328

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

Consolidated balance sheet data:

2015

 

 

2014

 

 

2013

 

 

2012

 

 

2011

 

Cash and cash equivalents

$

17,031

 

 

$

6,359

 

 

$

24,625

 

 

$

66,744

 

 

$

94,225

 

Total assets

 

103,128

 

 

 

98,928

 

 

 

116,355

 

 

 

156,111

 

 

 

133,030

 

Derivative warrant liability

 

10,493

 

 

 

3,114

 

 

 

7,243

 

 

 

-

 

 

 

-

 

Secured debt

 

485

 

 

 

773

 

 

 

10,127

 

 

 

23,958

 

 

 

28,243

 

2017 notes recorded at fair value

 

21,565

 

 

 

25,460

 

 

 

-

 

 

 

-

 

 

 

-

 

2022 notes, net

 

14,636

 

 

 

13,679

 

 

 

14,501

 

 

 

25,554

 

 

 

-

 

Total liabilities

 

54,802

 

 

 

51,964

 

 

 

45,380

 

 

 

58,280

 

 

 

40,893

 

Accumulated deficit

 

(339,492

)

 

 

(303,298

)

 

 

(262,153

)

 

 

(195,347

)

 

 

(134,635

)

Total stockholders’ equity

 

48,326

 

 

 

46,964

 

 

 

70,975

 

 

 

97,831

 

 

 

92,137

 


On December 21, 2016, the Board of Directors of the Company approved a reverse split of the Company’s common stock, par value $0.01, at a ratio of one-for-twenty.   This reverse stock split became effective on January 5, 2017 and, unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

(In thousands except share and per share amounts)

Years Ended December 31,

 

Consolidated statement of operations data:

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Total revenue (1) (2) (3)

$

27,536

 

 

$

27,213

 

 

$

30,137

 

 

$

28,266

 

 

$

8,224

 

Costs of goods and corn sold

 

38,165

 

 

 

37,017

 

 

 

38,762

 

 

 

35,582

 

 

 

17,913

 

Operating expenses

 

12,653

 

 

 

14,181

 

 

 

23,302

 

 

 

32,461

 

 

 

45,826

 

Loss from operations

 

(23,282

)

 

 

(23,985

)

 

 

(31,927

)

 

 

(39,777

)

 

 

(55,515

)

Net loss (4) (5) (6) (7) (8) (9)

 

(24,630

)

 

 

(37,228

)

 

 

(36,194

)

 

 

(41,145

)

 

 

(66,806

)

Net loss per share - basic and diluted

 

(1.51

)

 

 

(9.68

)

 

 

(51.61

)

 

 

(153.35

)

 

 

(444.67

)

Weighted-average number of common shares

   outstanding - basic and diluted

 

16,295,937

 

 

 

3,847,421

 

 

 

701,252

 

 

 

268,308

 

 

 

150,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

Consolidated balance sheet data:

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

Cash and cash equivalents

$

11,553

 

 

$

27,888

 

 

$

17,031

 

 

$

6,359

 

 

$

24,625

 

Total assets

 

88,853

 

 

 

112,324

 

 

 

102,831

 

 

 

98,928

 

 

 

116,355

 

Derivative warrant liability

 

1,951

 

 

 

2,698

 

 

 

10,493

 

 

 

3,114

 

 

 

7,243

 

Secured debt

 

-

 

 

 

-

 

 

 

483

 

 

 

773

 

 

 

10,127

 

2017 Notes recorded at fair value

 

-

 

 

 

25,769

 

 

 

21,565

 

 

 

25,460

 

 

 

-

 

2020 Notes, net

 

13,491

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

2022 Notes, net

 

515

 

 

 

8,221

 

 

 

14,341

 

 

 

13,679

 

 

 

14,501

 

Total liabilities

 

25,322

 

 

 

43,060

 

 

 

54,505

 

 

 

51,964

 

 

 

45,380

 

Accumulated deficit

 

(401,350

)

 

 

(376,720

)

 

 

(339,492

)

 

 

(303,298

)

 

 

(262,153

)

Total stockholders’ equity

 

63,531

 

 

 

69,264

 

 

 

48,326

 

 

 

46,964

 

 

 

70,975

 

 

(1)

During the second quarter of 2012, we suspended the production of ethanol and commenced initial startup operations for the production of isobutanol. In September 2012, as a result of a lower than planned production rate of isobutanol, we made the strategic decision to pause isobutanol and ethanol production at the Agri-Energy Facility at the conclusion of startup operations to focus on optimizing specific parts of the process to further enhance isobutanol production rates.

(2)

Throughout 2013, we made modifications to our Agri-EnergyLuverne Facility designed to increase the isobutanol production rates.  As a result, we produced very limited quantities of isobutanol and no ethanol at the Agri-EnergyLuverne Facility in 2013.

(3)(2)

In March 2014, we decided to leverage the flexibility of our GIFT®GIFT™ technology and further modify the Agri-EnergyLuverne Facility in order to enable the simultaneous production of isobutanol and ethanol, and in July 2014, we began more consistent co-production of isobutanol and ethanol at the Agri-EnergyLuverne Facility, with one fermenter utilized for isobutanol production and three fermenters utilized for ethanol production.

(4)(3)

We recognized gains of $0.0 million, $0.0 million, $0.0 million, $3.5 million, $3.1 million and $17.0$3.1 million during the years ended December 31, 2017, 2016, 2015, 2014, 2013 and 2012,2013, respectively, associated with a change in the fair value of the derivatives embedded in our 2022 Notes.

(5)(4)

We recognized a lossgains of $5.1 million, $1.8 million, $0.6 million and $6.5 million during the yearyears ended December 31, 2017, 2016, 2015 gain of $6.5 millionand 2014, respectively, and a loss of $3.2 million during the yearsyear ended December 31, 2014 and 2013 respectively, associated with a change in the fair value of Warrants to purchase our common stock that were issued in February 2017, September 2016, April 2016, December 2015, May 2015, February 2015, August 2014, and December 2013 in conjunction with our offering of common stock units.


(6)(5)

We recognized a loss of $0.3 million and $4.2 million during the years ended December 31, 2017 and 2016, respectively, and gains of $3.9 million and $0.6 million during the years ended December 31, 2015 and 2014, respectively, associated with a change in the fair value of the 2017 Notes.  

(6)

We recognized a loss of $1.0 million and $0.8 million during the years ended December 31, 2017 and 2016, respectively, and a gain of $0.2 million during the year ended December 31, 2015, no gain or loss during the year ended December 31, 2014 and a loss of $2.0 million during the year ended December 31, 2013 associated with the exchange or conversion of our 2022 Notes.

(7)

As of December 31, 2015, certain holders of our 2022 Notes have converted or exchanged 2022 Notes in an aggregate principal amount of $22.6 million into shares of our common stock, reducing the principal balance of the 2022 Notes to $22.4 million. Upon conversion, the holders of the converted 2022 Notes received 235,396 shares of Gevo, Inc. common stock in payment of converted principal of $20.1 million and, pursuant to the terms of the Indenture, such holders also received 343,803 shares of Gevo, Inc. common stock in settlement of Coupon Make-Whole Payments of $5.5 million. Upon exchange, the holders of the exchanged 2022 Notes received 1,107,833 shares of Gevo, Inc. common stock as payment of exchanged principal of $2.5 million.  As a result, weWe recognized a loss of $0.2$0.0 million and $2.0$0.9 million during the years ended December 31, 20152017 and 20132016, respectively, and a gain of $1.8 million during the year ended December 31, 2015 associated with the extinguishment of debt.certain of our warrant liabilities.

(8)

We recognized losses of $0.0 million, $1.5 million and $2.5 million during the years ended December 31, 2017, 2016 and 2015, respectively, associated with issuances of equity in those years.

(9)

We recognized a loss of $3.9 million related to the exchange of the 2017 notes to the 2020 notes during the year ended December 31, 2017.


The following table reflects our unaudited summarized quarterly consolidated financial statements for each of the twelve months ended December 31, 20152017 and 2014.2016. This information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurring adjustments necessary for a fair statement of such information (in thousands except share and per share amounts).

 

Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

First

 

 

Second

 

 

Third

 

 

Fourth

 

Quarter

 

2017

First

 

 

Second

 

 

Third

 

 

Fourth

 

Revenue

$

5,899

 

 

$

8,924

 

 

$

8,017

 

 

$

7,297

 

$

5,616

 

 

$

7,542

 

 

$

7,699

 

 

$

6,679

 

Gross loss

 

(3,335

)

 

 

(974

)

 

 

(2,612

)

 

 

(1,704

)

 

(3,792

)

 

 

(2,163

)

 

 

(2,010

)

 

 

(2,664

)

Loss from operations (1)

 

(9,536

)

 

 

(6,531

)

 

 

(9,274

)

 

 

(6,586

)

 

(7,182

)

 

 

(6,177

)

 

 

(5,113

)

 

 

(4,810

)

Gain from change in fair value of embedded derivatives of the

2022 Notes

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Gain (loss) from change in fair value of derivative warrant liability

 

167

 

 

 

(7,247

)

 

 

4,719

 

 

 

2,938

 

Gain (loss) from change in fair value of 2017 Notes

 

3,765

 

 

 

(340

)

 

 

157

 

 

 

313

 

Gain (Loss) from change in fair value of derivative warrant

liability

 

3,259

 

 

 

2,260

 

 

 

(413

)

 

 

(5

)

Selling, general and administrative expense

 

2,173

 

 

 

2,123

 

 

 

1,893

 

 

 

1,282

 

Net loss

 

(7,343

)

 

 

(14,370

)

 

 

(6,519

)

 

 

(7,962

)

 

(5,934

)

 

 

(10,158

)

 

 

(4,153

)

 

 

(4,385

)

Net loss per share - basic and diluted

$

(0.88

)

 

$

(1.10

)

 

$

(0.39

)

 

$

(0.44

)

$

(0.51

)

 

$

(0.66

)

 

$

(0.25

)

 

$

(0.20

)

Weighted-average number of common shares outstanding - basic

and diluted

 

8,312,398

 

 

 

13,009,434

 

 

 

16,688,632

 

 

 

17,954,451

 

 

11,584,595

 

 

 

15,372,485

 

 

 

16,508,158

 

 

 

21,606,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter

 

Quarter

 

2014

First

 

 

Second

 

 

Third

 

 

Fourth

 

2016

First

 

 

Second

 

 

Third

 

 

Fourth

 

Revenue

$

903

 

 

$

7,721

 

 

$

10,141

 

 

$

9,501

 

$

6,320

 

 

$

8,113

 

 

$

6,944

 

 

$

5,836

 

Gross loss

 

(3,777

)

 

 

(548

)

 

 

(1,619

)

 

 

(1,372

)

 

(2,903

)

 

 

(1,876

)

 

 

(2,706

)

 

 

(2,319

)

Loss from operations (1)

 

(12,922

)

 

 

(9,032

)

 

 

(8,912

)

 

 

(8,911

)

 

(5,866

)

 

 

(5,492

)

 

 

(6,135

)

 

 

(6,492

)

Gain from change in fair value of embedded derivative of the

2022 Notes

 

1,264

 

 

 

1,480

 

 

 

726

 

 

 

-

 

Gain (loss) from change in fair value of derivative warrant liability

 

1,278

 

 

 

1,321

 

 

 

4,173

 

 

 

(242

)

Gain (loss) from change in fair value of 2017 Notes

 

-

 

 

 

(5,129

)

 

 

5,673

 

 

 

104

 

Gain (Loss) from change in fair value of derivative warrant

liability

 

5,248

 

 

 

(10,573

)

 

 

1,154

 

 

 

5,954

 

Loss from change in fair value of 2017 Notes

 

(836

)

 

 

(940

)

 

 

(1,854

)

 

 

(573

)

Net loss

 

(11,972

)

 

 

(17,156

)

 

 

(938

)

 

 

(11,079

)

 

(3,605

)

 

 

(21,487

)

 

 

(9,849

)

 

 

(2,287

)

Net loss per share - basic and diluted

$

(2.65

)

 

$

(3.79

)

 

$

(0.16

)

 

$

(1.68

)

$

(3.13

)

 

$

(8.75

)

 

$

(2.04

)

 

$

(0.33

)

Weighted-average number of common shares outstanding - basic

and diluted

 

4,517,381

 

 

 

4,531,321

 

 

 

5,808,079

 

 

 

6,577,828

 

 

1,150,816

 

 

 

2,454,282

 

 

 

4,837,698

 

 

 

6,840,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Loss from operations during 2015 and 2014 primarily relates to costs associated with conducting research and development, business development, business and financial planning, continued improvement of facilities and operations for the co-production of isobutanol and ethanol at the Agri-Energy1)Loss from operations during 2017 and 2016 primarily relates to costs associated with conducting research and development, business development, business and financial planning, continued improvement of facilities and operations for the co-production of isobutanol and ethanol at the Luverne Facility.

 

 


Item 7.

Management’s Discussion and AnalysisAnalysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K (this “Report”). In addition to historical financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Report, particularly in “Risk Factors.”

Overview

We are a renewable chemicals and next generation biofuels company.  company, targeting what we believe to be very large potential markets: that of low carbon fuels and chemicals that can compete directly against petro-chemical products depending on the price of oil and value of carbon.   Renewable fuels are one of the few markets where the value for renewable carbon has already been established, particularly in the U.S.  We believe that the demand for low carbon fuels, chemicals, and plastics will continue and grow stronger over time.  We believe that renewable carbon will eventually be valued in chemicals and plastics in addition to fuels.    

The challenges to displace petrochemical products with renewable products are enormous:  (i) the products need to meet or exceed the stringent performance requirements established by the incumbent products, (ii) the products need to be compatible with existing distribution infrastructure, (iii) the products must be economical in the market place, and (iv) in most cases, the products must have a lower carbon footprint and improve the “sustainability” of the business system.   We believe we have viable technologies that produce products that address these challenges.  

We have developed proprietary technology that uses a combination of synthetic biology, metabolic engineering, chemistry and chemical engineering to focus primarily on the production ofmake isobutanol as well as relatedand hydrocarbon products from isobutanol that can displace petrochemical incumbent products.    We have been able to genetically engineer yeast, whereby the yeast produces isobutanol from carbohydrates at costs that we believe to be commercially competitive once large production facilities are deployed that will enable economies of scale to be  reached.  We have shown that the isobutanol production process works in full scale fermenter systems at our production facility in Luverne, Minnesota (the “Luverne Facility”). We also have shown that our renewable feedstocks.isobutanol can be readily converted to hydrocarbon products that address large markets.  Specifically, our renewable alcohol-to-jet fuel (“ATJ”) has been approved for use in commercial aviation and used multiple times for commercial flights.  In addition, our renewable isobutanol is being used as a gasoline blendstock in the Houston area for on-road vehicles as an ethanol-free fuel option for consumers.  Our renewable isooctane meets the performance and specification requirements for use in chemicals and fuels and is currently being used in the European Union.  We believe that there is large potential to grow our business, through a combination of (i) directly producing and selling our renewable isobutanol and related hydrocarbon products, and (ii) licensing our technology.

We believe that renewable isobutanol is a potentially valuable commercial product because of its versatility to address large markets either as a product directly or as a key intermediate for producing renewable carbon alternatives to mainstream fuels such as jet fuel, gasoline, plastics such as PET, and various other chemical products and materials.   Isobutanol is a four-carbon alcohol that can be sold directly for use as a specialty chemical in the production of solvents, paints and coatings, or more importantly from a market size and performance value-added point of view, as a value-added gasoline blendstock.  IsobutanolBecause isobutanol can also be readily converted into butenes using dehydration chemistry deployed in the refining and petrochemicals industries today. The convertibility of isobutanol into butenes is important because butenes are primaryto hydrocarbon building blocks used in the production ofproducts such hydrocarbon fuels, including isooctane, isooctene and ATJ, lubricants, polyester, rubber, plastics, fibers and other polymers. Wepolymers, we believe that the products derived from isobutanol have potential applications in substantially all of the global hydrocarbon fuelsaddressable markets and in approximatelyare very large; potentially being able to ultimately reach 40% of the global petrochemicals markets.markets depending on the price of oil and the value of renewable carbon.    

2017 Production and Sales

During 2017, we produced 15.6 million gallons of ethanol, 47 thousand tons of animal feed, and 1,050 tons of corn oil resulting in revenue of $26.3 million. Consistent with our market development efforts, during 2017, we produced approximately 206,000 gallons of isobutanol at the Luverne Facility.  During 2017, we sold the equivalent of approximately 49,368 gallons of isobutanol, either directly as isobutanol or as renewable hydrocarbons (jet fuel, isooctane and isooctene) resulting in revenue of $1.1 million.

As we continue our market development efforts and increase our isobutanol production levels at our Luverne Facility, there will likely continue to be a mismatch in timing between isobutanol production and sales. As a result, at times we will likely build isobutanol inventory levels. Currently, our alcohol storage capacity is limited at our Luverne Facility, and our isobutanol inventory, together with our ethanol inventory, may exceed such storage capacity. This will cause us to seek other forms of storage, such as railcars, customer sites or investing in additional storage capabilities.


Market Development, Sales and Production Strategy for 2018

In order2018, we intend to producecontinue to develop the markets for our isobutanol, jet fuel, isooctane, and sell isobutanolother products made from renewable sources,isobutanol and ethanol.  Ultimately, our primary target is to enter into binding supply contracts for isobutanol and related hydrocarbon products that represent the majority of the production volumes to be produced at the expanded Luverne Facility that we have developed the Gevo Integrated Fermentation Technology® (“GIFT®plan to construct (the “Luverne Facility Expansion”), an integrated technology platform.  The focus for market development continues to be:

Isobutanol for the efficient productionethanol free gasoline market, primarily in Reformulated Gasoline or RFG areas.  We plan to increase our distribution network, and separation of renewable isobutanol. GIFT® consists of two components, proprietary biocatalysts that convert sugars derived from multiple renewable feedstocks intoadd additional regions, broadening our distribution footprint.  The isobutanol through fermentation,in our inventory would be used in part to develop these sales.  

Isooctane for gasoline and a proprietary separation unit that is designedchemicals are expected to continuously separate isobutanol during the fermentation process. We developed our technology platformcontinue to be compatiblea priority.  The vast majority of sales are expected to go into the European Union.  We expect that the demand for this product will continue to grow, and we may expand or modify the hydrocarbon demonstration plant at South Hampton Resources in Silsbee, Texas to increase capacity for isooctane.  We plan use the renewable isobutanol in inventory for the feedstock for this product.  We expect to continue to work on securing a set of offtake contracts that would support the Luverne Facility Expansion.

ATJ.  We plan to sell ATJ for market development purposes and demonstrations.  In certain niche markets, we may begin commercial sales, depending on price and volumes that can be supported from the hydrocarbon demonstration plant at South Hampton Resources in Silsbee, Texas.  We expect to continue to work on securing a set of offtake contracts that would support the Luverne Facility Expansion.

In 2018, we expect to sell approximately 19 million gallons or more of ethanol, and approximately 56 thousand tons of its animal feed product.  As previously announced, in 2018, we expect to improve the cash flow out of the Luverne Facility by optimizing the ethanol production processes, developing value added products for ethanol, animal feed, and corn oil produced at the Luverne Facility plant and further reducing the cost of the Luverne Facility’s carbohydrates.

We expect to use our inventory of isobutanol to meet our market development needs in 2018.  In 2017, we ran up an inventory of isobutanol.  During the production runs at the Luverne Facility in 2017, we also met our variable cost production targets for isobutanol.  As previously disclosed, running isobutanol at a scale of 1.5 MGPY, the current capacity of the Luverne Facility, costs us cash because not all of the fixed costs are covered given the relatively low run rate.  We are prepared to ramp-up isobutanol production in response to positive demand and price appreciation.   We will be focused on developing markets and generating cash using the current inventory.  We expect to be selling isobutanol into the gasoline blendstock market, as well as selling isooctane, jet fuel and other products made from inventoried isobutanol.

Path to Profitability

We believe that there are two paths by which we can become profitable.  First, as described above, together with the existing approximately 25 BGPYinitiatives to improve the cash flow profile of global operatingour business in 2018 compared to 2017, we believe that by optimizing the Luverne Facility’s ethanol production capacity, as estimated byprocesses, developing value added products for ethanol and animal feed produced at the Renewable Fuels Association.plant and further reducing the cost of the plant’s carbohydrate feedstock, we could become profitable in the near future, independent of isobutanol production.

GIFT® is designedSecond, we believe that we could become profitable if we are able to permit (i)obtain binding offtake agreements for our isobutanol and related hydrocarbon products that justify the retrofit of existing ethanol capacityLuverne Facility Expansion, along with adequate financing for such expansion, whereby we would convert the Luverne Facility primarily to produce isobutanol, ethanol or both products simultaneously or (ii) the addition of renewable isobutanol or ethanol production capabilities to a facility’s existing ethanol production by adding additional fermentation capacity side-by-side with the facility’s existing ethanol fermentation capacity (collectively referred to as “Retrofit”). Having the flexibility to switch between the production of isobutanol, with some percentage of such isobutanol volumes to be further processed into hydrocarbons such as ATJ and isooctane.  

Luverne Facility Update

In 2018, as previously announced, we expect to undertake initiatives to improve the profitability of the Luverne Facility.

We currently have five fermentation vessels at its Luverne Facility.   Three fermentation vessels are made from carbon steel.  Two fermentation vessels are newer and made from stainless steel.  The two stainless steel fermentation vessels and one of the three


carbon steel fermentation vessels are expected to be used for ethanol or produce both products simultaneously, should allow usproduction during 2018.  The remaining two carbon steel fermentation vessels are not expected to optimize asset utilization and cash flows at a facility by taking advantage of fluctuationsbe needed for production in market conditions. GIFT® is also designed2018.  If we were to allow relatively low capital expenditure Retrofits of existing ethanol facilities, enabling a relatively rapid route torun isobutanol production in side by side mode of operation with ethanol production, we would need one of the two other carbon steel fermentation vessels to be put back into operation, along with the other three fermentation vessels that we plan to use for ethanol production during 2018.

During 2017, we hired a third-party engineering firm to test the structural integrity of the carbon steel fermentation vessels. The results of the testing indicate that one of these fermentation vessels has at least one more year of life before needed repair, and the other one has approximately 2 months of life remaining.  If we were to start up and run isobutanol for an extended period of time, at least one of these carbon steel fermentation vessels would need to be repaired prior to being put back into service.  Repair costs are estimated to be approximately $250,000 per fermentation vessel.

Ultimately, we anticipate that as we build out, or expands the Luverne Facility to increase capacity, we might repair both carbon steel fermentation vessels, and/or install additional fermentation vessels depending on the need for capacity for isobutanol and/or ethanol at that time.  

NASDAQ Market Price Compliance

On June 21, 2017, we received a deficiency letter from the fermentationListing Qualifications Department of renewable feedstocks. We believethe Nasdaq Stock Market, notifying us that, our production route will be cost-efficient, will enable relatively rapid deploymentfor the prior 30 consecutive business days, the closing bid price of our technology platform and allowcommon stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, we had an initial compliance period of 180 calendar days, to regain compliance with this requirement. On December 20, 2017, the Nasdaq Stock Market granted us an additional 180 calendar days, or until June 18, 2018, to regain compliance. To regain compliance, the closing bid price of our isobutanol and related renewable productscommon stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before June 18, 2018. The Nasdaq determination to be economically competitive with manygrant the second compliance period was based on our meeting of the petroleum-based products used incontinued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the chemicalsNasdaq Capital Market, with the exception of the bid price requirement, and fuels markets today.our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

2015Recent Highlights and Developments

 

We transferredOn February 8, 2018, we announced that we had strengthened our listingexisting relationship with Musket Corporation, a national fuel distributor under the umbrella of common stockthe Love’s Family of Companies, by amending our existing isobutanol supply agreement to The NASDAQ Capital Market® from The NASDAQ Global Market®.  Our securities began trading onprovide Musket with the NASDAQ Capital Market on Monday, January 5, 2015.exclusive right to sell our renewable isobutanol within a 300 mile radius of Houston, Texas.  This agreement establishes a market region that encompasses Austin, Dallas, Fort Worth, Oklahoma, Louisiana, as well as the majority of South and East Texas.

 

In February 2015,January 2018, we completedentered into a private exchange agreement with a holder of our 7.5% convertible senior notes due July 2022 (the “2022 Notes”) to exchange the saleremaining $515,000 of 2,216,667outstanding principal amount of the 2022 Notes for 780,303 shares of our common stock. Upon completion of this exchange, the 2022 Notes were satisfied in their entirety and there are no remaining obligations under the 2022 Notes.

On December 11, 2017, we announced that GE Aviation had commenced jet engine combustor component testing with a jet fuel comprised 100% of our renewable ATJ. The testing is being performed as part of the Federal Aviation Authority’s (FAA) Continuous Lower Energy, Emissions and Noise Program (CLEEN). CLEEN is the FAA’s principal environmental effort to accelerate the development of new aircraft, engine technologies, and to advance sustainable alternative jet fuels, in conjunction with aviation industry leaders such as GE Aviation. Specifically, this testing is designed to enable the greater displacement of petroleum-based jet fuel by bio-based alternative products. Bio-based hydrocarbon fuels have similar performance characteristics to the petroleum-based fuels used today, albeit with reductions in particulate matter and other air quality related emissions. Some bio-based jet fuels, such as our ATJ, have the potential to improve performance, such as providing greater energy density which translates into better mileage.

On November 8, 2017, we announced that our ATJ derived from renewable isobutanol was used by nine airlines for Fly Green Day, sponsored by the O’Hare Fuel Committee, at Chicago O’Hare International Airport. This event was the first time renewable jet fuel has been supplied at Chicago O’Hare using the existing airport fueling infrastructure, such as pipelines, terminals and tankage. To date, airlines and airports have generally relied on alternative means of supplying renewable jet fuel to the wing, usually trucking jet fuel on site for blending and fueling. For Fly Green Day, Air BP blended Gevo’s ATJ with regular fossil-based Jet A fuel, certified its quality and then supplied its customers through the airport’s main fuel hydrant system. Airlines that participated in Fly Green Day included Lufthansa, United Airlines, Etihad, Cathay Pacific Airways, Emirates, Japan Airlines, Korean Air, Atlas Air and FedEx.


On October 9, 2017, we announced that the U.S. Department of Energy’s Chemical Catalysis for Bioenergy Consortium (ChemCatBio) had awarded funding to Los Alamos National Laboratory, National Renewable Energy Laboratory, Argonne National Laboratory and Oak Ridge National Laboratory in support of two collaboration projects with us. The first project is focused on improving the energy density of certain of our hydrocarbon products, such as its alcohol-to-jet-fuel (ATJ), to meet product specifications for tactical missile fuels, which are currently purchased by the US Department of Defense (DoD). The goal of the second project is to fine-tune the composition of the catalyst used in our proprietary Ethanol-to-Olefins (ETO) process, in order to improve performance and accelerate scale-up efforts.

On October 3, 2017, we announced that we expect to supply our renewable ATJ to the Virgin Australia Group, a leading Australian airline group.  The Virgin Australia Group will be responsible for coordinating the purchase, supply and blending of the ATJ into the fuel supply system at Brisbane Airport in Queensland, Australia. Our ATJ is expected to be blended with traditional jet fuel and supplied on flights departing Brisbane Airport, including Virgin Australia flights. The Queensland government is supporting the arrangement as a first step in the development of a renewable jet fuel production industry in the state. Queensland is looking to leverage carbohydrate-based feedstocks, abundant to its local agricultural sector, to support the build-out of renewable jet fuel production plants in the future. We are well positioned to play a role in this growth, as we believe our ATJ is cost advantaged in comparison to other renewable jet alternatives derived from carbohydrate-based feedstocks.  

In September 2017, our Board of Directors approved voluntarily reductions of the exercise price of a portion of the Series M Warrants exercisable into 3,945,000 shares of our common stock unitsfrom an exercise price of $2.35 per share of common stock to $0.60 per share of common stock. In October, our Board of Directors approved voluntarily reductions of the exercise price of a portion of the Series M Warrants exercisable into 1,185,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.65 per share of common stock, and warrants.Series M Warrants exercisable into 300,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock. In September and October 2017, all 5,430,000 of these Series M Warrants were exercised, resulting in proceeds to the Company of approximately $3.3 million.

On July 25, 2017, we announced, in conjunction with Praj Industries Ltd. (“Praj”) that our proprietary isobutanol technology will now be available for licensing to processors of sugar cane juice and molasses. This follows on the back of Praj’s development work, adapting our technology to sugar cane and molasses feedstocks. A Joint Development Agreement and a Development License Agreement were entered into between Praj and us in November 2015. The goal of these agreements was for Praj to adapt our isobutanol technology to using non-corn based sugars and lignocellulose feedstocks. In the first phase of development, Praj worked with our technology using sugar cane and molasses feedstocks, developed a process design package that will now be offered for commercialization to cane juice and molasses-based ethanol plants, as licensees of our isobutanol technology. Licensing is expected to be focused on Praj plants located in India, South America and South East Asia, with initial capacity targeted to come on-line in the 2019/2020 timeframe.

On June 20, 2017, we announced that WB Gevo, Ltd. (the “Holder”), the holder of the Company’s issued and outstanding Senior Secured Convertible Notes, due June 23, 2017 (the “2017 Notes”), exchanged (the “Exchange”) all $16.5 million of the existing 2017 Notes for $16.5 million of our newly created 12.0% Convertible Senior Secured Notes due March 15, 2020 (the “2020 Notes”).

On June 9, 2017, we entered into a private exchange agreement with a holder of our 2022 Notes to exchange an aggregate of $485,000 in principal amount of 2022 Notes for an aggregate of 736,671 shares of common stock.  On July 3, 2017, we repurchased $175,000 of its outstanding 7.5% convertible senior notes due July 2022 (the “2022 Notes”) pursuant to a one-time repurchase option under the 2022 Notes.    

In May 2017, we signed a supply agreement with HCS Holding GmbH (HCS) to supply isooctane under a five-year offtake agreement. HCS is a manufacturer of specialty products and solutions in the hydrocarbons sector, operating under such brands as Haltermann Carless. In the first phase of the supply agreement, HCS will purchase isooctane produced at our demonstration hydrocarbons plant located in Silsbee, Texas, commencing in May 2017. The pricing is fixed over the first phase and Gevo estimates that this could generate up to $2-3 million of gross revenue per year.  In the second phase of the supply agreement, HCS agreed to purchase 300,000 gallons of isooctane per year, with an option to purchase an additional 100,000 gallons of isooctane per year, under a five-year offtake arrangement upon commencement of production at our first commercial hydrocarbon facility. The supply agreement contains a pricing formula which is intended to provide us a fixed margin. We received approximately $6.6expect to supply this isooctane from its first commercial hydrocarbons facility, which is likely to be built at the Luverne Facility (the “Luverne Facility Expansion”).

On February 23, 2017, we paid down the principal balance on the 2017 Notes with 15% of the net proceeds from the offering referred to immediately above,  along with the $8.0 million in prepayments under the supplemental indenture, for an aggregate total payment of $9.6 million, which reduced the principal balance on the 2017 Notes to approximately $16.5 million.

In February 2017, we sold 5,680,000 Series G units, with each Series G unit consisting of one share of common stock, a Series K warrant to purchase one share of common stock and a Series M warrant to purchase one share of common stock, at a public offering price of $1.90 per Series G unit. We also sold 570,000 Series H units, with each Series H unit consisting of a


pre-funded Series L warrant to purchase one share of common stock, a Series K warrant to purchase one share of common stock and a Series M warrant to purchase one share of common stock, at a public offering price of $1.89 per Series H unit.  The Series K warrants have an exercise price of $2.35 per share, are exercisable beginning the date of original issuance and will expire on February 17, 2022. The Series L warrants have an exercise price of $1.90 per share, which are pre-paid upon issuance, except for a nominal exercise price of $0.01 per share and, consequently, no additional payment or other consideration (other than the nominal exercise price of $0.01 per share) will be required to be delivered to us by the holder upon exercise of the Series L warrants. The Series L warrants will be exercisable from the date of original issuance and will expire on February 17, 2018. The Series M warrants will have an exercise price of $2.35 per share, are exercisable beginning on the date of original issuance and will expire on November 17, 2017. The shares of common stock and the warrants are immediately separable and were issued separately.  The gross proceeds to us from this offering were approximately $11.9 million, not including any future proceeds from the exercise of the warrants.

 

In April 2015,Effective January 5, 2017, we completedeffected a 1-for-15one-for-twenty reverse split of the Company’s issued and outstanding common stock (the “Reverse Stock Split”).  Upon the effectiveness of the stock split, that was previously approved by our stockholders at a special meeting held on April 13, 2015.  The reverse stock split was intended to increase the market price per shareevery twenty shares of our common stock to allow us to maintain the listing of our common stock on The NASDAQ Capital Market.

In May 2015, we completed the sale of 4,300,000 common stock units and warrants.  We received approximately $17.2 million in gross proceeds from the offering, not including any future proceeds from the exercise of the warrants.

In June 2015, we entered into an agreement with FCStone Merchant Services, LLC to originate and supply corn for the our production facility in Luverne, Minnesota (the “Agri-Energy Facility”).  Engaging FCStone to conduct our corn purchasing at Luverne is expected to free up more than $1 million of working capital, which had previously been tied up in corn inventory.

In August 2015, we announced that we entered into worldwide patent cross-license and settlement agreements with Butamax Advanced Biofuels LLC (“Butamax”), E.I. du Pont de Nemours & Company (“DuPont”) and BP Biofuels North America LLC (“BP” and, together with Butamax and DuPont, the “Butamax Parties”), ending a patent dispute related to technologies for the production of bio-based isobutanol. The settlement ends all of the lawsuits and creates a new relationship between the companies, aimed at leveraging each other's strengths and accelerating development of


competitive supply for bio-based isobutanol.  For more information regarding the settlement agreement and the cross-license agreement, see Item 1 “Business— Butamax Advanced Biofuels LLC and Item 3 Legal Proceedings”.

In November 2015, we entered into a license agreement and a joint development agreement with Praj Industries Limited ("Praj") to enable the licensing of our isobutanol technology to processors of non-corn based sugars, including the majority of Praj’s global customer base of ethanol plant owners.

In December 2015, we completed the sale of 2,050,000 Series A units and 8,000,000 Series B units.  We received gross proceeds of approximately $10 million, not including any future proceeds from the exercise of the warrants.

Subsequent Events

On January 26, 2016, we filed a Current Report on Form 8-K, stating that it had received a letter from the staff  of The NASDAQ Stock Market LLC (“NASDAQ”) providing notification that, for the previous 30 consecutive business days, the bid price for the Company’s common stock had closed below the minimum $1.00 perissued and outstanding were automatically combined into one share requirement for continued listing on The NASDAQ Capital Market under NASDAQ Listing Rule 5550(a)(2). In accordance with NASDAQ Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, or until July 25, 2016, to regain compliance. We intend to monitor the bid price of our common stock, and our minimum marketwithout any change in the par value of listed securities and will consider options available to us to achieve compliance.per share.

Debt Maturities and Exchanges

In June 2017, we issued our 12% convertible senior secured notes due 2020 (the “2020 Notes”) in exchange for our outstanding 12.0% convertible senior secured notes due 2017 (“2017 Notes”). As of December 31, 2017, the outstanding principal on our 2020 Notes was $16.7 million. The 2020 Notes are scheduled to mature on March 15, 2020.

In January 2018, we entered into a private exchange agreement with a holder of our 2022 Notes to exchange the remaining $515,000 of outstanding principal amount of the 2022 Notes for 780,303 shares of our common stock. Upon completion of this exchange, the 2022 Notes were satisfied in their entirety and there are no remaining obligations under the 2022 Notes.

In February 2016, we announced that we had entered into a license agreement and a joint development agreement with Porta Hnos S.A. (“Porta”) to construct multiple isobutanol plants in Argentina using corn as a feedstock.  

On March 21, 2016, a fire occurred in the dryer portion of the Agri-Energy Facility which is used to dry distiller’s grains which we sell as an animal co-product.  The damage was limited to the dryer portion of the Agri-Energy Facility and no persons were injured in the fire.  As a result of the fire, the Agri-Energy Facility was shut-down for approximately one week.  The Agri-Energy Facility recommenced production on Monday, March 28, 2016.  The fire was not a result of the new equipment that was recently installed at the Agri-Energy Facility.  We do not expect that the recent fire at the Agri-Energy Facility will have a material adverse effect on the Company’s production of isobutanol  or financial condition.  

On March 28, 2016, we announced that ASTM International Committee D02 on Petroleum Products, Liquid Fuels, and Lubricants and Subcommittee D02.J on Aviation Fuel passed a concurrent ballot this week approving the revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) to include alcohol to jet synthetic paraffinic kerosene (ATJ-SPK) derived from renewable isobutanol (the “D02.J Ballot”).  As previously announced, Alaska Airlines has indicated that it is now poised to fly the first-ever commercial test flight using Gevo’s renewable alcohol to jet fuel (ATJ).  Gevo is preparing the shipment of ATJ to Alaska Airlines for this first flight.  Alaska Airlines has indicated that it will work with the Federal Aviation Administration to schedule the flight using Gevo’s ATJ. The D02.J Ballot passed two levels of ASTM technical scrutiny: subcommittee and main committee ballot and is in the final stages of Society Review. The ASTM process is substantially complete as it relates to the approval of the D02.J Ballot.  In order to fully complete the process, the ASTM still needs to close the Society Review, perform a final ballot tally, and publish the revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) on its website.  It is expected that these final actions will be completed by the ASTM in early April 2016. Once the revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) is published by the ASTM, Gevo’s ATJ will be eligible to be used as a blending component in standard Jet A-1 for commercial airline use in the United States and in many other countries around the globe.  Gevo’s ATJ would be eligible to be used for up to a 30% blend in conventional jet fuel for commercial flights.  

Financial Condition

For the year ended December 31, 2015,2017, we incurred a consolidated net loss of $36.2$24.6 million and had an accumulated deficit of $339.5$401.4 million. Our cash and cash equivalents at December 31, 20152017 totaled $17.0$11.5 million which is primarily being used for the following: (i) operating activities and completion of the side-by-side configuration of our Agri-EnergyLuverne Facility; (ii) operating activities at our corporate headquarters in Colorado, including research and development work; (iii) capital improvements primarily associated with the Agri-EnergyLuverne Facility; (iv) costs associated with optimizing isobutanol production technology; and (v) 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 financedprimarily relied on raising capital to fund our operations primarily with proceeds from multiple sales of equity and debt securities, borrowings underservice 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 financing to fund our operations and debt facilities and product sales.  service obligations, there is no assurance that we will be successful in doing so.

Based on our current operating plan, existing working capital at December 31, 20152017 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2016the period that is one year after the date our 2017 financial statements are issued unless we are able to raise additional capital to fund operations.  Our audited financial statements for the year ended December 31, 2017, were prepared under the assumption that we would continue our operations as a going concern.  Our independent registered public accounting firm for the year ended December 31, 2017 included a “going concern” emphasis of matter paragraph in its report on our financial statements as of, and for the year ended, December 31, 2017. These conditions raise substantial doubt about our ability to continue as a going concern. Our inability to continue as a going concern may potentially affect our rights and obligations under our debt obligations.


Our transitiontransition to profitability is dependent upon, among other things, the successful development and commercialization of our products and product candidates, and the achievement of a level of revenues adequate to support our existing cost structure.structure and securing sufficient financing for the build-out and Retrofit 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, may seek to restructure our debt 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.

Outlook for 2016

We have established the following operational and financial targets and milestones for 2016:

Increase isobutanol production at our Agri-Energy Facility  to a range of 750,000 to 1 million gallons in 2016.

Decrease the variable cost of producing isobutanol at our Agri-Energy Facility to a range of $3.00-$3.50/gallon (assumes corn price of $3.65 per bushel and nets the value of the isobutanol distiller's grains (the "iDGs™"), enabling isobutanol to be produced at a positive contribution margin, based on an expected average selling price for isobutanol of between $3.50-$4.50/gallon.

Increase sales of isobutanol into core markets such as the renewable alcohol-to-jet fuel, marina, off-road, isooctane and solvents markets.

Achieve an average quarterly corporate-wide EBITDA burn rate (excluding stock-based compensation) of $3.5-$4.5 million per quarter.

Obtain ASTM International (“ASTM”) approval of a revision to ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) to include alcohol to jet synthetic paraffinic kerosene (ATJ-SPK) derived from renewable isobutanol.  If such approval is received from ASTM, this would allow our renewable jet fuel to be used as a blending component in standard Jet A-1 for commercial airline use in the U.S. and elsewhere around the globe.  As discussed above, the ASTM process is substantially complete as it relates to the approval of the D02.J Ballot.  In order to fully complete the process, the ASTM still needs to close the Society Review, perform a final ballot tally, and publish the revision of ASTM D7566 (Standard Specification for Aviation Turbine Fuel Containing Synthesized Hydrocarbons) on its website.  

A key to achieving the improvements described immediately above will be the successful deployment of approximately $5.0 million of capital expenditures at our Agri-Energy Facility in Minnesota which has taken place over the last 6 months. These capital improvements are primarily designed to decrease the cost of production for isobutanol by bringing "in-house" parts of the process that have previously been done by third parties. Key equipment to be installed at the plant include a distillation system to purify isobutanol on-site, an addition to our seed train to allow us to produce its yeast on-site and a stainless steel fermenter to replace one of the existing carbon steel fermenters that has reached the end of its useful life.  There can be no assurances that we will be able to achieve the operational and financial targets that we have established for 2016.

If the low oil price environment continues, it may negatively impact the prices that we receive for the sale of our isobutanol, ethanol and hydrocarbon products.  During 2015, our revenue was negatively impacted by the low margins that we realized on our sales of ethanol.  This may cause us to operate at  lower, or negative, operating margins and, as a result, we may not be able to achieve one or more of the operational and financial targets described above.  In addition, we may decide to reduce or suspend production of ethanol and/or isobutanol at the Agri-Energy Facility.


Results of Operations

Comparison of the years ended December 31, 20152017 and 20142016 (in thousands)

 

Years Ended December 31,

 

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

Revenue and cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

Ethanol sales and related products, net

$

26,279

 

 

$

24,613

 

 

$

1,666

 

Hydrocarbon revenue

 

1,029

 

 

 

1,929

 

 

 

(900

)

Grant and other revenue

 

228

 

 

 

671

 

 

 

(443

)

Total revenues

 

27,536

 

 

 

27,213

 

 

 

323

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

38,165

 

 

 

37,017

 

 

 

1,148

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

(10,629

)

 

 

(9,804

)

 

 

(825

)

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

5,182

 

 

 

5,216

 

 

 

(34

)

Selling, general and administrative expense

 

7,471

 

 

 

8,965

 

 

 

(1,494

)

Total operating expenses

 

12,653

 

 

 

14,181

 

 

 

(1,528

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(23,282

)

 

 

(23,985

)

 

 

703

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,951

)

 

 

(7,837

)

 

 

4,886

 

Loss on exchange or conversion of debt

 

(4,933

)

 

 

(763

)

 

 

(4,170

)

Loss on extinguishment of warrant liability

 

-

 

 

 

(918

)

 

 

918

 

Gain from change in fair value of derivative warrant liability

 

5,101

 

 

 

1,783

 

 

 

3,318

 

Gain from change in fair value of 2020 Notes embedded derivative

 

1,751

 

 

 

-

 

 

 

1,751

 

Loss from change in fair value of 2017 Notes

 

(339

)

 

 

(4,204

)

 

 

3,865

 

Loss on issuance of equity

 

-

 

 

 

(1,519

)

 

 

1,519

 

Other income

 

23

 

 

 

215

 

 

 

(192

)

Total other (expense) income

 

(1,348

)

 

 

(13,243

)

 

 

11,895

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(24,630

)

 

$

(37,228

)

 

$

12,598

 

 

 

Years Ended December 31,

 

 

 

 

 

 

2015

 

 

2014

 

 

Change

 

Revenue and cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

Ethanol sales and related products, net

$

27,125

 

 

$

23,549

 

 

$

3,576

 

Hydrocarbon revenue

 

1,694

 

 

 

3,949

 

 

 

(2,255

)

Grant and other revenue

 

1,318

 

 

 

768

 

 

 

550

 

Total revenues

 

30,137

 

 

 

28,266

 

 

 

1,871

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

38,762

 

 

 

35,582

 

 

 

3,180

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

(8,625

)

 

 

(7,316

)

 

 

(1,309

)

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

6,610

 

 

 

14,120

 

 

 

(7,510

)

Selling, general, administrative and other

 

16,692

 

 

 

18,341

 

 

 

(1,649

)

Total operating expenses

 

23,302

 

 

 

32,461

 

 

 

(9,159

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(31,927

)

 

 

(39,777

)

 

 

7,850

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(8,243

)

 

 

(8,255

)

 

 

12

 

Interest expense - debt issuance costs

 

-

 

 

 

(3,769

)

 

 

3,769

 

Loss on extinguishment of debt

 

232

 

 

 

-

 

 

 

232

 

Gain on extinguishment of warrant liability

 

1,775

 

 

 

 

 

 

 

 

 

Gain from change in fair value of embedded derivatives of 2022 Notes

 

-

 

 

 

3,470

 

 

 

(3,470

)

Gain (loss) from change in fair value of derivative warrant liability

 

577

 

 

 

6,530

 

 

 

(5,953

)

Gain from change in fair value of 2017 Notes

 

3,895

 

 

 

648

 

 

 

3,247

 

Loss on issuance of equity

 

(2,523

)

 

 

-

 

 

 

(2,523

)

Other Income

 

20

 

 

 

8

 

 

 

12

 

Total other income (expense)

 

(4,267

)

 

 

(1,368

)

 

 

(2,899

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

(36,194

)

 

 

(41,145

)

 

 

4,951

 

 

Revenues. During the twelve months ended December 31, 2015,2017, we recognized revenue of $27.1$26.3 million associated with the sale of 15.115.6 million gallons of ethanol, as well as isobutanol and related products, an increase in revenue of $3.6$1.7 million from the twelve months ended December 31, 20142016 primarily related to increased production at the Agri-EnergyLuverne Facility.  Hydrocarbon revenue decreased during the twelve12 months ended December 31, 20152017 primarily as a result of the shipmentlower shipments of bio-PX (“bio-PX”) to Toray Industries in May 2014 for which we recognized $1.5 million of revenue. Additional decreases in hydrocarbon revenue are a result of a temporary halt in production atfinished products from our demonstration plant located at the South Hampton facility while we renegotiated ourFacility. Hydrocarbon revenues are comprised of ATJ, isooctane and isooctene sales. Grant and other revenue was $0.2 million during the 12 months ended December 31, 2017, down $0.4 million on as compared to the same period in 2016, primarily as a result of the Company’s contract with South Hampton.the Northwest Advanced Renewables Alliances ending in 2017.

Cost of goods sold. Our cost of goods sold during the twelve months ended December 31, 20152017 included $33.1$32.0 million associated with the production of ethanol, isobutanol and related products and $5.7$6.2 million in depreciation expense. Cost of goods sold increased during the twelve months ended December 31, 20152017 primarily due to increased production of ethanol as compared to the prior year.

Research and development expense. Research and development expenses decreased during the twelve months ended December 31, 20152017 primarily due to a $4.1 million decrease related to a reduction in the number of employees, decreased expenditures for  consultants and contract staff, a $1.7$0.3 million decrease in costs related to the South Hampton facility, and a $1.3 million decrease in lab consumables.depreciation expenses.

Selling, general and administrative expense. The decrease in selling, general and administrative expenses during the twelve months ended December 31, 20152017 primarily resulted from decreases of $1.4$0.6 million in professionalsalary related expenses, $0.2 million in legal expenses, and legal$0.5 million in consulting expenses.


GainLoss on extinguishmentexchange or conversion of warrant liability.debt. During the twelve months ended December 31, 2015,2017, we incurred gainsa loss of $1.8$0.9 million resulting from inducement payments made in connection with exercisesthe exchange of warrants to purchasea portion of our 2022 Notes for our common stock that were issued in 2013 and 2014. This isa $3.9 million loss on the resultexchange of the fair value of the derivative warrant liabilityour 2017 Notes for the 2013 and 2014 warrants and the cash received being greater than the fair value of the shares issued upon exercise.  our 2020 Notes.

Gain from change in fair value of embedded derivative within the 2022 Notes.  During the twelve months ended December 31, 2014, we reported a $3.5 million gain associated with the decrease in fair value of the notes issued in the July 2012 offering of the 7.5% convertible senior notes due 2022 (the “2022 Notes”), primarily a result of a decrease in the price of our common stock during that period.  There was no gain or loss recorded in 2015 as the derivatives have had no meaningful value since the third quarter of 2014.

Gain (loss) from change in fair value of derivative warrant liability. In December 2013, August 2014, February 2015, May 2015, and December 2015, April 2016, September 2016 and February 2017, we issued warrants to purchase our common stock which are recorded at fair value each reporting period. During the twelve months ended December 31, 2015,2017, the estimated fair value of the derivative warrant liability increaseddecreased primarily associated with additional warrant issuances that occurred from December 31, 2014due to December 31, 2015a decline in the price of our common stock, and the exercise of warrants during that period.  Asas a result, the Company reported a $0.6$5.1 million gain duringfor 2017.

Gain from change in fair value of 2020 Notes embedded derivative. During the twelve months ended December 31, 2015.2017, the estimated fair value of the 2020 Notes embedded derivative liability decreased, resulting in a non-cash gain of $1.8 million primarily due to the decrease in the price of the Company’s stock from the June 20, 2017 issuance date.

GainLoss from change in fair value of the 2017 Notes. During the twelve months ended December 31, 2015,2017, we reported a $3.9$0.3 million gainloss associated with the decreaseincrease in fair value of the 10% convertible senior secured notes due in 2017 (the “2017 Notes”),Notes, primarily as a result of the decrease in the time to maturity during the period of time the 2017 Notes were still outstanding in 2017.

Comparison of the years ended December 31, 2016 and 2015 (in thousands)  

 

Years Ended December 31,

 

 

 

 

 

 

2016

 

 

2015

 

 

Change

 

Revenue and cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

Ethanol sales and related products, net

$

24,613

 

 

$

27,125

 

 

$

(2,512

)

Hydrocarbon revenue

 

1,929

 

 

 

1,694

 

 

 

235

 

Grant and other revenue

 

671

 

 

 

1,318

 

 

 

(647

)

Total revenues

 

27,213

 

 

 

30,137

 

 

 

(2,924

)

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

37,017

 

 

 

38,762

 

 

 

(1,745

)

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

(9,804

)

 

 

(8,625

)

 

 

(1,179

)

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

5,216

 

 

 

6,610

 

 

 

(1,394

)

Selling, general and administrative expense

 

8,965

 

 

 

16,692

 

 

 

(7,727

)

Total operating expenses

 

14,181

 

 

 

23,302

 

 

 

(9,121

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(23,985

)

 

 

(31,927

)

 

 

7,942

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(7,837

)

 

 

(8,243

)

 

 

406

 

(Loss)/Gain on exchange or conversion of debt

 

(763

)

 

 

232

 

 

 

(995

)

(Loss)/Gain on extinguishment of warrant liability

 

(918

)

 

 

1,775

 

 

 

(2,693

)

Gain from change in fair value of derivative warrant liability

 

1,783

 

 

 

577

 

 

 

1,206

 

(Loss)/Gain  from change in fair value of 2017 Notes

 

(4,204

)

 

 

3,895

 

 

 

(8,099

)

Loss on issuance of equity

 

(1,519

)

 

 

(2,523

)

 

 

1,004

 

Other income

 

215

 

 

 

20

 

 

 

195

 

Total other (expense) income

 

(13,243

)

 

 

(4,267

)

 

 

(8,976

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(37,228

)

 

$

(36,194

)

 

$

(1,034

)

Revenues. During the twelve months ended December 31, 2016, we recognized revenue of $24.6 million associated with the sale of 14.2 million gallons of ethanol, as well as isobutanol and related products, a decrease of $2.5 million from the twelve months ended December 31, 2015 primarily related to decreased production at the Luverne Facility. Hydrocarbon revenue increased during the twelve months ended December 31, 2016 primarily as a result of increased shipments of isooctane and isooctene during the year.


Cost of goods sold. Our cost of goods sold during the twelve months ended December 31, 2016 included $31.0 million associated with the production of ethanol, isobutanol and related products and $6.0 million in depreciation expense. Cost of goods sold decreased during the twelve months ended December 31, 2016 primarily due to decreased production of ethanol as compared to the prior year.

Research and development expense. Research and development expenses decreased during the twelve months ended December 31, 2016 primarily due to a $1.3 million decrease in employee compensation expense.

Selling, general and administrative expense. The decrease in selling, general and administrative expenses during the twelve months ended December 31, 2016 primarily resulted from decreases of $1.5 million in employee compensation expense, $6.9 million in professional and legal expenses, partially offset by an increase in $0.6 million in other general expenses, including costs associated with restructuring of the Company’s debt obligations.

Gain / (Loss) on exchange or conversion of debt. During the twelve months ended December 31, 2016, we incurred a loss of $0.8 million resulting from the exchange of a portion of our 2022 Notes for our common stock.

Loss on extinguishment of warrant liability. During the twelve months ended December 31, 2016, we incurred a loss of $0.9 million resulting from exercises of warrants to purchase our common stock. This is the result of the fair value of the derivative warrant liability for the warrants and the cash received being less than the fair value of the shares issued upon exercise.

Gain (loss) from change in fair value of derivative warrant liability. In December 2013, August 2014, February 2015, May 2015, December 2015, April 2016 and September 2016, we issued warrants to purchase our common stock which are recorded at fair value each reporting period. During the twelve months ended December 31, 2016, the estimated fair value of the derivative warrant liability decreased primarily due to a decline in the price of our common stock, and as a result, the Company reported a $1.8 million gain for 2016.

Gain (Loss) from change in fair value of the 2017 Notes. During the twelve months ended December 31, 20142016, we reported a $4.2 million loss associated with the increase in fair value of the 2017 Notes, primarily as a result of the decrease in the time to maturity during the twelve-months-ended December 31, 2015.2016.

Loss on issuance of equity. During the twelve months ended December 31, 2015,2016, we reported a $2.5$1.5 million loss associated with the DecemberApril 2016 equity issuance primarily as a result of the estimated fair value of the common stock and warrants issued being greater than the consideration received in exchange.


Comparison of the years ended December 31, 2014 and 2013 (in thousands)

 

Years Ended December 31,

 

 

 

 

 

 

2014

 

 

2013

 

 

Change

 

Revenue and cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

Ethanol sales and related products, net

$

23,549

 

 

$

-

 

 

$

23,549

 

Hydrocarbon revenue

 

3,949

 

 

 

2,157

 

 

 

1,792

 

Grant and other revenue

 

768

 

 

 

2,722

 

 

 

(1,954

)

Corn sales

 

-

 

 

 

3,345

 

 

 

(3,345

)

Total revenues

 

28,266

 

 

 

8,224

 

 

 

20,042

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of corn sales

 

-

 

 

 

3,391

 

 

 

(3,391

)

Cost of goods sold

 

35,582

 

 

 

14,522

 

 

 

21,060

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

(7,316

)

 

 

(9,689

)

 

 

2,373

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

14,120

 

 

 

20,179

 

 

 

(6,059

)

Selling, general, administrative and other

 

18,341

 

 

 

25,548

 

 

 

(7,207

)

Other operating expenses

 

-

 

 

 

99

 

 

 

(99

)

Total operating expenses

 

32,461

 

 

 

45,826

 

 

 

(13,365

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(39,777

)

 

 

(55,515

)

 

 

15,738

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(8,255

)

 

 

(9,301

)

 

 

1,046

 

Interest expense - debt issuance costs

 

(3,769

)

 

 

-

 

 

 

(3,769

)

Loss on conversion of debt

 

-

 

 

 

(2,038

)

 

 

2,038

 

Gain from change in fair value of embedded derivative of the 2022 Notes

 

3,470

 

 

 

3,114

 

 

 

356

 

Gain (loss) from change in fair value of derivative warrant liability

 

6,530

 

 

 

(3,195

)

 

 

9,725

 

Gain from change in fair value of 2017 Notes

 

648

 

 

 

-

 

 

 

648

 

Other income

 

8

 

 

 

129

 

 

 

(121

)

Total other income (expense)

 

(1,368

)

 

 

(11,291

)

 

 

9,923

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(41,145

)

 

$

(66,806

)

 

$

25,661

 

Revenue.  During the year ended December 31, 2014, we recognized revenue of $23.5 million associated with the sale of 10.3 million gallons of ethanol and related products. During the year ended December 31, 2014, the focus of our isobutanol production was on shipments for use at the demonstration plant located at South Hampton’s facility near Houston, Texas to produce hydrocarbons and optimize specific parts of our technology to further enhance isobutanol production rates.  Throughout 2013, we made modifications to our Agri-Energy Facility which we believed would allow us to increase the isobutanol production rates. As a result, we produced very limited quantities of isobutanol and no ethanol at the Agri-Energy Facility in 2013.

Hydrocarbon revenue increased during the year ended December 31, 2014 primarily as a result of the shipment of bio-PX to Toray Industries in the second quarter of 2014, for which we recognized $1.5 million of revenue, including $1.0 million related to a payment we received from Toray Industries in 2012 for the design and construction of our bio-PX demo plant. Included in grant and other revenue is revenue associated with research and development and government grant agreements. Grant and other revenue decreased in 2014 primarily from a $1.4 million decrease in grants received from Coca-Cola. Corn sales for the year ended December 31, 2013 relate to a one-time sale of excess corn inventory on hand during that period.

Cost of goods and corn sold. Our cost of goods sold during the year ended December 31, 2014 included $31.6 million associated with the production and sale of ethanol and isobutanol optimization costs and $4.0 million in depreciation expense. The increase in cost of goods sold is related to the production of very limited quantities of isobutanol and no ethanol at the Agri-Energy Facility in 2013. Our cost of goods and corn sold during the year ended December 31, 2013 primarily includes the following: (i) $11.9 million in startup costs and fixed production costs of our Agri-Energy Facility; (ii) $3.4 million associated with costs related to the sale of excess corn inventory; (iii) $2.1 million in depreciation expense; and (iv) $0.5 million in non-cash expenses associated with the write-down of our corn inventory and changes in the fair value of our corn forward contracts.  


Research and development. Research and development expenses decreased during the year ended December 31, 2014 primarily due to a $2.9 million decrease related to hydrocarbon related activities and a $2.8 million decrease related to reductions in salaries, consultant, contract staff and travel expenses. For the year ended December 31, 2013, research and development expenses related to the production of hydrocarbons included costs that were incurred to (i) increase our biojet fuel processing capability, (ii) test production quantities of biojet fuel for the U.S. Air Force, U.S. Army and U.S. Navy and (iii) establish a bio-PX demonstration plant under our agreement with Toray Industries.

Selling, general, administrative and other. The decrease in selling, general, administrative and other expenses during the year ended December 31, 2014 resulted from decreases of $2.8 million in salary and compensation-related expenses associated with an overall reduction in force, $3.6 million in legal-related expenses, including expenses in support of our ongoing litigation with Butamax, and $0.5 million in other selling, general and administrative expenses.

Interest expense. Interest expense increased during the year ended December 31, 2014 primarily as a result of interest expense associated with the private debt financing of the 2017 Notes with Whitebox Advisors, LLC.  

Loss on conversion of debt. During the year ended December 31, 2013, holders of $18.1 million principal amount of 2022 Notes opted to convert their holdings into shares of our common stock. Upon conversion, the 2022 Note holders received 211,974 shares of our common stock in payment of converted principal and, pursuant to the terms of the indenture governing the 2022 Notes, the 2022 Note holders also received 197,185 shares of our common stock in settlement of Coupon Make-Whole Payments of $4.9 million. For the year ended December 31, 2013, we recorded a loss on conversion of debt of $2.0 million as a result of the conversion of the 2022 Notes and settlement of the Coupon Make-Whole Payments.  

Gain from change in fair value of 2022 embedded derivative.During the year ended December 31, 2014, we reported a $3.5 million gain associated with the decrease in the fair value of derivatives embedded in the 2022 Notes primarily resulting from a decline in the price of our common stock between December 31, 2013 and December 31, 2014. During the year ended December 31, 2013, we reported a $3.1 million gain associated with the decrease in the fair value of derivatives embedded in our 2022 Notes primarily resulting from a decrease in the price of our common stock between December 31, 2012 and December 31, 2013.

Gain (loss) from change in fair value of derivative warrant liability. In December 2013 and August 2014, we issued warrants to purchase our common stock, which are recorded at fair value each reporting period. During the year ended December 31, 2014, the estimated fair value of the derivative warrant liability decreased primarily associated with the decline in the price of our common stock between December 31, 2013 and December 31, 2014, resulting in the recognition of a $6.5 million unrealized gain for the year ended December 31, 2014. During the year ended December 31, 2013, the estimated fair value of the derivative warrant liability increased primarily associated with the increase in the price of our common stock between the issuance date of the warrants and December 31, 2013, resulting in the recognition of a $3.2 million unrealized loss for the year ended December 31, 2013.

Gain from change in fair value of 2017 Notes. During the year ended December 31, 2014, we reported a $0.6 million gain associated with the decrease in fair value of the 2017 Notes, primarily a result of a decline in the price of our common stock between December 31, 2013 and December 31, 2014.

Revenues, Cost of Goods Sold and Operating Expenses

Revenues

During 20152017, 2016 and 2014,2015, we generated revenue primarily from: (i) the sale of ethanol, isobutanol and related products; (ii) hydrocarbon sales consisting primarily of the sale of biojet fuel, iso-octaneisooctane and bio-PX derived from our isobutanol for purposes of certification and testing; and (iii) government grants and research and development programs.

During the year ended December 31, 2013, we derived revenue primarily from (i) hydrocarbon sales consisting primarily of the sale of biojet fuel, (ii) government grants and research and development programs, and (iii) sales of excess corn inventory.

Cost of Goods Sold and Gross Loss

Our cost of goods sold during the years ended December 31, 20152017, 2016 and 20142015 primarily includes costs directly associated with ethanol production and initial operations for the production of isobutanol at the Agri-EnergyLuverne Facility such as costs for 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 Agri-EnergyLuverne Facility. Other operating costs include utilities and natural gas usage.


Our cost of goods sold during the year ended December 31, 2013 primarily includes: (i) costs incurred in conjunction with the initial operations for the production of isobutanol at the Agri-Energy Facility; (ii) costs associated with the sale of excess corn inventory; and (iii) depreciation expense.

Our gross loss is defined as our total revenues less our cost of goods sold.

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.


Research and development expenses also include upfront fees and milestone payments made under licensing agreements and payments for sponsored research and university research gifts to support research at academic institutions.

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, corporate 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.

We also record selling, general and administrative expenses for the operations of the Agri-EnergyLuverne Facility that include administrative and oversight expenses, certain personnel-related expenses, insurance and other operating expenses.

Liquidity and Capital Resources

Since our inception in 2005, we have devoted most of our cash resources to manufacturing, 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 2016.2020. 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 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.

In December 2015,We expect to incur future net losses as we issuedcontinue to fund the development and sold 10,050,000 units of common stock shares and warrants in a firm commitment underwritten public offering.  The Series A units included 2,050,000 common shares and 2,050,000 Series D warrants to purchase sharescommercialization of our common stock (the “Series D Warrants”).  The shares of common stockproducts and Series D Warrants were sold together as units for a purchase price of $1.00 per unit but were immediately separableproduct candidates. We have primarily relied on raising capital to fund our operations and issued separately. The Series D Warrants have an exercise price of $1.40 per share, are exercisable from the date of original issuance and will expire on December 11, 2020.  The Series B units included 8,000,000 Series D warrants and 8,000,000 Series E warrants to purchase shares of our common stock (the “Series E Warrants”).  The Series D Warrants and Series E Warrants were sold together as a unit for a purchase price of $0.99 per unit but were immediately separable and issued separately. The Series E Warrants have an exercise price of $0.01 per share, are exercisable from the date of original issuance and will expire on December 11, 2016.  The gross proceeds from this offering were approximately $9.97 million, not including any future proceeds from the exercise of warrants.

In May 2015, we issued and sold 4,300,000 shares of common stock and Series C warrants to purchase an additional 430,000 shares of common stock (the “Series C Warrants”) in a firm commitment underwritten public offering.  The shares of common stock and the Series C Warrants were sold together as common stock units for a purchase price of $4.00 per unit, but were immediately separable and issued separately.  The Series C Warrants have an exercise price of $3.60 per share and are exercisable from the date of the original issuance and will expire on May 19, 2020.  The gross proceeds from this offering were approximately $17.2 million, not including any future proceeds from the exercise of warrants.


In February 2015, we issued and sold 2,216,667 shares of common stock, Series A warrants to purchase an additional 2,216,667 shares of common stock (the “Series A Warrants”) and Series B warrants to purchase an additional 2,216,667 shares of common stock (the “Series B Warrants”). The shares of common stock, the Series A Warrants and the Series B Warrants were sold together as common stock units for a purchase price of $3.00 per unit, but were immediately separable and issued separately. The Series A Warrants have an exercise price of $1.00 per share, are exercisable from the date of original issuance and will expire on February 3, 2020. The Series B Warrants had an exercise price of $3.00 per share and were exercisable from the date of original issuance until they expired on August 3, 2015. The gross proceeds from this offering were approximately $6.7 million, not including any future proceeds from the exercise of the warrants.

In August 2014, we issued and sold 2,000,000 shares ofdebt service obligations by issuing common stock and warrants to purchase an additional 1,000,000 shares of common stock (the “2014 Warrants”) in a firm commitment underwritten public offering.  The shares of common stockofferings.  Those issuances have caused significant dilution to our existing stockholders. While we have sought, and will continue to seek, other, less dilutive forms financing to fund our operations and debt service obligations, there is no assurance that we will be successful in doing so.

Based on our current operating plan, existing working capital at December 31, 2017 was not sufficient to meet the 2014 Warrants were sold together as common stock units for a purchase price of $9.00 per unit, but were immediately separable and issued separately. The 2014 Warrants have an exercise price of $5.13 per share and are exercisable fromcash requirements to fund planned operations through the period that is one year after the date our 2017 financial statements are issued unless we are able to raise additional capital to fund operations. These conditions raise substantial doubt about our ability to continue as a going concern. Our inability to continue as a going concern may potentially affect our rights and obligations under our debt obligations.

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 build-out and Retrofit of the original issuanceLuverne 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 expire on August 5, 2019.  The gross proceedscontinue 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 this offering were approximately $18.0 million, not including any future proceedsother sources, may seek to restructure our debt 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 the exercise of the 2014 Warrants.

In May 2014, we entered into a term loan agreement (the “Loan Agreement”) with the lenders party thereto from time to time (“Lenders”) and Whitebox, as administrative agent for Lenders, pursuant to which the Lenders committed to provide one or more senior secured term loans to us, in an aggregate amount of up to approximately $31.1 million on the terms set forth in the Loan Agreement (collectively the “Term Loan”).  Pursuant to the Loan Agreement, on May 9, 2014, we closed a private debt financing with Whitebox consisting of a $25.9 million Term Loan (the “First Advance”), the outstanding principal amount of which was subsequently exchanged, by Whitebox into 10% convertible senior secured notes due in 2017 (the “2017 Notes” and, together with the 2022 Notes, the “Convertible Notes”), together with accrued paid-in-kind interest of $0.2 million.  We used proceeds from the Term Loan to repay $9.6 million in outstanding principal under our additional term loan facilities with TriplePoint Capital LLC (“TriplePoint”), with the remaining outstanding principal balance of $1.0 million being junior secured debt payable over 36 months beginning June 2014.

In December 2013, we issued and sold 1,420,250 shares of common stock and warrants to purchase an additional 1,420,250 shares of common stock (the “2013 Warrants” and together with the 2014 Warrants, the Series A Warrants, the Series B Warrants, the Series C Warrants, the Series D Warrants and the Series E Warrants, the “Warrants”) in a firm commitment underwritten public offering.  The shares of common stock and the 2013 Warrants were sold together as common stock units for a purchase price of $20.25 per unit, but were immediately separable and issued separately. The 2013 Warrants have certain anti-dilution provisions. The 2013 Warrants have an exercise price of $7.53, are exercisable from the date of the original issuance and will expire on December 16, 2018.  This offering resulted in net proceeds of $26.8 million after deducting $2.0 million in underwriting discounts and commissions and other offering costs, not including any future proceeds from the exercise of the 2013 Warrants. We used $5.1 million of the proceeds from this offering in December 2013 to repay outstanding principal to TriplePoint.operations.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

Net cash used in operating activities

$

(28,160

)

 

$

(38,990

)

 

$

(47,048

)

$

(20,626

)

 

$

(20,516

)

Net cash used in investing activities

 

(1,320

)

 

 

(7,505

)

 

 

(7,675

)

 

(1,906

)

 

 

(5,938

)

Net cash provided by financing activities

 

40,152

 

 

 

28,229

 

 

 

12,604

 

 

6,197

 

 

 

37,311

 

 

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 for licensing of technology, legal-related costs and expenses


for the production of isobutanol, ethanol and related products, logistics and further processing of ethanol and isobutanol at the Agri-EnergyLuverne Facility and for the operation of our hydrocarbon demonstration production facility.

During the year ended December 31, 2015,2017, we used $28.2$20.6 million in cash for operating activities resulting indue to a net loss of $36.2$24.6 million, excluding the impact of $9.0$6.4 million in non-cash expenses, and $1.0$2.4 million associated with a decrease in working capital primarily a result of an increase in accounts payable and decrease in accounts receivable.

During the year ended December 31, 2014, wenet cash used $39.0 million in cash for operating activities resulting in a net loss of $41.1 million, excluding the impact of $5.0 million in non-cash expenses, and $2.9 million associated with an increase in working capital primarily a result of a decrease inpay down of accounts payable andcoupled with an increase in both accounts receivable.receivable and inventory.


During the year ended December 31, 2013,2016, we used $47.0$20.5 million in cash for operating activities resulting indue to a net loss of $66.8$37.3 million, excludingoffset by the impact of $15.4$17.2 million in non-cash expenses. This was partially offset byexpenses, and $0.5 million net cash used due to an increase in working capital primarily as a decrease in inventory which generated $2.1 million in cash in 2013 andresult of the pay down of accounts payable coupled with an increase in accounts payable and accrued liabilities. The decrease in inventory during 2013 primarily resulted from the sale of excess corn inventory during the first half of 2013, partially offset by the purchase of corn in preparation for the resumption of isobutanol production at the Agri-Energy Facility. Our accounts payable and accrued liabilities increased primarily due to the additional design features and other costs at the Agri-Energy Facility.receivable.

Investing Activities

During the year ended December 31, 2015,2017, we used $1.3used $1.9 million in cash for investing activities.  We used $1.5 million in cashactivities related to capital expenditures at our Agri-Energy Facility and $0.1 million of sales tax refund.   In September 2015, we announced that we were deploying approximately $5.0 million of capital expenditures at our Agri-Energy Facility, primarily designed to decrease the cost of production for isobutanol by bringing parts of the process to the facility that have previously been done off-site by third parties.  As of December 31, 2015, we had capitalized approximately $2.5 million of the $5.0 million.out Luverne Facility.

During the year ended December 31, 2014,2016, we used $7.5$5.9 million in cash for investing activities. We used $4.9 millionactivities, all of which was related to capital expenditures at our Agri-Energy Facility and $2.6 million of restricted deposits required from the agreement governing our 2017 Notes.

During the year ended December 31, 2013, we used $7.7 million in cash for investing activities. We used $9.8 million in cash primarily associated with capital expenditures to optimize specific parts of our technology at our Agri-Energy Facility, partially offset by a $2.0 million sales tax refund that was received in connection with capital equipment purchases.Luverne Facility.  

Financing Activities

During the year ended December 31, 2015,2017, we generated $40.2$6.2 million in cash from financing activities primarily related to the $44.0$11.0 million in proceeds from issuance of common stock, the $2.6 million release of restricted cash, and the $3.4 million in proceeds from the exercise of warrants, These gains in cash were offset by $0.3$9.8 million in principal payments to TriplePoint,Whitebox, and $3.5$1.1 million in equity and debt offering costs incurred in connection with the issuance of stock in February, May, and December 2015.costs.

During the year ended December 31, 2014,2016, we generated $28.2accumulated $37.3 million in cash from financing activities primarily related to the borrowing of $25.9 million under the Term Loan and $18.0 million innet proceeds from issuancepublic offerings of common stock in April, June, and September 2016 offset by $9.8 million in principal payments to TriplePoint, $3.8 million in debt offering costs incurred primarily in connection with the issuanceour pay down of the Term Loan, and $2.0 millionremaining balance of our secured long-term debt in equity offering costs incurred in connection with the issuance of stock in August 2014.  September 2016.

During the year ended December 31, 2013, we generated $12.6 million in cash from financing activities primarily related to $27.1 million in net proceeds from issuance of common stock, offset by $14.5 million payments in principal payments to TriplePoint.

20172020 Notes

In May 2014,On April 19, 2017, we entered into the LoanPurchase Agreement with a maturity datethe Holder of March 15,the 2017 pursuantNotes, and Whitebox Advisors LLC, in its capacity as representative of the Holder (“Whitebox”). Pursuant to which the Lenders committed to provide one or more Term Loans to us in an aggregate amount of up to approximately $31.1 million on the terms and conditions set forth in the Loan Agreement.  The First Advance of the Term Loan in the amount of $22.8 million, net of discounts and issue costs of $1.6 million and $1.5 million, respectively, was paid to us in May 2014. Also in May 2014, we entered into the Exchange and Purchase Agreement, pursuant to which the Lenders were granted the right,Holder, subject to certain conditions, including approval of the transaction by our stockholders (which was received on June 15, 2017), agreed to exchange all or a portion of the outstanding principal amount of the Term Loan for our 2017 Notes which are convertible into shares of our common stock. While outstanding, the aggregate amount of the Term Loan under the Loan Agreement bore interest at a ratefor an equal to 15% per annum, of which 5% was payable in cash and 10% was payable in kind and capitalized and added to the principal amount of our newly created 2020 Notes, plus an amount in cash equal to the Term Loan.

In June 2014, Lenders exchanged all $25.9 million of outstanding principal amount of Term Loan providedaccrued and unpaid interest (other than interest paid in the First Advance for 2017 Notes, together with accrued paid-in-kind interest of $0.2 million. The terms ofkind) on the 2017 Notes are set forth in an indenture by and among(the “Exchange”). As noted above, on June 20, 2017, we completed the Company, its subsidiaries in their capacity as guarantors, and Wilmington Savings Fund Society, FSB, as trustee (the “2017 Notes Indenture”). The 2017 Notes have a maturity date of March 15, 2017 and a conversion price equal to $17.38 per share or .0576 shares per $1 principal amount of 2017 Notes. The 2017 Notes do not contain any rights to anti-dilution adjustments for future equity issuances that are below the conversion price, and adjustments to the conversion price would be made only in the event that (i) there is a dividend or distribution paid on shares of our common stock or (ii) there is a subdivision, combination or reclassification of such common stock. Optional prepayment ofExchange, terminated the 2017 Notes is not permitted.Indenture and cancelled the 2017 Notes. As of December 31, 2017, the outstanding principal on the 2020 Notes was $16.7 million, including paid-in-kind interest.


The 20172020 Notes will mature on March 15, 2020. The 2020 Notes bear interest at a rate equal to 10%12% per annum which is(with 2% potentially payable underas PIK Interest (as defined and described below) at our option), payable on March 31, June 30, September 30, and December 31 of each year. Under certain circumstances, 5% in cash and 5% in kind and capitalized and addedwe have the option to pay a portion of the interest due on the 2020 Notes by either (a) increasing the principal amount of the 20172020 Notes (otherwiseby the full 10% is payable in cash). While the Term Loan and 2017amount of interest then due or (b) issuing additional 2020 Notes are outstanding, we are required to maintain an interest reserve in anwith a principal amount equal to 10%the amount of the aggregate outstanding principal amount under each of the Term Loan and the 2017 Notes, (including any capitalized and uncapitalized interest that isthen due (interest paid in kind)the manner set forth in (a) or (b) being referred to be adjusted on an annual basis. As of December 31, 2014, there was a balance of $2.6 million in the interest reserve account. This amount is classified as restricted deposits.“PIK Interest”).

The 2017 Notes Indenture contains customary affirmative and negative covenants and events of default, including, without limitation, disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain amounts of additional indebtedness, making investments, acquiring or merging with another entity, and making dividends and other restricted payments, unless we receive the prior approval of the Lenders. The 2017 Notes Indenture also contains limitations on the ability of the holder to assign or otherwise transfer its interest in the 2017 Notes.  The 20172020 Notes are secured by a lien on substantially all of our assets and is guaranteed by Agri-Energy, LLC (“Agri-Energy”) and Gevo Development, LLC (“Gevo Development”; together, the “Guarantor Subsidiaries” or “Guarantors”). On June 6, 2014, in connection with the issuance of the 2017 Notes, we entered into a Pledge and Security Agreement in favor of the collateral trustee. The collateral pledged includes substantially all of the assets of the Company and the Guarantor Subsidiaries, including intellectual property and real property.  Agri-Energy has also entered into a mortgage with respect to the real property located in Luverne, Minnesota.

The holders of the 2017 Notes may, at any time until the close of business on the business day immediately preceding the maturity date, convert the principal amount of the 2017 Notes, or any portion of such principal amount which is at least $1,000,convertible into shares of our common stock. Uponstock, subject to certain terms and conditions. The initial conversion price of the 20172020 Notes we will deliver sharesis equal to $0.7359 per share of common stock, at an initial conversion rate of 0.0576or 1.3589 shares of common stock per $1 principal amount of 2020 Notes (the “Conversion Price”). In addition, upon certain equity financing transactions by us, the 2017 Notes (equivalentHolders will have a one-time right to an initial conversion price of approximately $17.38 per share of common stock). Such conversion rate is subject to adjustment in certain circumstances, includingreset the Conversion Price (the “Reset Provision”) (i) in the event that there isfirst ninety (90) days following the Exchange Date, at a dividend or distribution paid on shares of25% premium to the common stock or a subdivision, combination or reclassificationprice in the equity financing and (ii) after ninety (90) and to and including one hundred eighty (180) days following the closing of the common stock. We also have the rightExchange, at a 35% premium to (i) increase the conversion rate by any amount for a period of at least 20 business days if our board of directors determines that such increase would be in our best interest or (ii) to avoid or diminish any income tax to holders of shares of common stock or rights to purchase shares of common stock in connection with any dividend or distribution. In addition, subject to certain conditions described herein, each holder who exercises its option to voluntarily convert its 2017 Notes will receive a make-whole payment in an amount equal to any unpaid interest that would otherwise have been payable on such 2017 Notes through the maturity date (a “Voluntary Conversion Make-Whole Payment”). Subject to certain limitations, we may pay any Voluntary Conversion Make-Whole Payments either in cash or in shares of common stock, at our election.

We have the right to require holders of the 2017 Notes to convert all or part of the 2017 Notes into shares of our common stock if the last reported sales price of the common stock over any 10 consecutive trading days equals or exceeds 150%share price in the equity financing. Following an exercise of the applicable conversion price (a “Mandatory Conversion”). Each holder whose 2017 Notes are converted inReset Provision, the Holders will also have a Mandatory Conversion will receive a make-whole payment for the converted notes in an amount equalright to any unpaid interest that would have otherwise been payable on such 2017 Notes through the maturity date (a “Mandatory Conversion Make-Whole Payment”). Subjectconsent to certain limitations, we may pay any Mandatory Conversion Make-Whole Payments either in cash or in shares of common stock, at our election. We did not require any holders to convert in 2014 or in 2015.

On July 31, 2014, January 28, 2015, May 13, 2015, November 12, 2015 and December 7, 2015, we entered into amendments to the 2017 Notes Indenture to, among other things, permit the offering and issuance of warrants and the incurrence of indebtednessequity financings by us under such warrants.  In connection withduring the November 12, 2015 amendments, we did not issue any warrants or incur any indebtedness.  

On June 1, 2015, we entered into further amendments toone hundred eighty (180) days following the 2017 Notes Indenture to, among other things, permit (i) the execution, delivery, and performanceclosing of the Price Risk Management, Origination and Merchandising Agreement (the “Origination Agreement”) with FCStone Merchant Services, LLC and a Grain Bin Lease Agreement with FCStone Merchant Services, LLC Exchange.

See Note 8, Debt, and the related guaranty, (ii) the incurrence of indebtedness by the Company and Agri-Energy pursuant thereto and (iii) the makingto our consolidated financial statements included herein for further discussion of the investments by the Company and Agri-Energy thereunder.

On August 22, 2015, we entered into further amendments to the 2017 Notes Indenture to, among other things, permit (i) the execution, delivery, and performance of the patent cross-license and settlement agreements with Butamax and (ii) the exchange of all or any portion of the 2022 Notes for common stock issued by the Company.

In connection with the transactions described above, we also entered into the Registration Rights Agreement, pursuant to which we filed a registration statement on Form S-3 registering the resale of 1.2 million shares of our common stock underlying the 2017 Notes. This registration statement was declared effective on July 25, 2014.  We may file additional registration statements on Form S-3 or amend filings in order to register additional shares of common stock for sale or resale, as necessary in connection with the 20172020 Notes.


Secured Long-Term Debt

Gevo Loan Agreement. In August 2010, we entered into a loan and security agreement (the “the Gevo Loan Agreement”) with TriplePoint, pursuant to which we borrowed $5.0 million. In July 2012, we used $5.4 million of the proceeds from the July 2012 offering of 2022 Notes to pay in full all amounts outstanding under the Gevo Loan Agreement, including an end-of-term payment equal to 8% of the amount borrowed.

Original Agri-Energy Loan Agreement. In August 2010, Gevo Development borrowed $12.5 million from TriplePoint to finance its acquisition of Agri-Energy. In September 2010, upon completion of the acquisition, the loan and security agreement (the “Original Agri-Energy Loan Agreement”) was amended to make Agri-Energy the borrower under the facility. In December 2013, we used $5.1 million of the proceeds from the offering of common stock units that was completed in December 2013 to pay off the remaining $5.1 million in outstanding principal under this loan.  

Amended Agri-Energy Loan Agreement. In October 2011, the Original Agri-Energy Loan Agreement was amended and restated (the “Amended Agri-Energy Loan Agreement”) to provide Agri-Energy with additional term loan facilities of up to $15.0 million to pay a portion of the costs, expenses, and other amounts associated with the Retrofit of the Agri-Energy Facility to produce isobutanol.  The Amended Agri-Energy Loan Agreement includes customary affirmative and negative covenants for agreements of this type and events of default.  In October 2011, Agri-Energy borrowed $10.0 million under the additional term loan facilities which originally matured in October 2015. In January 2012, Agri-Energy borrowed an additional $5.0 million under the additional term loan facilities which originally matured in December 2015, bringing the total amount borrowed under the additional term loan facilities to $15.0 million.  The aggregate amount outstanding under the additional term loan facilities bears interest at a rate equal to 11% and is subject to an end-of-term payment equal to 5.75% of the amount borrowed.  As security for its obligations under the Amended Agri-Energy Loan Agreement, Agri-Energy granted TriplePoint a security interest in and lien upon all of its assets. Gevo, Inc. also guaranteed Agri-Energy’s obligations under the Amended Agri-Energy Loan Agreement. As additional security, concurrently with the execution of the Amended Agri-Energy Loan Agreement, (i) Gevo Development entered into a limited recourse continuing guaranty in favor of TriplePoint, (ii) Gevo Development entered into an amended and restated limited recourse membership interest pledge agreement in favor of TriplePoint, pursuant to which it pledged the membership interests of Agri-Energy as collateral to secure the obligations under its guaranty and (iii) Gevo, Inc. entered into an amendment to its security agreement with TriplePoint (the “Gevo Security Agreement”), which secured its guarantee of Agri-Energy’s obligations under the Amended Agri-Energy Loan Agreement.

June 2012 Amendments. In June 2012, we entered into (i) an amendment (the “Security Agreement Amendment”) to the Gevo Security Agreement and (ii) an amendment (the “Gevo Loan Amendment”) to the Gevo Loan Agreement. In addition, concurrently with the execution of the Security Agreement Amendment and the Gevo Loan Amendment, Agri-Energy entered into an amendment to the Amended Agri-Energy Loan Agreement. These amendments, among other things: (i) permitted the issuance of the 2022 Notes; (ii) removed Agri-Energy’s and the Company’s options to elect additional interest-only periods upon the achievement of certain milestones; (iii) permitted Agri-Energy to make dividend payments and distributions to the Company for certain defined purposes related to the 2022 Notes; (iv) added as an event of default the payment, repurchase or redemption of the 2022 Notes or of amounts payable in connection therewith other than certain permitted payments related to the 2022 Notes; (v) added a negative covenant whereby we may not incur any indebtedness other than as permitted under the Security Agreement Amendment; and (vi) added a prohibition on making any Coupon Make-Whole Payments (as defined in the indenture governing the 2022 Notes) in cash prior to the payment in full of all remaining outstanding obligations under the Amended Agri-Energy Loan Agreement.

December 2013 Amendments.  In December 2013, we entered into additional amendments to certain of our existing agreements with TriplePoint and entered into a new intellectual property assignment agreement in favor of TriplePoint to, among other things:

permit the issuance of warrants associated with our December 2013 offering of common stock units;

waive any prepayment premium (but not any end-of-term payment) with respect to the Original Agri-Energy Loan Agreement and the Amended Agri-Energy Loan Agreement;

expand the events of default to add as an event of default the repurchase of the warrants;

grant TriplePoint a lien and security interest in all of the intellectual property of the Company;

re-price the three outstanding warrants to purchase common stock of the Company that are held by TriplePoint, which as of December 31, 2014, are exercisable in the aggregate for 388,411 shares of the Company’s common stock, to reflect an exercise price equal to $1.18 per share;

waive the requirement for Agri-Energy to make principal amortization payments on the Amended Agri-Energy Loan Agreement through December 31, 2014 (the “Restructure Period”);


raise the interest rates under the Amended Agri-Energy Loan Agreement to 13% during the Restructure Period (provided that such rate will return to 11% following the Restructure Period so long as no event of default under the Amended Agri-Energy Loan Agreement shall be continuing on the last day of the Restructure Period); and

during the period beginning January 2015, and continuing through and including the final monthly installment due under the Amended Agri-Energy Loan Agreement, adjust the monthly payment due and payable to 50% of the fully amortizing amount of principal and interest otherwise due and payable for such month, applied first to outstanding accrued interest and then to principal, with the remaining 50% portion of such required payments of principal and interest for such month accruing and made due and payable at the time of the final monthly installment.

May 2014 Amendments. In May 2014, we entered into a Consent Under and Third Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement and Omnibus Amendment to Loan Documents (the “2014 Amendment”) pursuant to which TriplePoint amended its agreements with the Company and its subsidiaries and consented to (i) the execution, delivery, and performance of the Loan Agreement, the Exchange and Purchase Agreement, the Registration Rights Agreement, the 2017 Notes Indenture, the 2017 Notes, and the other documents related thereto (collectively the “Senior Loan Documents”); (ii) the incurrence of the Term Loan with Whitebox and any other indebtedness under the Senior Loan Documents (collectively, the “Senior Indebtedness”); (iii) the consummation of the exchange of the Term Loan for the 2017 Notes; (iv) the offering, issuance and sale of the 2017 Notes to Whitebox and the conversion of any 2017 Notes into the common stock of the Company pursuant to the terms of the 2017 Notes Indenture; (v) the guaranty of the Senior Indebtedness provided by the Guarantors; (vi) the liens granted by each of the Company and the Guarantors to secure the Senior Indebtedness and the other obligations under the Senior Loan Documents; (vii) the consummation of any transactions contemplated by, and the terms of, the Senior Loan Documents by the Company and the Guarantors; and (viii) the payment and performance of any of the obligations under the Senior Loan Documents by the Company and the Guarantors, including the making of dividends and distributions by the Guarantors to the Company for the purpose of enabling the Company to make any payments under the Senior Loan Documents.

As part of the 2014 Amendment, the Company repaid $9.6 million in principal payments due under the foregoing loan agreements with TriplePoint and entered into an amended Loan Agreement with TriplePoint. At December 31, 2015, the amended loan agreement had a principal balance of $0.5 million, which amortizes over 36 months and bears interest at a rate equal to 9% per annum and matures in May of 2017. There were no additional concessions or terms of the agreement which would require recognition of a gain or loss due to this amended agreement.

On July 31, 2014, January 28, 2015, May 13, 2015, November 11, 2015 and December 7, 2015, we entered into further amendments to the Amended Agri-Energy Loan Agreement and the Gevo Security Agreement to, among other things, permit the offering and issuance of additional warrants and the incurrence of indebtedness by us under such additional warrants.  In connection with the November 11, 2015 amendments, we did not issue any warrants or incur any indebtedness.

At December 31, 2015, we were in compliance with the debt covenants under the Amended Agri-Energy Loan Agreement. As of December 31, 2015, Agri-Energy has granted TriplePoint a junior security interest in, and a lien upon, all of its assets as security for its obligations under the Amended Agri-Energy Loan Agreement. Gevo, Inc. has also guaranteed Agri-Energy’s obligations under the Amended Agri-Energy Loan Agreement. As additional security, concurrently with the execution of the Amended Agri-Energy Loan Agreement, (i) Gevo Development entered into a limited recourse continuing guaranty in favor of TriplePoint, (ii) Gevo Development entered into an amended and restated limited recourse membership interest pledge agreement in favor of TriplePoint, pursuant to which it pledged the membership interests of Agri-Energy as collateral to secure the obligations under its guaranty and (iii) Gevo, Inc. entered into a security agreement which secured its guarantee of Agri-Energy’s obligations under the Amended Agri-Energy Loan Agreement.  Under the terms of the Amended Agri-Energy Loan Agreement, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if the following conditions are satisfied: (i) the Retrofit of the Agri-Energy Facility is complete and the facility is producing commercial volumes of isobutanol, (ii) its net worth is greater than or equal to $10.0 million, and (iii) no event of default has occurred and is continuing under the agreement.

2022 Notes

In July 2012, we sold $45.0 million in aggregate principal amount of 2022 Notes, withfor net proceeds of $40.9 million, after accounting for $2.7 million and $1.4 million of cash discounts and issue costs, respectively. The 2022 Notes bear interest at 7.5% which is to be paid semi-annually in arrears on January 1 and July 1 of each year commencing on January 1, 2013.

The 2022 Notes will mature on July 1, 2022, unless earlier repurchased, redeemed or converted.  Additionally, on July 1, 2017, each holder will have the right to require us to repurchase all of such holder’s 2022 Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, for cash at a repurchase price of 100% of the principal amount of such 2022 Notes plus any accrued and unpaid interest thereon through, but excluding, the repurchase date.


The 2022 Notes are convertible at a conversion rate of 11.7113 shares of Gevo, Inc. common stock per $1,000 principal amount of 2022 Notes, subject to adjustment in certain circumstances as described in the Indenture dated as of July 5, 2012, as amended, between us and Wells Fargo Bank, National Association (the “2022 Notes Indenture”). This is equivalent to an initial conversion price of approximately $85.39 per share of common stock. Holders may convert the 2022 Notes at any time prior to the close of business on the third business day immediately preceding the maturity date of July 1, 2022.

If a holder elects to convert its 2022 Notes prior to July 1, 2017, such holder shall be entitled to receive, in addition to the consideration upon conversion, a Coupon Make-Whole Payment (as defined in the 2022 Notes Indenture). The Coupon Make-Whole Payment is equal to the sum of the present values of the semi-annual interest payments that would have been payable on the 2022 Notes that a holder has elected to convert from the last day through which interest was paid up to but excluding July 1, 2017, computed using a discount rate of 2%. Under the Amended Agri-Energy Loan Agreement with TriplePoint, we are prohibited from making any Coupon Make-Whole Payments in cash prior to the payment in full of all remaining outstanding obligations under the Amended Agri-Energy Loan Agreement.  If we elect to pay in common stock, the stock will be valued at 90% of the average of the daily volume weighted average prices of our common stock for the ten trading days preceding the date of conversion. As of December 31, 2015, certain holders of our 2022 Notes have elected to convert bonds totaling $20.1 million. Upon conversion, the 2022 Note holders received 235,396 shares of our common stock in payment of converted principal of $20.1 million and, pursuant to the terms of the 2022 Notes Indenture, such holders also received 343,803 shares of our common stock in settlement of Coupon Make-Whole Payments of $5.5 million.

In November 2015, we entered into a privately negotiated exchange agreement (“Exchange Agreement”) with one investor holding our 2022 Notes. Pursuant to the Exchange Agreement, the investor exchanged $2.5 million aggregate principal amount of outstanding 2022 Notes (the “Exchanged Notes”) for 1,107,833 shares of the Company’s common stock, par value $0.01 (“Exchange Shares”). The investor agreed to waive any accrued but unpaid interest on the Exchanged Notes. The Exchange Shares were issued in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended, as securities exchanged by the Company with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange.

As a result of the foregoing conversionscertain conversion and exchanges, the principal balance of the 2022 Notes has been reduced to $22.4 millionwas $515,000 as of December 31, 2015.2017.

If a Make-Whole Fundamental Change (as defined In the first quarter of 2018, we issued 780,303 shares in exchange for the 2022 Notes Indenture) occurs and a holder elects to convert its 2022 Notes prior to July 1, 2017, the applicable conversion rate will increase based upon reference to the table set forth in Schedule Aredemption of the Indenture. In no event will the conversion rate increase to more than 13.4680 sharesremaining $515,000 in outstanding 2022 Notes.  As a result of common stock per $1,000 principal amount of 2022 Notes.

If a Fundamental Change (as defined in the 2022 Notes Indenture) occurs, at any time, then each holder will have the right to require us to repurchasethis exchange, all of such holder’s 2022 Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, for cash at a repurchase price of 100% of the principal amount of such 2022 Notes plus any accrued and unpaid interest thereon through, but excluding, the repurchase date.

We have a provisional redemption right to redeem, at our option, all or any part of the 2022 Notes at a price payable in cash, beginning on July 1, 2015 and prior to July 1, 2017, provided that our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day immediately prior to the date of the redemption notice exceeds 150% of the conversion price in effect on such trading day. On or after July 1, 2017, we have an optional redemption right to redeem, at our option, all or any part of the 2022 Notes at a price payable in cash. The price payable in cash for the Optional Redemption or Provisional Redemption is equal to 100% of the principal amount of 2022 Notes redeemed plus any accrued and unpaid interest thereon through, but excluding, the repurchase date.

If there is an Event of Default (as defined in the 2022 Notes Indenture)obligations under the 2022 Notes have been fully satisfied.

Contractual Obligations and Commitments

The following summarizes the holders of not less than 25% in principal amount of Outstanding Notes (as defined in the 2022 Notes Indenture) by notice to usfuture commitments arising from our contractual obligations at December 31, 2017 (in thousands).

 

 

Less than 1 year

 

 

1-3 years

 

 

4 - 5 years

 

 

Thereafter (4)

 

 

Total

 

Principal debt payments (1)

 

$

-

 

 

$

17,408

 

 

$

-

 

 

$

515

 

 

$

17,923

 

Interest payments on debt (2)

 

 

1,717

 

 

 

2,155

 

 

 

77

 

 

 

-

 

 

 

3,949

 

Operating leases (3)

 

 

1,421

 

 

 

1,302

 

 

 

200

 

 

 

-

 

 

 

2,923

 

Insurance and Maintenance

 

 

223

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

223

 

Total

 

$

3,361

 

 

$

20,865

 

 

$

277

 

 

$

515

 

 

$

25,018

 

(1)

Principal debt payments include the principal amounts of the outstanding 2020 Notes and 2022 Notes.

(2)

Interest payments due to holders of the 2020 Notes and 2022 Notes.

(3)

Commitments for operating leases primarily relate to our leased facility in Englewood, Colorado and our lease for rail cars for ethanol and isobutanol shipments.

(4)

In January 2018, the Company exchanged the remaining $0.5 million of outstanding 2022 Notes for common stock.

The table above reflects only payment obligations that are fixed and the trustee may, and the trustee at the request of such holders shall, declare the principal amount of all the Outstanding Notes and accrued and unpaid interest thereondeterminable. The above amounts exclude potential payments to be duemade under our license and payable immediately.  There have been no eventsother agreements that are based on the achievement of default asfuture milestones or royalties on product sales.

Off-Balance Sheet Arrangements

As of December 31, 2015.2017, we did not have any off-balance sheet arrangements, or relationships with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted accounting principles, or GAAP, in the U.S. requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Different assumptions and judgments would change


the estimates used in the preparation of our consolidated financial statements, which in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in this Report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements.

Accounting for Senior Secured Debt, Convertible Notes and Embedded Derivative

20172020 Notes

We have electedOn April 19, 2017, we entered into the fair value option for accountingPurchase Agreement with the Holder of the 2017 Notes, and Whitebox Advisors LLC, in


its capacity as representative of the Holder (“Whitebox”). Pursuant to the terms of the Purchase Agreement, the Holder, subject to certain conditions, including approval of the transaction by our 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 our newly created 2020 Notes, plus an amount in order for managementcash equal to mitigate income statement volatility causedthe accrued and unpaid interest (other than interest paid in kind) on the 2017 Notes (the “Exchange”). As noted above, on June 20, 2017, we completed the Exchange, terminated the 2017 Notes Indenture and cancelled the 2017 Notes. As of December 31, 2017, the outstanding principal on the 2020 Notes was $16.7 million.

The 2020 Notes will mature on March 15, 2020. The 2020 Notes bear interest at a 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. Under certain circumstances, we have the option to pay a portion of the interest due on the 2020 Notes by measurement basis differences between the embedded instruments or to eliminate complexities of applying certain accounting models. Accordingly,either (a) increasing the principal amount of 2017the 2020 Notes outstanding at December 31, 2015by the amount of $26.1 million has been recorded at its estimated fair valueinterest then due or (b) issuing additional 2020 Notes with a principal amount equal to the amount of $21.6 million and is includedinterest then due (interest paid in the 2017manner set forth in (a) or (b) being referred to as “PIK Interest”).

The 2020 Notes recorded at fair value onare convertible into shares of our common stock, subject to certain terms and conditions. The initial conversion price of the consolidated balance sheet at December 31, 2015. Change2020 Notes is equal to $0.7359 per share of common stock, or 1.3589 shares of common stock per $1 principal amount of 2020 Notes (the “Conversion Price”). In addition, upon certain equity financing transactions by us, the Holders will have a one-time right to reset the Conversion Price (the “Reset Provision”) (i) in the estimated fair valuefirst ninety (90) days following the Exchange Date, at a 25% premium to the common stock price in the equity financing and (ii) after ninety (90) and to and including one hundred eighty (180) days following the closing of the 2017 Notes represents an unrealized gain included in gain from change in fair value of 2017 NotesExchange, at a 35% premium to the common stock share price in the consolidated statementequity financing. Following an exercise of operations. During the year ended December 31, 2015, we incurred cash interest expenseReset Provision, the Holders will also have a right to consent to certain equity financings by us during the one hundred eighty (180) days following the closing of $2.6 million.the Exchange.

The following table sets forth the inputsSee Note 8, Debt, to the lattice model that were used to value the 2017 Notes for which the fair value option was elected.  

 

December 31,

 

December 31,

 

 

2015

 

2014

 

Stock price

$

0.62

 

$

4.80

 

Conversion Rate

 

57.55

 

 

57.55

 

Conversion Price

$

17.38

 

$

17.38

 

Maturity date

March 15, 2017

 

March 15, 2017

 

Risk-free interest rate

 

0.74

%

 

0.80

%

Estimated stock volatility

 

140.0

%

 

85.0

%

Estimated credit spread

 

30.0

%

 

15.0

%

The following table sets forth information pertaining to the 2017 Notes which is included in our consolidated balance sheets (in thousands).

 

Principal Amount of Term Loans

 

 

Principal Amount of 2017 Notes

 

 

Change in Estimated Fair Value

 

 

Total

 

Balance - December 31, 2013

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Issuance of Term Loan

 

25,907

 

 

 

-

 

 

 

-

 

 

 

25,907

 

Exchange of Term Loan for 2017 Notes

 

(25,907

)

 

 

25,907

 

 

 

-

 

 

 

-

 

Non-cash paid-in-kind interest expense

 

-

 

 

 

201

 

 

 

-

 

 

 

201

 

Gain from change in fair value of debt

 

-

 

 

 

 

 

 

 

(648

)

 

 

(648

)

Balance - December 31, 2014

$

-

 

 

$

26,108

 

 

$

(648

)

 

$

25,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain from change in fair value of debt

 

-

 

 

 

-

 

 

 

(3,895

)

 

 

(3,895

)

Balance - December 31, 2015

$

-

 

 

$

26,108

 

 

$

(4,543

)

 

$

21,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair valuefinancial statements included herein for further discussion of the 20172020 Notes. For example, the estimated fair value will generally decrease with: (i) a decline in the stock price; (ii) a decrease in the estimated stock volatility; and (iii) an increase in the estimated credit spread. The change in the estimated fair value of the 2017 Notes during the year ended December 31, 2015, represents an unrealized gain which has been recorded as gain from change in fair value of 2017 Notes in the consolidated statements of operations.


2022 Notes and Embedded Derivative

In July 2012, we sold $45.0 million in aggregate principal amount of 2022 Notes. Terms of the 2022 Notes, include, among others: (i) rights to convert into shares of our common stock, including upon a Fundamental Change (as defined in the 2022 Notes Indenture); and (ii) a Coupon Make-Whole Payment (as defined in the 2022 Notes Indenture) in the event of a conversion by the holders of the 2022 Notes prior to July 1, 2017. The embedded derivative is separated from the host contract, the 2022 Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that the embedded derivative within the 2022 Notes meet these criteria and, as such, must be valued separate and apart from the 2022 Notes as an embedded derivative and recorded at fair value each reporting period. The fair value of the embedded derivative is included as a component of the 2022 Notes on our consolidated balance sheets.

We used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2022 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the 2022 Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2022 Notes will be converted early if the conversion value is greater than the holding value; and (ii) the 2022 Notes will be called if the holding value is greater than both (a) the Redemption Price (as defined in the 2022 Notes Indenture) and (b) the conversion value plus the Coupon Make-Whole Payment at the time. If the 2022 Notes are called, then the holders will maximize their value by finding the optimal decision between (1) redeeming at the Redemption Price and (2) converting the 2022 Notes.

Using this lattice, we valued the embedded derivative using a “with-and-without method,” where the value of the 2022 Notes including the embedded derivative is defined as the “with,” and the value of the 2022 Notes excluding the embedded derivative is defined as the “without.” This method estimates the value of the embedded derivative by looking at the difference in the values between the 2022 Notes with the embedded derivative and the value of the 2022 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of our common stock; (ii) Conversion Rate (as defined in the 2022 Notes Indenture); (iii) Conversion Price (as defined in the 2022 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.

Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded derivative. For example, the estimated fair value of the embedded derivative will generally decrease with: (i) a decline in the stock price; (ii) decreases in the estimated stock volatility; and (iii) a decrease in the estimated credit spread. From the date the 2022 Notes were issued through December 31, 2015,2016, we observed a significant decline in the market price of our common stock which resulted in a $28.0 million decrease in the estimated fair value of our embedded derivative from issuance through December 31, 2015.


2016.  These changes in the estimated fair value of the embedded derivative represent unrealized gains, which have been recorded as gains from change in fair value of embedded derivative in the consolidated statements of operations.

Derivative Warrant Liability

In December 2013,The following warrants were sold by the Company sold 2013 Warrants to purchase 1,420,250 shares of the Company’s common stock. In August 2014, the Company sold 2014 Warrants to purchase 1,000,000 shares of common stock. In February 2015, the Company sold Series A warrants to purchase 2,216,667 shares of the Company’s common stock and Series B warrants to purchase 2,216,667 shares of the Company’s common stock. In May 2015, the Company sold Series C warrants to purchase 430,000 shares of the Company’s common stock.  In December 2015, the Company sold Series D warrants to purchase 10,050,000 shares of the Company’s common stock and Series E warrants to purchase 8,000,000 shares of the Company’s common stock.Company:

In December 2013, the Company sold warrants to purchase 71,013 shares of the Company’s common stock (the “2013 Warrants”).

In August 2014, the Company sold warrants to purchase 50,000 shares of the Company’s common stock (the “2014 Warrants”).

In February 2015, the Company sold Series A warrants to purchase 110,833 shares of the Company’s common stock (the “Series A Warrants”) and Series B warrants to purchase 110,833 shares of the Company’s common stock (the “Series B Warrants”).

In May 2015, the Company sold Series C warrants to purchase 21,500 shares of the Company’s common stock (the “Series C Warrants”).

In December 2015, the Company sold Series D warrants to purchase 502,500 shares of the Company’s common stock (the “Series D Warrants”) and Series E warrants to purchase 400,000 shares of the Company’s common stock (the “Series E Warrants”).

In April 2016, the Company sold 514,644 Series F warrants to purchase one share of common stock (each a “Series F Warrant”) and 1,029,286 Series H warrants, each to purchase one share of common stock (each, a “Series H Warrant”), and 328,571 pre-funded Series G warrants (“Series G Warrants”) to purchase one share of common stock, pursuant to an underwritten public offering.

In September 2016, the Company sold 712,503 Series I warrants to purchase one share of common stock (each a “Series I Warrant”) and 185,000 pre-funded Series J warrants (“Series J Warrants”) to purchase one share of common stock, pursuant to an underwritten public offering.

In February 2017, the Company sold Series K warrants to purchase 6,250,000 shares of the Company’s common stock (the “Series K Warrants”) and Series M warrants to purchase 6,250,000 shares of the Company’s common stock (the “Series M Warrants”), and pre-funded Series L warrants (the “Series L Warrants”) to purchase 570,000 shares of the Company’s common stock, pursuant to an underwritten public offering.

 


The following table sets forth information pertaining to shares issued upon the exercise of Warrants as of December 31, 2015:2017:

 

 

Issuance

Date

Expiration

Date

Exercise

Price

 

Shares

Underlying

Warrants on

Issuance Date

 

Shares Issued

upon Warrant

Exercises as of

December 31,

2015

 

Shares

Underlying

Warrants

Outstanding as of

December 31,

2015

 

2013 Warrants

12/16/2013

12/16/2018

$

7.53

 

 

1,420,250

 

 

(304,774

)

 

1,115,476

 

2014 Warrants

8/5/2014

8/5/2019

$

5.13

 

 

1,000,000

 

 

(610,771

)

 

389,229

 

2015 Series A Warrants

2/3/2015

2/3/2020

$

1.00

 

 

2,216,667

 

 

(321,670

)

 

1,894,997

 

2015 Series B Warrants

2/3/2015

8/3/2015

$

-

 

 

2,216,667

 

 

(1,935,901

)

 

-

 

2015 Series C Warrants

5/19/2015

5/19/2020

$

3.60

 

 

430,000

 

 

-

 

 

430,000

 

2015 Series D Warrants

12/11/2015

8/3/2015

$

1.40

 

 

10,050,000

 

 

-

 

 

10,050,000

 

2015 Series E Warrants

12/11/2015

5/19/2020

$

0.01

 

 

8,000,000

 

 

(1,471,000

)

 

6,529,000

 

 

 

 

 

 

 

 

25,333,584

 

 

(4,644,116

)

 

20,408,702

 

 

 

Issuance

Date

 

Expiration

Date

 

Exercise

Price as of December 31, 2017

 

 

Shares

Underlying

Warrants on

Issuance Date

 

 

Shares Issued

upon Warrant

Exercises as of

December 31,

2017

 

 

Shares

Underlying

Warrants

Outstanding as of

December 31,

2017 (4)

 

2013 Warrants

 

12/16/2013

 

12/16/2018

 

$

8.99

 

 

 

71,013

 

 

 

15,239

 

 

 

55,774

 

2014 Warrants

 

8/5/2014

 

8/5/2019

 

$

6.83

 

 

 

50,000

 

 

 

30,538

 

 

 

19,462

 

Series A Warrants

 

2/3/2015

 

2/3/2020

 

$

0.68

 

 

 

110,833

 

 

 

99,416

 

 

 

11,417

 

Series B Warrants

 

2/3/2015

 

8/3/2015

 

 

-

 

(1)

 

110,833

 

 

 

110,833

 

 

 

-

 

Series C Warrants

 

5/19/2015

 

5/19/2020

 

$

5.50

 

 

 

21,500

 

 

 

-

 

 

 

21,500

 

Series D Warrants

 

12/11/2015

 

12/11/2020

 

$

2.00

 

 

 

502,500

 

 

 

501,570

 

 

 

930

 

Series E Warrants

 

12/11/2015

 

12/11/2020

 

 

-

 

(1)

 

400,000

 

 

 

400,000

 

 

 

-

 

Series F Warrants

 

4/1/2016

 

4/1/2021

 

$

2.00

 

 

 

514,644

 

 

 

233,857

 

 

 

280,787

 

Series G Warrants

 

4/1/2016

 

4/1/2017

 

 

-

 

(1)

 

328,571

 

 

 

328,571

 

 

 

-

 

Series H Warrants

 

4/1/2016

 

10/1/2016

 

 

-

 

(1)

 

1,029,286

 

 

 

1,029,286

 

 

 

-

 

Series I Warrants

 

9/13/2016

 

9/13/2021

 

$

11.00

 

 

 

712,503

 

 

 

-

 

 

 

712,503

 

Series J Warrants

 

9/13/2016

 

9/13/2017

 

 

-

 

 

 

185,000

 

 

 

185,000

 

 

 

-

 

Series K Warrants

 

2/17/2017

 

2/17/2022

 

$

0.60

 

 

 

6,250,000

 

 

 

160,000

 

 

 

6,090,000

 

Series L Warrants

 

2/17/2017

 

2/17/2018

 

 

-

 

(1)

 

570,000

 

 

 

570,000

 

 

 

-

 

Series M-A Warrants

 

2/17/2017

 

11/17/2017

 

 

-

 

(1), (2)

 

2,305,000

 

 

 

1,485,000

 

 

 

-

 

Series M-B Warrants

 

2/17/2017

 

11/17/2017

 

 

-

 

(1), (3)

 

3,945,000

 

 

 

3,945,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

17,106,683

 

 

 

9,094,310

 

 

 

7,192,373

 

(1)

Warrants have either been fully exercised and/or expired as of December 31, 2017.    

(2)

In October 2017, 1,485,000 Series M warrants were repriced between $0.60 and $0.65 per warrant. Of those warrants that were repriced, all were exercised in the fourth quarter of 2017, providing proceeds of $950 thousand.

(3)

In September 2017, 3,945,000 Series M warrants were repriced to $0.60. Of those warrants that were repriced, all were exercised in the second half of 2017, providing proceeds of $2.4 million.

(4)

This table does not include 1,393 equity-classified warrants, issued between 2008 through 2012, with strike prices between $17.70 and $24.45 per share.

 

The agreements governing the above Warrants include the following terms:

the 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;

certain warrants have exercise prices which are subject to adjustment for certain events, including the issuance of stock dividends on our common stock and, in certain instances, the issuance of our 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;

warrant holders may exercise the warrants through a cashless exercise if, and only if, we do not have an effective registration statement then available for the issuance of the shares of our 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

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 our 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 Warrant 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, 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 the event of an extraordinary transaction (as defined in the respective warrant agreements), generally including any merger with or into another entity, sale of all or substantially all of our 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 warrant is not a publicly traded company, we 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, an amount of cash equal to the value of such holder’s warrants as determined in accordance with an appropriate valuation model and the terms of the respective warrant agreement.


Based on these terms, the Company haswe have determined that the Warrantswarrants issued since 2013 (the “Warrants”) qualify as derivatives and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The fair value of the Warrants was estimated to be $10.5$2.0 million and $3.1$2.7 million  as of December 31, 20152017 and December 31, 2014,2016, respectively. The increasedecrease in the estimated fair value of the Warrants represents an unrealized lossgain which has been recorded as a lossgain from the change in fair value of derivative warrant liability in the consolidated statements of operations.


During the twelve months ended December 31, 2015,2017, our common stock was issued as a result of exercise of Warrants as described below:

 

 

Twelve Months Ended December 31, 2015

 

 

Common Stock

Issued

 

 

Proceeds (1)

 

2013 Warrants

 

304,774

 

 

$

1,057,010

 

2014 Warrants

 

610,771

 

 

 

2,204,540

 

2015 Series A Warrants

 

321,670

 

 

 

1,302,750

 

2015 Series B Warrants

 

1,935,901

 

 

 

5,586,564

 

2015 Series C Warrants

 

-

 

 

 

-

 

2015 Series D Warrants

 

-

 

 

 

-

 

2015 Series E Warrants

 

1,471,000

 

 

 

14,710

 

 

 

4,644,116

 

 

$

10,165,573

 

 

Twelve Months Ended

December 31, 2017

 

 

Common Stock

Issued

 

 

Proceeds

 

Series K Warrants

 

160,000

 

 

 

106,000

 

Series L Warrants

 

570,000

 

 

 

5,700

 

Series M-A Warrants

 

1,485,000

 

 

 

950,250

 

Series M-B Warrants

 

3,945,000

 

 

 

2,367,000

 

 

 

6,160,000

 

 

$

3,428,950

 

 

(1)

Proceeds received from exercise of Warrants are net of inducement payments.

In May 2015, certain holders  During the twelve months ended December 31, 2017, we issued 160,000 shares of common stock as a result of the 2013exercise of Series K Warrants, agreed to570,000 shares of common stock as a result of the exercise some or all of their 2013Series L Warrants for cash, atand 5,430,000 shares of common stock as a result of the then-currentexercise of Series M Warrants, resulting in a total proceeds of approximately $3.4 million.

     In addition, in September 2017, as permitted by Section 2(a) of the Series M Warrants agreement the Board of Directors of the Company approved a voluntarily reduction of the exercise price of $15.30the Series M Warrants exercisable into 3,945,000 shares of the Company’s common stock from an exercise price of $2.35 per share. As an inducement to exercise the 2013 Warrants, the Company agreed to pay each such holder a cash inducement fee in an amount equal to $11.55 for each share of common stock issued upon such exercise, which resulted in net proceeds to the Company of $3.75$0.60 per share. In addition, certain holders of the 2014 Warrants agreed to exercise some or all of their 2014 Warrants for cash, at the then-current exercise price of $9.60 per share. As an inducement to exercise the 2014 Warrants, the Company agreed to pay each such holder a cash inducement fee in an amount equal to $5.85 for each share of common stock, issued upon suchfor the remaining term of these warrants (The Series “M-B” Warrants). Except for the reduction in exercise which resulted in net proceeds toprice, the terms of these Series M-B Warrants remained unchanged. In September 2017, the Company issued 3,500,000 shares of $3.75 per share. The Company received aggregate proceeds, net of inducement fees, of approximately $3.3 million from the exercisescommon stock as a result of the 2013exercise of these Series M-B Warrants. In the fourth quarter of 2017, the remaining 445,000 Series M-B Warrants for which the exercise price had been adjusted to $0.60 were exercised.

   In October 2017, the Board of Directors of the Company approved voluntarily reductions of the exercise price of additional Series M Warrants exercisable into 1,185,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.65 per share of common stock, and 2014Series M Warrants described above.exercisable into 300,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock. These, along with the remainder of the Series M Warrants for which the original exercise price was not reduced comprise the Series M-A Warrants.   Except for the reduction in exercise price, the terms of these Series M Warrants remained unchanged. During the fourth quarter of 2017, all Series M-A warrants for which the exercise price was reduced were exercised. The remaining Series M-A warrants expired during the fourth quarter of 2017.

As of December 31, 2017, all of the Series B, E, G, H, J and M Warrants for which the exercise price had been adjusted were fully exercised or expired

Impairment of Property, Plant and Equipment

Our property, plant and equipment consist primarily of assets associated with the acquisition and Retrofit of the Agri-EnergyLuverne Facility. We assess impairment of property, plant and equipment for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances applicable to our current stage of operations which could trigger a review include, but are not limited to: (i) significant decreases in the market price of the asset; (ii) significant adverse changes in the business climate or legal or regulatory factors; (iii) accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; and (iv) expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life. 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 asset.


We evaluated our Agri-Energy Facilitylong-lived assets for impairment as of December 31, 2015.2017. This evaluation included comparing the carrying amount of the acquisition and Retrofit of the Agri-Energy Facilityour long-lived assets to the estimated undiscounted future cash flows at the Agri-Energy Facilityof our consolidated net assets as this represents the lowest level of identifiable cash flows. Significant assumptions included in the estimated undiscounted future cash flows include, among others, estimates of the:

 

sales price of isobutanol, hydrocarbons, ethanol and by-products such as dried distiller’s grains;

 

purchase price of corn;

 

production levels of isobutanol;

 

capital and operating costs to produce isobutanol; and

 

estimated useful life of the primary asset.

Factors which can impact these assumptions include, but are not limited to;

 

effectiveness of our technology to produce isobutanol at targeted margins;

 

demand for isobutanol, hydrocarbon and oil prices; and

 

harvest levels of corn.


Based upon our evaluation at December 31, 2015,2017, we concluded that the estimated undiscounted future cash flows from Agri-EnergyLuverne exceeded the carrying value of the Agri-EnergyLuverne Facility and, as such, these assets were not impaired. Although our cash flow forecasts are based on assumptions that are consistent with our planned use of the assets, these estimates required significant exercise of judgment and are subject to change in future reporting periods as facts and circumstances change. Additionally, we may make changes to our business plan that could result in changes to the expected cash flows. As a result, it is possible that a long- lived asset may be impaired in future reporting periods.

Stock-Based Compensation

Our stock-based compensation expense includes expenses associated with share-based awards granted to employees and board members and non-employees and expenses associated with our employee stock purchase plan (“ESPP”). The estimated fair value of stock options and ESPP awards is determined on the date of grant and recorded to expense over the requisite service period, generally the vesting period. We estimate the fair value of stock option awards using the Black-Scholes option-pricing model which requires judgments to be made, including estimating: (i) the expected life of an award; (ii) stock price volatility; and (iii) prior to our initial public offering in February 2011, the fair value of our common stock.

The Black-Scholes option-pricing model calculates the estimated fair value of stock options using the following inputs: (i) expected stock option life; (ii) expected volatility; (iii) risk-free interest rate; (iv) expected dividend yield rate; (v) exercise price; and (vi) closing price of our common stock on the date of grant.

Due to our limited history of grant activity, we use the “simplified method” permitted by the SEC to estimate the expected stock option life as the arithmetic average of the total contractual term of the option and its vesting period. We calculate the estimated volatility rate based on selected comparable public companies, due to a lack of historical information regarding the volatility of our stock price. We will continue to analyze the historical stock price volatility assumption as more historical data for our common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury yield curve in effect on the date of grant for instruments with a term similar to the expected life of the related option. No dividends are expected to be paid.

The estimated fair value of a stock option using the Black-Scholes option-pricing model is impacted significantly by changes in a company’s stock price. For example, all other assumptions being equal, the estimated fair value of a stock option will increase as the closing price of a company’s stock increases, and decrease as the closing price of a company’s stock decreases. Prior to the closing of our initial public offering, we were a private company and, as such, we were required to estimate the fair value of our common stock. In the absence of a public trading market, we determined a reasonable estimate of the then-current fair value of our common stock for purposes of granting stock-based compensation based on multiple criteria. We determined the fair value of our common stock utilizing methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.” After the closing of our initial public offering in February 2011, the fair value of our common stock is no longer an estimate as it is based upon the closing price of our stock on the date of grant.


Revenue Recognition

Following our acquisition of Agri-EnergyLuverne on September 22, 2010, we have primarily derived revenue from the sale of ethanol, distiller’s grains and other related products produced as part of the ethanol production process at the Agri-EnergyLuverne Facility. The production of ethanol alone is not our intended business and our future strategy is expected to depend on our ability to produce and market isobutanol and products derived from isobutanol. Revenue from the sale of ethanol, hydrocarbons or excess corn inventory is recognized when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title is transferred to the customer; the price is fixed or determinable; and collectability is reasonably assured. Ethanol and related products are generally shipped free on board shipping point. Collectability of revenue is reasonably assured based on historical evidence of collectability between us and our customers.

Lease revenue related to the contractual agreements for utilization of the Luverne storage facilities is recognized on a straight line basis over the term of the lease.

Revenue related to our government research grants and cooperative agreements is recognized in the period during which the related costs are incurred or over the contract period, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding.


Contractual Obligations and Commitments

The following summarizes the future commitments arising from our contractual obligations at December 31, 2015 (in thousands).

 

 

Less than 1 year

 

 

1 - 3 years

 

 

4 - 5 years

 

 

5+ Years

 

 

Total

 

Principal debt payments (1)

 

$

349

 

 

$

26,263

 

 

$

-

 

 

$

22,400

 

 

$

49,012

 

Interest payments on debt (2)

 

 

4,323

 

 

 

4,016

 

 

 

3,360

 

 

 

3,360

 

 

 

15,059

 

Operating leases (3)

 

 

1,530

 

 

 

2,958

 

 

 

1,407

 

 

 

222

 

 

 

6,117

 

Software license agreement (4)

 

 

162

 

 

 

167

 

 

 

 

 

 

 

 

 

 

 

329

 

Total

 

$

6,364

 

 

$

33,404

 

 

$

4,767

 

 

$

25,982

 

 

$

70,517

 

(1)

Principal debt payments include amounts due to TriplePoint under the Amended Agri-Energy Loan Agreement and the principal amounts of the outstanding 2017 Notes and 2022 Notes.

(2)

Interest payments due to TriplePoint under the Amended Agri-Energy Loan Agreement and to holders of the 2017 Notes and 2022 Notes.

(3)

Commitments for operating leases primarily relate to our leased facility in Englewood, Colorado and our lease for rail cars for ethanol and isobutanol shipments.

(4)

Amounts due under a software license agreement.

The table above reflects only payment obligations that are fixed and determinable. The above amounts exclude potential payments to be made under our license and other agreements that are based on the achievement of future milestones or royalties on product sales.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any relationships with unconsolidated entities, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recent Accounting Pronouncements

See Note 2 in Item 8. “Financial Statements and Supplemental Data,” of this Report, for a discussion of recent accounting pronouncements.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Commodity Price Risk

We have produced isobutanol, ethanol and distiller’s grains from corn and our business is sensitive to changes in the price of corn. The price of corn is subject to fluctuations due to unpredictable factors such as weather, corn planted and harvested acreage, changes in national and global supply and demand and government programs and policies. We use natural gas during the production of isobutanol and ethanol and, as a result, our business is also sensitive to changes in the price of natural gas. The price of natural gas is influenced by such weather factors as extreme heat or cold in the summer and winter, or other natural events like hurricanes in the spring, summer and fall. Other natural gas price factors include North American exploration and production, and the amount of natural gas in underground storage during both the injection and withdrawal seasons. Ethanol, isobutanol and hydrocarbon prices are sensitive to world crude oil supply and demand, crude oil refining capacity and utilization, government regulation and consumer demand for alternative fuels. Distiller’s grains prices are sensitive to various demand factors such as numbers of livestock on feed, prices for feed alternatives and supply factors, primarily production by ethanol plants and other sources.

Historically, we have attempted to reduce the market risk associated with fluctuations in the price of corn by employing a variety of risk management and economic hedging strategies. Strategies include the use of forward purchase contracts and exchange-traded futures contracts. Exchange-traded futures contracts for corn are recorded as a derivative asset or liability on our consolidated balance sheets at fair value. Changes in the fair value during a reporting period are recognized as cost of goods sold in our consolidated statements of operations.  

In June 2015, Agri-Energy, LLC, our wholly-owned subsidiary, entered into a Price Risk Management, Origination and Merchandising Agreement, as amended as of December 21, 2017 (the “Origination Agreement”) with FCStone Merchant Services, LLC (“FCStone”) and a Grain Bin Lease


Agreement with FCStone, as amended as of December 21, 2017 (the “Lease Agreement”). Pursuant to the Origination Agreement, FCStone will originate and sell to Agri-Energy, the owner of the Luverne Facility, and Agri-Energy will purchase from FCStone, the entire volume of corn grain used by our plantthe Luverne Facility in Luverne, Minnesota. The initial term of the Origination Agreement will continue for a period of eighteen months and will automatically renew for additional terms of one year unless Agri-Energy gives notice of non-renewal to FCStone. FCStone will receive an origination fee for purchasing and supplying Agri-EnergyLuverne with all of the corn used by Agri-Energy’s plant inthe Luverne Minnesota.Facility. As security for the payment and performance of all indebtedness, liabilities and obligations of Agri-Energy to FCStone, Agri-Energy granted to FCStone a security interest in the corn grain stored in grain storage bins owned and operated by Agri-Energy (“Storage Bins”) and leased to FCStone pursuant to the Lease Agreement. Pursuant to the Lease Agreement, FCStone will lease Storage Bins from Agri-Energy to store the corn grain prior to title of the corn grain transferring to Agri-Energy upon Agri-Energy’s purchase of the corn grain. FCStone agrees to lease Storage Bins sufficient to store 700,000 bushels of corn grain and agrees to pay to Agri-Energy $175,000 per year.grain. The term of the Lease Agreement will run concurrently with the Origination Agreement, and will be extended, terminated, or expire in accordance with the Origination Agreement. The CompanyGevo also entered into an unsecured guaranty (the “Guaranty”) in favor of FCStone whereby the CompanyGevo guaranteed the obligations of Agri-Energy to FCStone under the Origination Agreement. The Guaranty shall terminate on the earlier to occur of (i) April 15, 2020 or (ii) termination of the Origination Agreement.


Equity Price Risk

2022 Notes.2020 Notes Embedded Derivative. As of December 31, 2015,2017, we had $22.4$16.7 million in principal amount of 2022the 2020 Notes, due July 1, 2022. We are subject to equity price risk related to the Coupon Make-Whole Payment feature of this debt. If a holder elects to convert its 2022 Notes prior to July 1, 2017, such holder shall be entitled to receive, in addition to the consideration upon conversion, a Coupon Make-Whole Payment. The Coupon Make-Whole Payment is equal to the sumMarch 15, 2020. A component of the present values of the number of semi-annual interest payments that would have2020 Notes includes an embedded holder conversion option, which has been payable on the 2022 Notes thataccounted for as a holder has elected to convertseparate instrument from the last day throughhost 2020 Notes, representing a $5.2 million liability as of 12/31/2017. The change in the estimated fair value, which interest was paid up to but excluding July 1, 2017, computed using a discount rate of 2%.  We may pay any Coupon Make-Whole Payment eitheris determined in cash or in shares of common stock at our election. If we elect to pay in common stock, the stock will be valued at 90% of the average of the daily volume weighted average prices of our common stock for the 10 trading days preceding the date of conversion. Accordingly,part based upon the numberquoted market prices of semi-annual interest payments currently due upon a conversion, at a $0.6644 daily volume weighted averagethe underlying common stock price (the daily volume weighted average prices of our common stock for the 10 trading days up to and including December 31, 2015), if we elected to settle the Coupon Make-Whole Payment components of all conversions, we would be required to issue 1,404,539 shares to settle the Coupon Make-Whole Payment upon conversion of the principal amount of 2022 Notes outstanding as of December 31, 2015.

The 2022 Notes include terms that are considered to beCompany, represents an embedded derivative, including the Coupon Make-Whole Payment (see Note 6). On a quarterly basis, we are required to record this embedded derivative at fair value with the changes being recorded as a component ofunrealized gain or loss included in our consolidated statementsstatement of operations. Accordingly, our results of operations are subject to exposure associated with increases or decreases in the estimated fair value of ourthe 2020 Notes embedded derivative.

2017 Notes. As of December 31, 2015, we had $26.1 million in principal amount of 2017 Notes due March 15, 2017. We are subject to equity price risk related to the following as described in the 2017 Notes Indenture.  The make-whole provision of the 2017 Notes has no equity price risk since the conversion price is fixed as 17.3611.  If our common stock trades above $16.50, the interest is payable 5% in cash and 5% in kind and capitalized and added to the principal amount of the 2017 Notes (otherwise the full 10% is payable in cash). Changes to the equity price impacts  the fair value accounting treatment of the 2017 notes, as described in Note 18 in Item 8. Financial Statements and Supplemental Data, of this Report.

Warrants. As of December 31, 2015,2017, there were 6,529,00055,774 shares underlying the 2013 Warrants, 19,462 shares underlying the 2014 Warrants, 11,417 shares underlying the Series EA Warrants, 10,050,00021,500 shares underlying the Series C Warrants, 930 shares underlying the Series D Warrants, 430,000280,787 shares underlying the Series CF Warrants, 1,894,997712,503 shares underlying the Series AJ Warrants, 389,2296,090,000 shares underlying the 2014 Warrants and 1,115,490 shares underlying the 2013Series J Warrants, respectively that are derivative instruments and are recorded at an estimated fair value each reporting period. The change in the estimated fair value, which is determined in part based upon the quoted market prices of the Warrants, represents an unrealized gain or loss included in our consolidated statement of operations. Accordingly, our results of operations are subject to exposure associated with increases or decreases in the estimated fair value of the Warrants.

Refer to “Critical Accounting Policies and Estimates” included in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for an additional discussion on the impact on our results of operations associated with the embedded derivative and derivative instruments described above.


Interest Rate Risk

We had cash and cash equivalents totaling $17.0$11.6 million at December 31, 2015.2017. These amounts were invested primarily in demand deposit checking and savings accounts and are held for working capital purposes. The primary objective of our investment activities is to preserve our capital for the purpose of funding our operations and we do not enter into investments for trading or speculative purposes. Accordingly, we believe we do not have material exposure to changes in fair value as a result of changes in interest rates.

The terms of our TriplePoint secured debt, 2017 Notes and 20222020 Notes provide for fixed rates of interest, and are therefore not subject to fluctuations in market interest rates.

The valuations of the 2017 Notes and the embedded derivative within the 2022our 2020 Notes both use the risk-free interest rate as an input, so the valuations are subject to interest rate risk.

 

 

 


Item 8.

Financial Statements and Supplementary Data

Index to Gevo, Inc. Consolidated Financial Statements

 

 

Page

Report of Independent Registered Public Accounting Firm

7771

Consolidated Balance Sheets

7972

Consolidated Statements of Operations

8073

Consolidated Statements of Stockholders’ Equity

8174

Consolidated Statements of Cash Flows

8275

Notes to Consolidated Financial Statements

8578

 

 

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the

Board of Directors and Stockholders

Gevo, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheetsheets of Gevo, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2015,2017 and 2016, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the yearthree years in the period ended December 31, 2015. These financial statements are2017, and the responsibility ofrelated notes (collectively referred to as the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States)“financial statements”). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gevo, Inc. and subsidiariesthe Company as of December 31, 2015,2017 and 2016, and the results of theirits operations and theirits cash flows for each of the yearthree years in the period ended December 31, 2015,2017, in conformity with accounting principles generally accepted in the United States of America.

Going concern uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and incurred a net loss of $25 million during the amountyear ended December 31, 2017. As of December 31, 2017 and the date of this report, the Company’s existing working capital at December 31, 2015, is not sufficient to meet the cash requirements to fund planned operations through December 31, 2016,March 28, 2019 without additional sources of cash, which raisesdebt or equity. These conditions, along with other matters as set forth in Note 1, raise substantial doubt about the Company’s ability to continue as a going concern. Management'sManagement’s plans concerningin regard to these matters are also described in Note 1 to the consolidated financial statements.1. As described in Note 8 to the consolidated financial statements, these matters may also potentially affect the Company’s rights and obligations under certain of its debt agreements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We also have audited the adjustments to the 2014 and 2013 financial statements to retrospectively apply the reverse stock split transaction described in Note 9. In ourBasis for opinion such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2014 or 2013 financial statements other than with respect to such adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2014 or 2013 financial statements taken as a whole.

/s/ GRANT THORNTON LLP

Denver, Colorado

March 30, 2016


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Gevo, Inc.

Englewood, CO

We have audited, before the effects of the adjustments to retrospectively reflect the reverse stock split as discussed in Note 9 to the consolidated financial statements,  the accompanying consolidated balance sheets of Gevo, Inc. and subsidiaries (the “Company”) as of December 31, 2014 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2014 (the 2014 and 2013 consolidated financial statements before the effects of the adjustments for the reverse stock split as discussed in Note 9 to the consolidated financial statements are not presented herein).  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements,  before the effects of the adjustments to retrospectively reflect the reverse stock split

/s/ GRANT THORNTON LLP

We have served as discussed in Note 9 to the consolidated financial statements, present fairly, in all material respects, the financial position of Gevo, Inc. and subsidiaries as of December 31, 2014, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

The Company is engaged in conducting research and development, business development, business and financial planning, establishing its facilities, and raising capital. As discussed in Note 1 to the consolidated financial statements, attainment of profitable operations are dependent upon future events, including completion of its development activities resulting in sales of isobutanol or isobutanol-derived products and/or technology, obtaining adequate financing to complete its development activities, obtaining adequate financing to acquire access to and complete the retrofit of ethanol plants to isobutanol production, gaining  market acceptance and demand for its products and services and attracting and retaining qualified personnel.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the amount of existing working capital at December 31, 2014 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2015 without additional sources of cash, which raises substantial doubt about the Company’s ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1 to the consolidated financial statements. As described in Note 8 to the consolidated financial statements, these matters may also potentially affect the Company’s rights and obligations under certain of its debt agreements. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the reverse stock split discussed in Note 9 to the consolidated financial statements, and, accordingly, we do not express an opinion or any other form of assurance about whether such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.

/s/ DELOITTE & TOUCHE LLPauditor since 2015.

 

Denver, Colorado

March 27, 201528, 2018

 

 

 


GEVO, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

December 31,

 

 

December 31,

 

 

2015

 

 

2014

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,031

 

 

$

6,359

 

 

$

11,553

 

 

$

27,888

 

Accounts receivable

 

 

1,391

 

 

 

2,361

 

 

 

1,054

 

 

 

1,122

 

Inventories

 

 

3,487

 

 

 

4,292

 

 

 

4,362

 

 

 

3,458

 

Prepaid expenses and other current assets

 

 

731

 

 

 

732

 

 

 

712

 

 

 

850

 

Total current assets

 

 

22,640

 

 

 

13,744

 

 

 

17,681

 

 

 

33,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

76,777

 

 

 

81,240

 

 

 

70,369

 

 

 

75,592

 

Debt issue costs, net

 

 

297

 

 

 

530

 

Restricted deposits

 

 

2,611

 

 

 

2,611

 

 

 

-

 

 

 

2,611

 

Deposits and other assets

 

 

803

 

 

 

803

 

 

 

803

 

 

 

803

 

Total assets

 

$

103,128

 

 

$

98,928

 

 

$

88,853

 

 

$

112,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

7,476

 

 

$

8,588

 

 

$

4,011

 

 

$

6,193

 

Current portion of secured debt, net of $17 and $31 discount at December 31, 2015 and

2014, respectively

 

 

332

 

 

 

288

 

Current Portion of 2017 Notes recorded at fair value

 

 

-

 

 

 

25,769

 

2020 Notes embedded derivative liability

 

 

5,224

 

 

 

-

 

Derivative warrant liability

 

 

10,493

 

 

 

3,114

 

 

 

1,951

 

 

 

2,698

 

Other current liabilities

 

 

-

 

 

 

35

 

Total current liabilities

 

 

18,301

 

 

 

12,025

 

 

 

11,186

 

 

 

34,660

 

Long-term portion of secured debt, net of $2 and $18 discount at December 31, 2015 and

2014, respectively

 

 

153

 

 

 

485

 

2017 notes recorded at fair value

 

 

21,565

 

 

 

25,460

 

2022 notes, net

 

 

14,636

 

 

 

13,679

 

 

 

 

 

 

 

 

 

2020 Notes, net

 

 

13,491

 

 

 

-

 

2022 Notes, net

 

 

515

 

 

 

8,221

 

Other long-term liabilities

 

 

147

 

 

 

315

 

 

 

130

 

 

 

179

 

Total liabilities

 

 

54,802

 

 

 

51,964

 

 

 

25,322

 

 

 

43,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 18)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value per share; 250,000,000 authorized; 21,607,048 and

6,641,870 shares issued and outstanding at December 31, 2015 and 2014, respectively

 

 

216

 

 

 

66

 

Common stock, $0.01 par value per share; 250,000,000 authorized; 21,811,059 and

7,074,246 shares issued and outstanding at December 31, 2017 and 2016,

respectively. (See Note 2)

 

 

218

 

 

 

71

 

Additional paid-in capital

 

 

387,602

 

 

 

350,196

 

 

 

464,663

 

 

 

445,913

 

Deficit accumulated

 

 

(339,492

)

 

 

(303,298

)

Accumulated deficit

 

 

(401,350

)

 

 

(376,720

)

Total stockholders' equity

 

 

48,326

 

 

 

46,964

 

 

 

63,531

 

 

 

69,264

 

Total liabilities and stockholders' equity

 

$

103,128

 

 

$

98,928

 

 

$

88,853

 

 

$

112,324

 

 

TheSee the accompanying Notes are an integral part of theseto the Consolidated Financial Statements.

 

 

 


GEVO, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

 

2015

 

Revenue and cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ethanol sales and related products, net

$

27,125

 

 

$

23,549

 

 

$

-

 

$

26,279

 

 

$

24,613

 

 

$

27,125

 

Hydrocarbon revenue

 

1,694

 

 

 

3,949

 

 

 

2,157

 

 

1,029

 

 

 

1,929

 

 

 

1,694

 

Grant and other revenue

 

1,318

 

 

 

768

 

 

 

2,722

 

 

228

 

 

 

671

 

 

 

1,318

 

Corn sales

 

-

 

 

 

-

 

 

 

3,345

 

Total revenues

 

30,137

 

 

 

28,266

 

 

 

8,224

 

 

27,536

 

 

 

27,213

 

 

 

30,137

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of corn sales

 

-

 

 

 

-

 

 

 

3,391

 

Cost of goods sold

 

38,762

 

 

 

35,582

 

 

 

14,522

 

 

38,165

 

 

 

37,017

 

 

 

38,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross loss

 

(8,625

)

 

 

(7,316

)

 

 

(9,689

)

 

(10,629

)

 

 

(9,804

)

 

 

(8,625

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

6,610

 

 

 

14,120

 

 

 

20,179

 

 

5,182

 

 

 

5,216

 

 

 

6,610

 

Selling, general and administrative expense

 

16,692

 

 

 

18,341

 

 

 

25,548

 

 

7,471

 

 

 

8,965

 

 

 

16,692

 

Other operating expenses

 

-

 

 

 

-

 

 

 

99

 

Total operating expenses

 

23,302

 

 

 

32,461

 

 

 

45,826

 

 

12,653

 

 

 

14,181

 

 

 

23,302

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(31,927

)

 

 

(39,777

)

 

 

(55,515

)

 

(23,282

)

 

 

(23,985

)

 

 

(31,927

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(8,243

)

 

 

(8,255

)

 

 

(9,301

)

 

(2,951

)

 

 

(7,837

)

 

 

(8,243

)

Interest expense - debt issue costs

 

-

 

 

 

(3,769

)

 

 

-

 

Gain (loss) on extinguishment of debt

 

232

 

 

 

-

 

 

 

(2,038

)

Gain on extinguishment of warrant liability

 

1,775

 

 

 

-

 

 

 

-

 

Gain from change in fair value of embedded derivative of the 2022 Notes

 

-

 

 

 

3,470

 

 

 

3,114

 

Gain (loss) from change in fair value of derivative warrant liability

 

577

 

 

 

6,530

 

 

 

(3,195

)

Gain from change in fair value of 2017 Notes

 

3,895

 

 

 

648

 

 

 

-

 

(Loss)/Gain on exchange or conversion of debt

 

(4,933

)

 

 

(763

)

 

 

232

 

(Loss)/Gain on extinguishment of warrant liability

 

-

 

 

 

(918

)

 

 

1,775

 

Gain from change in fair value of 2020 Notes embedded derivative

 

1,751

 

 

 

-

 

 

 

-

 

Gain from change in fair value of derivative warrant liability

 

5,101

 

 

 

1,783

 

 

 

577

 

(Loss)/Gain from change in fair value of 2017 Notes

 

(339

)

 

 

(4,204

)

 

 

3,895

 

Loss on issuance of equity

 

(2,523

)

 

 

-

 

 

 

-

 

 

-

 

 

 

(1,519

)

 

 

(2,523

)

Other income

 

20

 

 

 

8

 

 

 

129

 

 

23

 

 

 

215

 

 

 

20

 

Total other (expense) income

 

(4,267

)

 

 

(1,368

)

 

 

(11,291

)

 

(1,348

)

 

 

(13,243

)

 

 

(4,267

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(36,194

)

 

$

(41,145

)

 

$

(66,806

)

$

(24,630

)

 

$

(37,228

)

 

$

(36,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

$

(2.58

)

 

$

(7.67

)

 

$

(22.23

)

$

(1.51

)

 

$

(9.68

)

 

$

(51.61

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding - basic and diluted

 

14,025,048

 

 

 

5,366,162

 

 

 

3,004,775

 

 

16,295,937

 

 

 

3,847,421

 

 

 

701,252

 

 

TheSee the accompanying Notes are an integral part of theseto the Consolidated Financial Statements.

 

 

 


GEVO, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

Common Stock

 

 

Paid-In

 

 

Deficit

 

 

Stockholders’

 

Shares

 

 

Amount

 

 

Capital

 

 

Accumulated

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—December 31, 2012

 

2,640,445

 

 

$

26

 

 

$

293,152

 

 

$

(195,347

)

 

$

97,831

 

Issuance of restricted stock

 

78,052

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

Cancellation of restricted stock

 

(15,853

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for services, upon exercise of stock options and

pursuant to an employee stock purchase plan

 

34,141

 

 

 

-

 

 

 

745

 

 

 

-

 

 

 

745

 

Non-cash stock-based compensation

 

-

 

 

 

-

 

 

 

3,911

 

 

 

-

 

 

 

3,911

 

Issuance of common stock, net of issue costs and warrants

 

1,420,250

 

 

 

14

 

 

 

22,317

 

 

 

-

 

 

 

22,331

 

Modification of warrants

 

-

 

 

 

-

 

 

 

179

 

 

 

-

 

 

 

179

 

Issuance of common stock upon conversion of debt

 

409,159

 

 

 

4

 

 

 

12,780

 

 

 

-

 

 

 

12,784

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(66,806

)

 

 

(66,806

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—December 31, 2013

 

4,566,193

 

 

$

45

 

 

$

333,083

 

 

$

(262,153

)

 

$

70,975

 

Issuance of restricted stock

 

75,872

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

Issuance of common stock, net of issue costs and warrants

 

2,000,000

 

 

 

20

 

 

 

14,203

 

 

 

-

 

 

 

14,223

 

Cancellation of restricted stock

 

(4,403

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for services, upon exercise of stock options and

pursuant to an employee stock purchase plan

 

4,208

 

 

 

-

 

 

 

51

 

 

 

-

 

 

 

51

 

Non-cash stock-based compensation

 

-

 

 

 

-

 

 

 

2,860

 

 

 

-

 

 

 

2,860

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(41,145

)

 

 

(41,145

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

BALANCE—December 31, 2014

 

6,641,870

 

 

$

66

 

 

$

350,196

 

 

$

(303,298

)

 

$

46,964

 

 

332,094

 

 

$

3

 

 

$

350,259

 

 

$

(303,298

)

 

$

46,964

 

Shares issued upon reverse stock split

 

683

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

34

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of restricted stock

 

475,829

 

 

 

5

 

 

 

(5

)

 

 

-

 

 

 

-

 

 

23,791

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock, net of issue costs and warrants

 

8,566,667

 

 

 

86

 

 

 

22,360

 

 

 

-

 

 

 

22,446

 

 

428,333

 

 

 

4

 

 

 

22,442

 

 

 

-

 

 

 

22,446

 

Cancellation of restricted stock

 

(741

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

(37

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock for services, upon exercise of stock options and

pursuant to an employee stock purchase plan

 

764

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

3

 

 

38

 

 

 

-

 

 

 

3

 

 

 

-

 

 

 

3

 

Non-cash stock-based compensation

 

-

 

 

 

-

 

 

 

2,647

 

 

 

-

 

 

 

2,647

 

 

-

 

 

 

-

 

 

 

2,647

 

 

 

-

 

 

 

2,647

 

Issuance of common stock upon exercise of warrants

 

4,644,102

 

 

 

46

 

 

 

10,120

 

 

 

-

 

 

 

10,166

 

 

232,205

 

 

 

2

 

 

 

10,164

 

 

 

-

 

 

 

10,166

 

Issuance of common stock upon conversion of debt

 

170,041

 

 

 

2

 

 

 

712

 

 

 

-

 

 

 

714

 

 

8,502

 

 

 

-

 

 

 

714

 

 

 

-

 

 

 

714

 

Issuance of common stock upon exchange of debt

 

1,107,833

 

 

 

11

 

 

 

1,569

 

 

 

-

 

 

 

1,580

 

 

55,392

 

 

 

1

 

 

 

1,579

 

 

 

-

 

 

 

1,580

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(36,194

)

 

 

(36,194

)

 

-

 

 

 

-

 

 

 

-

 

 

 

(36,194

)

 

 

(36,194

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—December 31, 2015

 

21,607,048

 

 

$

216

 

 

$

387,602

 

 

$

(339,492

)

 

$

48,326

 

 

1,080,352

 

 

$

10

 

 

$

387,808

 

 

$

(339,492

)

 

$

48,326

 

Shares issued upon reverse stock split

 

4

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock under stock plans, net

 

2,782

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Cancellation of restricted stock

 

(4

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock, net of issue costs & warrants

 

2,480,094

 

 

 

25

 

 

 

34,199

 

 

 

-

 

 

 

34,224

 

Non-cash stock-based compensation

 

-

 

 

 

-

 

 

 

886

 

 

 

-

 

 

 

886

 

Issuance of common stock upon exercise of warrants

 

2,559,218

 

 

 

26

 

 

 

12,272

 

 

 

-

 

 

 

12,298

 

Issuance of common stock upon exchange of debt

 

951,800

 

 

 

10

 

 

 

10,748

 

 

 

-

 

 

 

10,758

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(37,228

)

 

 

(37,228

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—December 31, 2016

 

7,074,246

 

 

$

71

 

 

$

445,913

 

 

$

(376,720

)

 

$

69,264

 

Issuance of common stock under stock plans, net

 

3,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of common stock, net of issue costs & warrants

 

5,680,000

 

 

 

56

 

 

 

6,339

 

 

 

-

 

 

 

6,395

 

Non-cash stock-based compensation

 

-

 

 

 

-

 

 

 

421

 

 

 

-

 

 

 

421

 

Issuance of common stock upon exercise of warrants

 

6,160,000

 

 

 

62

 

 

 

3,367

 

 

 

-

 

 

 

3,429

 

Issuance of common stock upon exchange of debt

 

2,893,813

 

 

 

29

 

 

 

8,623

 

 

 

-

 

 

 

8,652

 

Net loss

 

-

 

 

 

-

 

 

 

-

 

 

 

(24,630

)

 

 

(24,630

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE—December 31, 2017

 

21,811,059

 

 

$

218

 

 

$

464,663

 

 

$

(401,350

)

 

$

63,531

 

 

TheSee the accompanying Notes are an integral part of theseto the Consolidated Financial Statements.

 

 

 

 


GEVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)  

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2015

 

Operating Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(36,194

)

 

$

(41,145

)

 

$

(66,806

)

$

(24,630

)

 

$

(37,228

)

 

$

(36,194

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) loss from change in fair value of derivative warrant liability

 

(577

)

 

 

(6,530

)

 

 

3,195

 

Gain from change in fair value of embedded derivative of the 2022 Notes

 

-

 

 

 

(3,470

)

 

 

(3,114

)

Gain from change in fair value of 2017 Notes

 

(3,895

)

 

 

(648

)

 

 

-

 

(Gain) from the change in fair value of derivative warrant liability

 

(5,101

)

 

 

(1,783

)

 

 

(577

)

(Gain) from the change in fair value of the embedded derivative to the

2020 Notes

 

(1,751

)

 

 

-

 

 

 

-

 

Loss from the change in fair value of 2017 Notes

 

339

 

 

 

4,204

 

 

 

(3,895

)

Loss/(Gain) on exchange or conversion of debt

 

4,933

 

 

 

763

 

 

 

(232

)

Loss/(Gain) on extinguishment of warrant liability

 

-

 

 

 

918

 

 

 

(1,775

)

Loss on issuance of equity

 

-

 

 

 

1,519

 

 

 

2,523

 

Stock-based compensation

 

2,647

 

 

 

2,860

 

 

 

3,911

 

 

421

 

 

 

886

 

 

 

2,647

 

Depreciation and amortization

 

6,573

 

 

 

4,880

 

 

 

3,393

 

 

6,641

 

 

 

6,747

 

 

 

6,573

 

Non-cash interest expense

 

3,772

 

 

 

7,860

 

 

 

4,719

 

 

962

 

 

 

3,977

 

 

 

3,772

 

(Gain) loss on extinguishment of debt

 

(232

)

 

 

-

 

 

 

2,038

 

Gain on extinguishment of warrant liability

 

(1,775

)

 

 

-

 

 

 

-

 

Loss from change in fair value of derivatives

 

-

 

 

 

-

 

 

 

259

 

Loss on issuance of equity

 

2,523

 

 

 

-

 

 

 

-

 

Other non-cash expenses

 

(7

)

 

 

66

 

 

 

991

 

 

-

 

 

 

(1

)

 

 

(7

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

970

 

 

 

(1,003

)

 

 

(660

)

 

68

 

 

 

269

 

 

 

970

 

Inventories

 

805

 

 

 

(711

)

 

 

2,148

 

 

(904

)

 

 

29

 

 

 

805

 

Prepaid expenses and other current assets

 

1

 

 

 

431

 

 

 

297

 

 

137

 

 

 

(119

)

 

 

1

 

Accounts payable, accrued expenses, and long-term liabilities

 

(2,771

)

 

 

(1,580

)

 

 

2,581

 

 

(1,742

)

 

 

(697

)

 

 

(2,771

)

Net cash used in operating activities

 

(28,160

)

 

 

(38,990

)

 

 

(47,048

)

 

(20,627

)

 

 

(20,516

)

 

 

(28,160

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions of property, plant and equipment

 

(1,464

)

 

 

(4,894

)

 

 

(9,806

)

 

(1,906

)

 

 

(5,938

)

 

 

(1,464

)

Restricted certificate of deposit

 

-

 

 

 

(2,611

)

 

 

-

 

Proceeds from sales tax refund for property, plant and equipment

 

144

 

 

 

-

 

 

 

2,006

 

 

-

 

 

 

-

 

 

 

144

 

Other

 

-

 

 

 

-

 

 

 

125

 

Net cash used in investing activities

 

(1,320

)

 

 

(7,505

)

 

 

(7,675

)

$

(1,906

)

 

$

(5,938

)

 

$

(1,320

)

 

TheSee the accompanying Notes are an integral part of theseto the Consolidated Financial Statements.

 

 

 


GEVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(In thousands)

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

 

2015

 

Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on secured debt

 

(318

)

 

 

(9,824

)

 

 

(14,529

)

$

(9,791

)

 

$

(504

)

 

$

(318

)

Debt and equity offering costs

 

(3,519

)

 

 

(5,873

)

 

 

(1,711

)

 

(1,095

)

 

 

(3,144

)

 

 

(3,519

)

Proceeds from issuance of common stock upon exercise of stock options

and employee stock purchase plan

 

3

 

 

 

19

 

 

 

262

 

 

-

 

 

 

-

 

 

 

3

 

Proceeds from issuance of common stock and common stock warrants

 

33,820

 

 

 

18,000

 

 

 

28,761

 

 

11,044

 

 

 

28,661

 

 

 

33,820

 

Proceeds from issuance of convertible debt, net

 

-

 

 

 

25,907

 

 

 

-

 

Deposit on secured debt and other

 

-

 

 

 

-

 

 

 

(179

)

Release of restricted cash held as collateral on 2017 notes

 

2,611

 

 

 

-

 

 

 

-

 

Proceeds from the exercise of warrants

 

10,166

 

 

 

-

 

 

 

-

 

 

3,429

 

 

 

12,298

 

 

 

10,166

 

Net cash provided by financing activities

 

40,152

 

 

 

28,229

 

 

 

12,604

 

 

6,198

 

 

 

37,311

 

 

 

40,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

10,672

 

 

 

(18,266

)

 

 

(42,119

)

 

(16,335

)

 

 

10,857

 

 

 

10,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of year

 

6,359

 

 

 

24,625

 

 

 

66,744

 

 

27,888

 

 

 

17,031

 

 

 

6,359

 

Ending of year

$

17,031

 

 

$

6,359

 

 

$

24,625

 

$

11,553

 

 

$

27,888

 

 

$

17,031

 

 

TheSee the accompanying Notes are an integral part of theseto the Consolidated Financial Statements.

 

 

 


GEVO, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(In thousands)

 

Supplemental disclosures of cash and non-cash investing

Year Ended December 31,

 

and financing transactions

2015

 

 

2014

 

 

2013

 

Conversion of convertible debt to common stock

$

2,000

 

 

$

-

 

 

$

12,784

 

Cash paid for interest, net of interest capitalized

$

4,589

 

 

$

4,213

 

 

$

4,463

 

Capitalization of interest, from term to 2017 convertible notes

$

-

 

 

$

201

 

 

$

-

 

Non-cash purchase of property, plant and equipment

$

890

 

 

$

108

 

 

$

2,453

 

Accrued offering costs

$

648

 

 

$

-

 

 

$

671

 

Issuance of common stock for services

$

-

 

 

$

31

 

 

$

483

 

Modification of warrants

$

-

 

 

$

-

 

 

$

179

 

2013 Warrants issuance

$

-

 

 

$

-

 

 

$

4,048

 

2014 Warrants issuance

$

-

 

 

$

2,400

 

 

$

-

 

2015 Series A Warrant issuance

$

1,437

 

 

$

-

 

 

$

-

 

2015 Series B Warrant issuance

$

2,528

 

 

$

-

 

 

$

-

 

2015 Series C Warrant issuance

$

1,299

 

 

$

-

 

 

$

-

 

2015 Series D Warrant issuance

$

5,729

 

 

$

-

 

 

$

-

 

2015 Series E Warrant issuance

$

5,361

 

 

$

-

 

 

$

-

 

Exchange of convertible notes for common stock

$

2,500

 

 

$

-

 

 

$

-

 

Supplemental disclosures of cash and non-cash investing

Year Ended December 31,

 

and financing transactions

2017

 

 

2016

 

 

2015

 

Conversion and exchanges of convertible debt for common stock

$

8,652

 

 

$

10,758

 

 

$

2,294

 

Cash paid for interest

 

2,554

 

 

 

3,694

 

 

 

4,642

 

Non-cash purchase of property, plant and equipment

 

27

 

 

 

513

 

 

 

890

 

Discount due to exchange of 2017 Notes for 2020 Notes

 

3,009

 

 

 

-

 

 

 

-

 

Fair value of 2020 Notes embedded derivative upon exchange

 

6,975

 

 

 

-

 

 

 

-

 

Accrued offering costs

 

-

 

 

 

-

 

 

 

648

 

Fair value of warrants at issuance and upon exercise, net

 

(4,353

)

 

 

6,668

 

 

 

(7,951

)

 

TheSee the accompanying Notes are an integral part of theseto the Consolidated Financial Statements.

 

 

 

8477


GEVO, INC.

Notes to Consolidated Financial Statements

1. Nature of Business and Financial Condition

Nature of Business. Gevo, Inc. (“Gevo” or the “Company,” which, unless otherwise indicated, refers to Gevo, Inc. and its subsidiaries) is a renewable chemicals and next generation biofuels company focused on the development and commercialization of alternatives to petroleum-based products based onusing isobutanol produced from renewable feedstocks. Gevo Inc. was incorporated in Delaware on June 9, 2005. Gevo Inc. formed Gevo Development, LLC (“Gevo Development”) in September 2009 to finance and develop biorefineries through joint venture, licensing arrangements, tolling arrangements or direct acquisition (see Note 13 for more information on8 Gevo Development). Gevo Development became a wholly-owned subsidiary of the CompanyGevo in September 2010. Gevo Development purchased Agri-Energy, LLC (“Agri-Energy”) in September 2010.

The Company developed proprietary technology that uses a combination of synthetic biology, metabolic engineering, chemistry and chemical engineering to make isobutanol and hydrocarbon products from isobutanol that can displace petrochemical incumbent products. The Company has been able to genetically engineer yeast, whereby the yeast produces isobutanol from carbohydrates. Through May 2012, Agri-Energy a wholly-owned subsidiary of Gevo Development, was engaged in the business of producing and selling ethanol and related products produced at its plantproduction facility located in Luverne, Minnesota (the “Agri-Energy“Luverne Facility”). The Company commenced the retrofit of the Agri-EnergyLuverne Facility in 2011 and commenced initial startup operations for the commercial production of isobutanol at this facility in May 2012.  In September 2012, the Company made the strategic decision to pause isobutanol production at the Agri-EnergyLuverne Facility to focus on optimizing specific parts of the process to further enhance isobutanol production rates.  

In 2013, the Company modified the Agri-EnergyLuverne Facility in order to increase the isobutanol production rate. In June 2013, the Company resumed the limited production of isobutanol, operating one fermenter and one Gevo Integrated Fermentation Technology® (“GIFT®”) separation system in order to (i) verify that the modifications had significantly reduced thereduce previously identified infections, (ii) demonstrate that its biocatalyst performs in the one million liter fermenters at the Agri-EnergyLuverne Facility, and (iii) confirm GIFT® efficacy at commercial scale at the Agri-EnergyLuverne Facility.  

In August 2013, the Company expanded production capacity at the Agri-Energy Facility by adding a second fermenter and second GIFT® system to further verify its results with a second configuration of equipment.  In October 2013, the Company began commissioning the Agri-Energy Facility on corn mash to test isobutanol production run rates and to optimize biocatalyst production, fermentation separation and water management systems.  In March 2014, the Company decidedfurther reconfigured the Luverne Facility to leverageenable the co-production of both isobutanol and ethanol, leveraging the flexibility of its GIFT®GIFT™ technology, and make further modifications to the Agri-Energy Facility which it believed would enable the simultaneous production of isobutanol and ethanol. In July 2014, the Company began more consistent co-production of isobutanol and ethanol at the Agri-Energy Facility, with one fermenter utilized for isobutanol production and three fermenters utilized for ethanol production. In line with the Company’s strategy to maximize asset utilization and site cash flows, the Company believes that this configuration of the plantLuverne Facility should allow it to continue to optimize its isobutanol technology at a commercial scale, while taking advantage of potentially superior ethanol contribution margins. As a result, during certain periods the Company may only produce ethanol at the Luverne Facility. In addition, the condition of two of the Luverne Facility’s oldest fermentation vessels may limit the Company’s ability to co-produce isobutanol and ethanol. Therefore, the Company expects to focus on the production of ethanol and produce limited volumes of isobutanol until one or both of these fermentation vessels have been repaired or replaced.

The Company’s technology converts its renewable isobutanol to alcohol-to-jet (“ATJ”), isooctane, isooctene, and para-xylene (building block for polyester) at its hydrocarbons demonstration plant located at South Hampton Resources located in Silsbee, TX. In addition the Company’s Luverne Facility has production capacity of about 20 MGPY of ethanol, 45-50 kilotons (“KT”) of animal feed, and 3 million pounds of corn oil.

As of December 31, 2015,2017, the Company continues to engage in research and development, business development, business and financial planning, and to optimizeoptimizing operations for isobutanol, hydrocarbon and ethanol production at the Agri-Energy Facility and raise capital.capital to fund future expansion of its Luverne Facility for increased isobutanol and hydrocarbon production. Ultimately, the Company believes that the attainment of profitable operations is dependent upon future events, including (i) completing its development activities resulting in commercial production and sales of isobutanol or isobutanol-derived products and/or technology, (ii) obtaining adequate financing to complete its development activities, (iii) obtaining adequate financing to build out further isobutanol and hydrocarbon production capacity, (iv) gaining market acceptance and demand for its products and services, and (v) attracting and retaining qualified personnel.

The Company has primarily derived revenue from the sale of ethanol, distiller’s grains and other related products produced as part of the ethanol production process at the Agri-Energy Facility. The production of ethanol alone is not the Company’s intended business and its future strategy is expected to depend on its ability to produce and market isobutanol and products derived from isobutanol. Given that the production of ethanol alone is not the Company’s intended business, and the Company is only beginning to achieve more consistent production and revenue from the sale of isobutanol, the historical operating results of Agri-Energy may not be indicative of future operating results for Agri-Energy or Gevo.

Financial Condition. For the yeartwelve months ended December 31, 2015,2017 and 2016, the Company incurred a consolidated net loss of $36.2$24.6 million and $37.2 million, respectively, and had an accumulated deficit of $339.5 million.$401.4 million at December 31, 2017. The Company’s cash and cash equivalents at December 31, 20152017 totaled $17.0$11.6  million which is primarily beingand are expected to be used for the following:following purposes: (i) operating activities and completion of the side-by-side configuration of the Agri-EnergyLuverne Facility; (ii) operating activities at itsthe Company’s corporate headquarters in Colorado, including research and development work; (iii) capital improvements primarily associated with its Agri-Energythe Luverne Facility; (iv) costs associated with optimizing isobutanol production technology; (v) exploration of strategic alternatives and (v)new financings; and (vi) debt service  and repayment 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 multiple sales of equity and debt securities, borrowings under debt facilities and product sales. The Company’s transitiontransition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability or positive cash flows, and unless

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Notes to Consolidated Financial Statements (Continued)

and until it does, the Company will continue to need to raise additional cash. Management intends to fundfund 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, it may seek to restructure its secured debt 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. Based on the Company’s operating plan, existingExisting working capital at

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Notes to Consolidated Financial Statements (Continued)

December 31, 2015 was not sufficient to meet the cash requirements to fund planned operations through December 31, 2016 without additional sources of cash.the period that is one year after the date the Company’s audited 2017 year-end financial statements were issued.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern at December 31, 2015.concern. The Company’s inability to continue as a going concern may potentially affect the Company’s rights and obligations under its Senior Secured Debt, Secured Debtsenior secured debt and Convertible Notes.issued and outstanding convertible notes. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include adjustments that might result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of liabilities in the normal course of business.  See Note 8

Reverse Stock Split. On December 21, 2016, the Board of Directors approved an amendment to its Amended and Restated Certificate of Incorporation to effect a one-for-twenty reverse stock split of the Company’s common stock, par value $0.01 per share. The reverse stock split became effective January 5, 2017. Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

NASDAQ Market Price Compliance. On June 21, 2017, the Company received a deficiency letter from the Listing Qualifications Department of the Nasdaq Stock Market, notifying us that, for informationthe prior 30 consecutive business days, the closing bid price of our common stock was not maintained at the minimum required closing bid price of at least $1.00 per share as required for continued listing on the Company’s debt obligations.  Nasdaq Capital Market. In accordance with Nasdaq Listing Rules, the Company had an initial compliance period of 180 calendar days, to regain compliance with this requirement. On December 20, 2017, the Nasdaq Stock Market granted us an additional 180 calendar days, or until June 18, 2018, to regain compliance. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before June 18, 2018. The Nasdaq determination to grant the second compliance period was based on our meeting of the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the exception of the bid price requirement, and our written notice of our intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

 

  

 

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 Development and Agri-Energy, LLC) 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. 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, 2017.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 checkingdemand 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.

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, 20152017 and 2014,2016, no allowance for doubtful accounts has been recorded, based upon the

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GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

expected full collection of the accounts receivable. As of December 31, 2017 and 2016, one customer, C&N Ethanol Marketing, LLC comprised 78% and 53%, respectively, of our outstanding trade accounts receivable.

Inventories. Inventory is recorded at the lower of cost or marketnet realizable value per ASU 2015-11 and cost of goods sold is determined by average cost method. Ethanol and isobutanol inventory cost consists of the applicable share of raw material, direct labor and manufacturing overhead costs.

Restricted Deposits. The Company maintains a restricted deposit related to the 2017 Notes (defined below) that is equivalent to ten percent Spare Parts inventory consists of the principal balance.parts required to maintain and operate the Company’s Luverne Facility and is recorded at cost.


 

Derivative Instruments. The Company evaluates its contracts for potential derivatives.derivatives which Gevo, Inc. uses to raise capital. See Note 6 for a description of the Company’s accounting for embedded derivatives and Note 7 for a description of the Company’s derivative warrant liability. At issuance date, derivative warrant liabilities are initially recognized as a liability with a corresponding reduction in stockholders’ equity. Changes in the estimated fair value of the derivative warrant liability between issuance date and exercise/expiration date represents an unrealized (gain)/loss and is recognized and recorded in the Consolidated Statement of Operations.  The fair value of the derivative warrant liability is ultimately either re-classed into equity upon either exercise or, if expired, a realized (gain)/loss is recognized and recorded in the Consolidated Statement of Operation.

As of December 31, 20152017 and 2014,2016, the Company did not have any forward purchase contracts or exchange-traded futures contracts.

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.

The Company has capitalized interest incurred for qualifying capital projects at its Agri-Energy Facility during the period of construction through the date such projects become substantially complete.  During the year ended December 31, 2013, the Company capitalized interest of $1.8 million. No interest was capitalized during the years ended December 31, 2015 or 2014.

Impairment of Property, Plant and Equipment. The Company’s property, plant and equipment consist primarily of assets associated with the acquisition and retrofit of the Agri-EnergyLuverne Facility. The Company assesses impairment of property, plant and equipment for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate, or legal or regulatory factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; or expectations that the asset will more likely than not be

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Notes to Consolidated Financial Statements (Continued)

sold or disposed of significantly before the end of its estimated useful life. 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.

The Company evaluated its Agri-EnergyLuverne Facility for impairment as of December 31, 20152017 and 2014.2016. These evaluations included comparing the carrying amount of the acquisition and retrofit of the Agri-EnergyLuverne Facility to the estimated undiscounted future cash flows at the Agri-EnergyLuverne Facility as this represents the lowest level of identifiable cash flows. Significant assumptions included in the estimated undiscounted future cash flows include, among others, estimates of the:

sales price of isobutanol and by-products such as dried distiller’s grains;

sales price of isobutanol, hydrocarbons, ethanol and by-products such as dried distiller’s grains;

purchase price of corn;

purchase price of corn;

production levels of isobutanol;

production levels of isobutanol;

capital and operating costs to produce isobutanol; and

capital and operating costs to produce isobutanol; and

estimated useful life of the primary asset.  

estimated useful life of the primary asset.

Factors which can impact these assumptions include, but are not limited to;

effectiveness of the Company’s technology to produce isobutanol at targeted margins;

effectiveness of the Company’s technology to produce isobutanol at targeted margins;

demand for isobutanol and oil prices; and

demand for isobutanol and oil prices; and

harvest levels of corn.

harvest levels of corn.

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GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Based upon the Company’s evaluation at December 31, 20152017 and 2014,2016, the Company concluded that the estimated undiscounted future cash flows from the Agri-EnergyLuverne Facility exceeded the carrying value and, as such, these assets were not impaired. Although the Company’s cash flow forecasts are based on assumptions that are consistent with its planned use of the assets, these estimates required significant exercise of judgment and are subject to change in future reporting periods as facts and circumstances change. Additionally, the Company may make changes to its business plan that could result in changes to the expected cash flows. As a result, it is possible that a long-lived asset may be impaired in future reporting periods.

Debt at Fair Value Option. The Company has elected the fair value option for certain long-term debt instruments that qualify for such treatment. See Note 8 for a detailed description of the accounting for the 2017 convertible notes that are accounted for in such manner.

Debt Issue Costs. Debt issue costs are costs incurred in connection with the Company’s debt financings that primarily have been capitalized and are being amortized over the stated maturity period or estimated life of the related debt, using the effective interest method.

Revenue Recognition. The Company records revenue from the sale of hydrocarbon products, ethanol and related products, including the sale of corn inventory. The Company recognizes revenue when all of the following criteria are satisfied: persuasive evidence of an arrangement exists; risk of loss and title transfer to the customer; the price is fixed or determinable; and collectability is reasonably assured.

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 were deducted from the gross sales price at the time payment was remitted. Ethanol and related products sales were recorded net of commissions.commissions and shipping and handling costs.

Revenue related to government research grants and cooperative agreements is recognized in the period during which the related costs are incurred, provided that the conditions under the awards have been met and only perfunctory obligations are outstanding. Revenues related to the lease agreements are recognized on a straight-line basis over the term of the contract.

In 2017, 2016 and 2015, C&N Ethanol Marketing, LLC accounted for approximately 76%, 71% and 71% of our consolidated revenue, respectively.  In the same years, Land O’Lakes Purina Feed LLC accounted for approximately 17%, 17% and 19% of our consolidated revenue, respectively. Both are customers of our Gevo Development/Agri-Energy segment (see Note 17). Given the production capacity compared to the overall size of the North American market and the demand for our products, the Company does not believe that a decline in a specific customer's purchases would have a material adverse long-term effect upon our financial results.

Cost of Goods Sold. Cost of goods sold includes costs incurred in conjunction with the operations for the production of isobutanol at the Agri-EnergyLuverne Facility 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, plant utilities, including natural gas, and plant depreciation. 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 at the Agri-EnergyLuverne Facility. 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 Agri-EnergyLuverne Facility. Plant overhead costs primarily consist of plant utilities and plant depreciation.

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GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

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 to power steam generation in the production process and to dry the distiller’s grains.grains, a by-product of ethanol and related products production.

Patents. All costs related to filing and pursuing patent applications are expensed as incurred as recoverability of such expenditures is uncertain. Patent-related legal expenses incurred are recorded as selling, general and administrative expense, and during the years ended December 31, 2017, 2016 and 2015 2014 and 2013 were $0.9$0.3 million, $0.9$0.2 million, and $2.3$0.9 million, respectively.

Research and Development. Research and development costs are expensed as incurred and are recorded as research and development expense in the consolidated statementsConsolidated Statement of operations.Operations. 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, consultants and related contract research, facility costs, supplies, depreciation on property, plant and equipment used in development, 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.

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GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

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. At December 31, 20152017 and 2014,2016, based upon current facts and circumstances, the Company had recorded a valuation allowance against its deferred tax assets of $134.1$107.4 million and $119.4$139.3 million, respectively.

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”). Stock-based compensation expense for all share-based payment awards granted is based on the grant date fair value. 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 estimated 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. For performance based restricted stock awards, the Company recognizes expense over the requisite service period.

Net Loss Per Share. Basic net loss per share is computed by dividing the net loss attributable to Gevo, Inc. 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, 2015, 20142017, 2016, and 20132015 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. This table excludes any shares that could potentially be issued in settlement of make-whole payments associated with the 2017 Notes2020 and the 2022 Notes.

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

 

2015

 

Warrants to purchase common stock

 

20,492,704

 

 

 

2,504,237

 

 

 

1,504,250

 

 

7,193,766

 

 

 

1,103,766

 

 

 

1,024,635

 

Convertible 2017 notes

 

1,503,821

 

 

 

1,502,532

 

 

 

-

 

Convertible 2022 notes

 

262,333

 

 

 

315,034

 

 

 

315,034

 

Convertible 2017 Notes

 

-

 

 

 

75,119

 

 

 

75,191

 

Convertible 2020 Notes

 

28,759,675

 

 

 

-

 

 

 

-

 

Convertible 2022 Notes

 

-

 

 

 

5,608

 

 

 

13,117

 

Outstanding options to purchase common stock

 

481,786

 

 

 

244,903

 

 

 

191,438

 

 

46,431

 

 

 

16,915

 

 

 

24,089

 

Unvested restricted common stock

 

328,263

 

 

 

58,351

 

 

 

52,759

 

 

3,093

 

 

 

8,823

 

 

 

16,413

 

Total

 

23,068,907

 

 

 

4,625,057

 

 

 

2,063,481

 

 

36,002,965

 

 

 

1,210,231

 

 

 

1,153,445

 

 

The following table sets forth additional securities transactions that had they occurred in 2017 would have further diluted the calculation for earnings/ (loss) per share:

Date

Shares

Exchange of 2022 Notes

January 2018

780,303

Total

780,303

 

Recent Accounting Pronouncements

 

Revenue from Contracts with Customers (“ASU 2014-09”). In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers (“ASU 2014‑09”). The objective of ASU 2014-09 is to outline a new, single comprehensive model to

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GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

use in accounting for revenue arising from contracts with customers. The new revenue recognition model provides a five-step analysis for determining when and how revenue is recognized, depicting the transfer of promised goods or services to customers in an amount that reflects the consideration that is expected to be received in exchange for those goods or services. ASU 2014092014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is not permitted. On July 9, 2015, the FASB Board voted to delay the implementation of ASU 2014-09 by one year to December 15, 2017. In April 2016, the FASB issued Accounting Standards Update No. 2016-10 Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing (“ASU 2016-10”) which provides additional clarification regarding  Identifying Performance Obligations and LicensingThe new standard is required to be applied retrospectively to each prior

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GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. As a result of the Company’s conclusions below, there is no requirement to select a transition method, as a result of the Company determining that there is currently evaluating theno impact upon revenue recognition, historical or otherwise, as a result of adopting ASU 2014‑09.2014-09.

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) grant and other revenue, which primarily has historically consisted of revenues from governmental and cooperative research grants. The following provides the Company’s initial assessment on how this standard will impact the aforementioned sources of revenue. Given the complexity of this new standard the information below is subject to change and a different conclusion may be reached in 2018, even if remote.

Ethanol sales and related products revenues. Ethanol sales and related products revenues 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. The Company has and continues to sell close to 100 percent of its ethanol production to a single customer, representing 76%, 71% and 71% of total revenues for the twelve-months ended December 31, 2017, 2016 and 2015, respectively. The Company completed its review of this customer and consistent with prior assessments, does not expect there to be any impact on how the Company has and will continue to account for sales of ethanol to this customer. The Company further evaluated related products, including distiller’s grains and corn oil, and after its review, does not expect there to be any significant impact to how the Company has or will account for or disclose these revenues streams.

In April 2015,

Hydrocarbon revenue. Hydrocarbon revenues include sales of alcohol-to-jet fuel, isooctene and isooctane and is 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 FASB issued authoritative guidance intendedpart of the Company to simplifyprovide post-sale support or promises to deliver future goods or services. The Company has determined that there will be no material impact as to how the presentationCompany has historically recognized or will recognize revenues prior to the upcoming adoption of debt issuance costs. These amendments requireASU 2014-09.

Grant and other revenues. Grant and other revenues primarily have historically consisted of governmental and cooperative research grants, of which the Northwest Advanced Renewables Alliance (“NARA”) grant, funded by the United States Department of Agriculture (“USDA”), comprised the majority of those revenues since 2014. After reviewing this arrangement, the Company has concluded that debt issuance costs be presentedthis grant consists of a non-reciprocal arrangement, and therefore, does not qualify as a direct deductioncontract pursuant to Topic 606 “ Revenues from the carrying amount of the related debt liabilities, consistentContracts with Customers”, which was established with the presentationissuance of debt discounts. ThisASU 2014-09. However, Topic 606 does stipulate revenue recognition under these circumstances, and we determined that there will result in the eliminationbe no change to revenues recognition before and after adoption of debt issuance costs as an asset and will reduce the carrying value of our debt liabilities. This guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the potential impact of this guidance.ASU 2014-09.  

Leases (“ASU 2016-02”). In November 2015,February 2016, the FASB issued Accounting Standards Update No. 2015-17, “2016-02,Balance Sheet Topic 842 Leases. ASU-2016-02 requires leases to be reported on the financial statements. The objective is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Future minimum lease obligations for leases accounted for as operating leases at December 31, 2017 totaled $2.9 million. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.

Statement of Cash Flows, Classification of Deferred TaxesCertain Cash Receivable and Cash Payments (“ASU 2015-17”2016-15”),. In August 2016, the FASB issued Accounting Standards Update No. 2016-15,  Statement of Cash Flows Classification of Certain Cash Receipts and Cash Payments  which clarifies cash flow statement classification of eight specific cash flow issues. The purpose of ASU 2016-15 is to provide clarification and consistency for classifying the eight specific cash flow issues because current GAAP either is unclear or does not include specific guidance. The amendments in the update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-15 on its consolidated statements of cash flows.

Statement of Cash Flows – Restricted Cash (“ASU 2016-18”). In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows Restricted Cash  which standardizes the classification and presentation of changes in restricted cash on the statement of cash flows. This amendment requires that that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This amendment is effective for public business entities for fiscal years beginning after December 15, 2017, but early adoption is permitted. This standard must be applied retrospectively for all periods presented. Adoption of this standard will materially impact the presentation of the Company’s historical statement of cash flow due to the existence of approximately $2.6 million in restricted cash

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Notes to Consolidated Financial Statements (Continued)

deposits relating to the 2017 Notes (see Note 5). However, this standard will not materially impact the Company prospectively as a result of the release of the restricted cash in April 2017 due to an amendment to the 2017 Notes (see Note 7). 

Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Provisions (“ASU 2017-11”).  In July 2017, the FASB issued Accounting Standards Update No. 2017-11,  Derivatives and Hedging (Topic 815) Accounting for Certain Financial Instruments with Down Round Provisions  which simplifies the presentationaccounting for certain equity-linked financial instruments and embedded features with down round features that reduce the exercise price when the pricing of deferred income taxes.a future round of financing is lower. Currently, the existence of such features require classification outside of equity and recognition of changes in the fair value of the instrument in earnings each reporting period. This standard eliminates the need to remeasure the instruments at fair value and allows classification within equity. This standard will not materially impact the Company’s accounting, as current liability classified financial instruments and embedded derivatives that require separation from the host instrument have features other than down-round provisions that require current accounting and classification.

Adoption of New Accounting Pronouncements.

Simplifying the Measurement of Inventory (“ASU 2015-11”). In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company adopted this standard for the year-ending December 31, 2017. Adoption of this standard does not materially impact the measurement of the Company’s inventory.

Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments (“ASU 2016-06”).   In March 2016, the FASB issued Accounting Standards Update No. 2016-06, Derivatives and Hedging (Topic 815) Contingent Put and Call Options in Debt Instruments . Topic 815 requires that deferredembedded derivatives be separated from the host contract and accounted for separately as derivatives if certain criteria are met. There are two approaches for determining if the criteria are met. The objective of ASU 2016-06 is intended to resolve the diversity in practice resulting from those two approaches. The Company adopted this standard in the first quarter of 2017.  The adoption of this new standard does not materially impact the Company’s consolidated financial statements.

Compensation—Stock Compensation (‘ASU 2016-09”). In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation. This standard was issued as part of its Simplification Initiative. The objective of the Simplification Initiative is to identify, evaluate, and improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax assetsconsequences, classification of awards as either equity or liabilities, and liabilities be classified as non-current in aclassification on the statement of financial position.  We earlycash flows. The amendments in ASU 2016-09 are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted ASU 2015-172016-09 effective December 31, 2015as of January 1, 2017 on a prospective basis.  Adoptionbasis, and prior periods have not been adjusted. The adoption of this ASUstandard does not have a materialmaterially impact on our consolidated financial statements.the Company’s accounting for stock compensation.

 

 

84


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

3. Inventories

The following table sets forth the components of the Company’s inventory balances (in thousands).

 

December 31,

 

December 31,

 

2015

 

 

2014

 

2017

 

 

2016

 

Raw materials

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corn

$

517

 

 

$

1,369

 

$

189

 

 

$

108

 

Enzymes and other inputs

 

287

 

 

 

354

 

 

202

 

 

 

309

 

Nutrients

 

5

 

 

 

10

 

Finished goods

 

699

 

 

 

515

 

 

 

 

 

 

 

 

Work in process

 

569

 

 

 

610

 

Ethanol

 

222

 

 

 

72

 

Isobutanol

 

1,122

 

 

 

755

 

Jet Fuels, Isooctane and Isooctene

 

524

 

 

 

519

 

Distiller's grains

 

59

 

 

 

-

 

Work in process - Agri Energy

 

197

 

 

 

274

 

Work in process - Gevo

 

437

 

 

 

62

 

Spare parts

 

1,415

 

 

 

1,444

 

 

1,405

 

 

 

1,349

 

 

 

 

 

 

 

 

Total inventories

$

3,487

 

 

$

4,292

 

$

4,362

 

 

$

3,458

 

 

Work in process inventory includes unfinished jet fuel, isooctane, and isobutanolisooctene inventory.

89


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

4. Property, Plant and Equipment

The following table sets forth the Company’s property, plant and equipment by classification (in thousands).

 

 

 

December 31,

 

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

2017

 

 

2016

 

Construction in progress

-

 

$

1,801

 

 

$

440

 

-

 

$

479

 

 

$

293

 

Plant machinery and equipment(1)

10 years

 

 

14,113

 

 

 

13,367

 

10 years

 

 

16,284

 

 

 

15,397

 

Site improvements

10 years

 

 

7,039

 

 

 

7,015

 

10 years

 

 

7,051

 

 

 

7,050

 

Retrofit asset

20 years

 

 

65,457

 

 

 

65,601

 

Agri-Energy Retrofit asset (1)

20 years

 

 

70,842

 

 

 

70,791

 

Lab equipment, furniture and fixtures and vehicles

5 years

 

 

6,389

 

 

 

6,385

 

5 years

 

 

6,513

 

 

 

6,431

 

Demonstration plant

2 years

 

 

3,597

 

 

 

3,597

 

2 years

 

 

3,597

 

 

 

3,597

 

Buildings

10 years

 

 

2,543

 

 

 

2,543

 

10 years

 

 

2,543

 

 

 

2,543

 

Computer, office equipment and software

3 years

 

 

1,566

 

 

 

1,490

 

3 years

 

 

1,795

 

 

 

1,594

 

Leasehold improvements, pilot plant, land and support equipment

2 - 5 years

 

 

2,175

 

 

 

2,144

 

2 - 5 years

 

 

2,536

 

 

 

2,526

 

Total property, plant and equipment

 

 

 

104,680

 

 

 

102,582

 

 

 

 

111,640

 

 

 

110,222

 

Less accumulated depreciation and amortization

 

 

 

(27,903

)

 

 

(21,342

)

 

 

 

(41,271

)

 

 

(34,630

)

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

$

76,777

 

 

$

81,240

 

 

 

$

70,369

 

 

$

75,592

 

 

Prior to  2014, the Company capitalized interest on its secured debt associated with its qualifying assets, which related to the retrofit of the Agri-Energy Facility (“Retrofit asset”) that was actively being developed. The Company did not capitalize any interest for the years ended December 31, 2015 and 2014 as there were no qualifying assets which were actively being developed. The Company capitalized $0.2 million of interest incurred during the year ended December 31, 2013.

(1)

In May 2016, certain assets of the Agri-Energy retrofit asset were reclassified from plant, machinery and equipment to the Agri-Energy retrofit asset.  

As of December 31, 20152017 and 2014,2016, the Company has $0.7 millionzero and $0.7 million, respectively, of capital lease assets included in computer, office equipment and software. The Company recorded amortization of capital lease assets of $0.1 million during each of the years ended December 31, 2015, 20142017, 2016 and 2013,2015, as a component of depreciation and amortization in the consolidated statements of cash flows.  

The Company recorded $6.6 million, $4.9$6.7 million, and $3.4$6.6 million of depreciation expense for the years ended December 31, 2015, 2014,2017, 2016, and 2013,2015, respectively, including $5.7$6.2 million, $4.0$6.0 million, and $2.1$5.7 million of depreciation expense in cost of goods sold for the years ended December 31, 2015, 20142017, 2016 and 20132015 respectively.

 

 

85


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

5. 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,

 

December 31,

 

2015

 

 

2014

 

2017

 

 

2016

 

Accounts payable - trade

$

2,691

 

 

$

2,639

 

$

666

 

 

$

2,611

 

Accrued legal-related fees

 

854

 

 

 

2,944

 

 

274

 

 

 

626

 

Accrued employee compensation

 

2,082

 

 

 

801

 

 

700

 

 

 

1,385

 

Accrued interest

 

840

 

 

 

1,009

 

 

434

 

 

 

359

 

Accrued production fees

 

447

 

 

 

144

 

Accrued utilities payable

 

677

 

 

 

567

 

Accrued taxes payable

 

172

 

 

 

136

 

Short-term capital lease

 

-

 

 

 

147

 

Customer deposit

 

436

 

 

 

-

 

Other accrued liabilities *

 

1,009

 

 

 

1,195

 

 

205

 

 

 

218

 

 

 

 

 

 

 

 

Total accounts payable and accrued liabilities

$

7,476

 

 

$

8,588

 

$

4,011

 

 

$

6,193

 

 

*

Other accrued liabilities consistsconsist of franchise taxes, property taxes, short term capital lease, audit fees, and a variety of other expenses, including software, legal fees, etc. none of which individually represent greater than 5%five percent of total current liabilities.

 

 

906. Embedded Derivatives

2020 Notes Embedded Derivative

In June 2017, the Company issued its 12% convertible senior secured notes due 2020 (the “2020 Notes”) in exchange for its 12.0% convertible senior secured notes due 2017 (the “2017 Notes”).  The 2020 Notes contain the following embedded derivatives: (i) a Make-Whole Payment (as defined in the indenture governing the 2020 Notes (the “2020 Notes Indenture”)) upon either conversion or redemption; (ii) right to redeem the outstanding principal upon a Fundamental Change (as defined in the 2020 Notes Indenture); (iii) issuer rights to convert into a limited number of shares in any given three-month period commencing nine -months from the issuance date and dependent on the stock price exceeding 150% of the then in-effect conversion price over a ten-business day period; and (iv) holder rights to convert into either shares of the Company’s common stock or pre-funded warrants upon the election of the holders of the 2020 Notes.

Embedded derivatives are separated from the host contract and the 2020 Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that certain embedded derivatives within the 2020 Notes meet these criteria and, as such, must be valued separate and apart from the 2020 Notes as one embedded derivative and recorded at fair value each reporting period.

The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2020 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the 2020 Notes would be converted by the holder, called by the issuer, or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2020 Notes will be converted by the holder if the conversion value plus the holder’s Make-Whole Payment is greater than the holding value; or (ii) the 2020 Notes will be called by the issuer if (a) the stock price exceeds 150% of the then in-effect conversion price over a ten-business day period and (b) if the holding value is greater than the conversion value plus the Make-Whole Payment at the time.

Using this lattice model, the Company valued the embedded derivative using a “with-and-without method”, where the value of the 2020 Notes including the embedded derivative is defined as the “with”, and the value of the 2020 Notes excluding the embedded derivative is defined as the “without”. This method estimates the value of the embedded derivative by comparing the difference in the values between the 2020 Notes with the embedded derivative and the value of the 2020 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of Gevo common stock; (ii) Conversion Rate (as defined in the 2020 Notes Indenture); (iii) Conversion Price (as defined in the 2020 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated

86


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

6.stock volatility; and (vii) estimated credit spread for the Company.

Upon issuance on June 20, 2017, the fair value of the embedded derivative was valued at $7.0 million. As of December 31, 2017 the estimated fair value of the embedded derivatives was $5.2 million.  The Company recorded a $1.8 million gain to reflect the change in fair value of the embedded derivative in the consolidated statements of operations for the year-ended December 31, 2017. The Company recorded the estimated fair value of the embedded derivative as a component of current liabilities in the consolidated balance sheet.

The following table sets forth the inputs to the lattice model that were used to value the embedded derivatives.

 

December 31,

 

 

June 20,

 

 

2017

 

 

2017 (*)

 

Stock price

$

0.59

 

 

$

0.62

 

Conversion Rate

 

1,358.90

 

 

 

1,358.90

 

Conversion Price

$

0.74

 

 

$

0.74

 

Maturity date

March 15, 2020

 

 

March 15, 2020

 

Risk-free interest rate

 

1.89

%

 

 

1.45

%

Estimated stock volatility

 

75

%

 

 

80

%

Estimated credit spread

 

28

%

 

 

28

%

 *  The June 20, 2017 inputs represent the initial valuation of the 2020 Notes Embedded DerivativesDerivative instrument that arose due to the exchange of the 2017 Notes for the 2020 Notes.

Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded featured within the 2020 Notes. For example, the estimated fair value will generally decrease with: (1) a decline in the stock price; (2) decreases in the estimated stock volatility; and (3) a decrease in the estimated credit spread.

2022 Notes Embedded Derivative

In July 2012, the Company issued 7.5% convertible senior notes due July 2022 (the “2022 Notes”) which contain the following embedded derivatives: (i) rights to convert into shares of the Company’s common stock, including upon a Fundamental Change (as defined in the indenture governing the 2022 Notes (the “Indenture”“2022 Notes Indenture”)); and (ii) a Coupon Make-Whole Payment (as defined in the 2022 Notes Indenture) in the event of a conversion by the holders of the 2022 Notes prior to July 1, 2017.

Embedded derivatives are separated from the host contract, the 2022 Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company has concluded that the embedded derivatives within the 2022 Notes meet these criteria and, as such, must be valued separate and apart from the 2022 Notes as one embedded derivative and recorded at fair value each reporting period.

The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the 2022 Notes. A binomial lattice model generates two probable outcomes, whether up or down, arising at each point in time, starting from the date of valuation until the maturity date. A lattice model was initially used to determine if the 2022 Notes would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the 2022 Notes will be converted early if the conversion value is greater than the holding value; andor (ii) the 2022 Notes will be called if the holding value is greater than both (a) the Redemption Price (as defined in the 2022 Notes Indenture) and (b) the conversion value plus the Coupon Make-Whole Payment at the time. If the 2022 Notes are called, then the holders will maximize their value by finding the optimal decision between (1) redeeming at the Redemption Price and (2) converting the 2022 Notes.

Using this binomial lattice model, the Company valued thesethe embedded derivativesderivative using a “with-and-without method,”method”, where the value of the 2022 Notes including the embedded derivative is defined as the “with”, and the value of the 2022 Notes excluding the embedded derivative is defined as the “without”. This method estimates the value of the embedded derivative by looking at the difference in the values between the 2022 Notes with the embedded derivative and the value of the 2022 Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of Gevo common stock; (ii) Conversion Rate (as defined in the 2022 Notes Indenture); (iii) Conversion Price (as defined in the 2022 Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.

Inputs used87


GEVO, INC.

Notes to estimate the value of the embedded derivative asConsolidated Financial Statements (Continued)

As of December 31, 2015 were substantially similar to those used as of the period ended2017 and December 31, 2014. Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded derivatives. For example,2016, the estimated fair value of the embedded derivatives will generally decrease with; (i) a decline in the stock price; (ii) a decrease in the estimated stock volatility; and (iii) a decrease in the estimated credit spread.

During the years ended December 31, 2015 and 2014, the estimated fair value of the embedded derivatives had decreased towas zero.  Any decline in the estimated fair value of the embedded derivatives represents an unrealized gain which has been recorded as gain from change in fair value of embedded derivatives in the consolidated statements of operations. The Company recorded the estimated fair value of the embedded derivative with the 2022 notes,Notes, net in the consolidated balance sheets.

 

 

91

7. Derivative Warrant Liability

The following warrants were sold by the Company:

December 2013, the Company sold warrants to purchase 71,013 shares of the Company’s common stock (the “2013 Warrants”).

August 2014, the Company sold warrants to purchase 50,000 shares of the Company’s common stock (the “2014 Warrants”).

February 2015, the Company sold Series A warrants to purchase 110,833 shares of the Company’s common stock (the “Series A Warrants”) and Series B warrants to purchase 110,833 shares of the Company’s common stock (the “Series B Warrants”).

May 2015, the Company sold Series C warrants to purchase 21,500 shares of the Company’s common stock (the “Series C Warrants”).  

December 2015, the Company sold Series D warrants to purchase 502,500 shares of the Company’s common stock (the “Series D Warrants”) and Series E warrants to purchase 400,000 shares of the Company’s common stock (the “Series E Warrants”).

April 2016, the Company soldSeries F warrants to purchase 514,644 shares of common stock (the “Series F Warrant”) and 1,029,286 Series H warrants, each to purchase one share of common stock (the “Series H Warrant”), and 328,571 pre-funded Series G warrants (“Series G Warrants”) to purchase one share of common stock, pursuant to an underwritten public offering.  

September 2016, the Company soldSeries I warrants to purchase 712,503 shares of common stock (the “Series I Warrant”) and 185,000 pre-funded Series J warrants (“Series J Warrants”) to purchase one share of common stock, pursuant to an underwritten public offering.

In February 2017, the Company sold Series K warrants to purchase 6,250,000 shares of the Company’s common stock (the “Series K Warrants”) and Series M warrants to purchase 6,250,000 shares of the Company’s common stock (the “Series M Warrants”), and pre-funded Series L warrants (the “Series L Warrants”) to purchase 570,000 shares of the Company’s common stock, pursuant to an underwritten public offering

88


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

7. Derivative Warrant Liability

InThe following sets forth information pertaining to shares issued upon the exercise of such warrants for the year ended December 2013, the Company sold 1,420,250 shares of the Company’s common stock and warrants to purchase an additional 1,420,250 shares of the Company’s common stock (the “2013 Warrants”). In August 2014, the Company sold 2,000,000 shares of common stock and warrants to purchase an additional 1,000,000 shares of common stock (the “2014 Warrants”). In February 2015, the Company sold 2,216,667 shares of the Company’s common stock, Series A warrants to purchase an additional 2,216,667 shares of the Company’s common stock (the “Series A Warrants”), and Series B warrants to purchase an additional 2,216,667 shares of the Company’s common stock (the “Series B Warrants”). In May 2015, the Company sold 4,300,000 shares of the Company’s common stock and Series C warrants to purchase an additional 430,000 shares of the Company’s common stock (the “Series C Warrants”).  In December 2015, we issued 10,050,000 units of common stock shares and warrants.  The Series A units included 2,050,000 common shares and Series D warrants.  The Series B units included Series D warrants to purchase 8,000,000 shares of common stock (the “Series D Warrants”) and Series E Warrants to purchase 8,000,000 shares of common stock (the “Series E Warrants”, together with the Series A Warrants, the Series B Warrants, and the Series C Warrants, the “2015 Warrants”).      31, 2017:

 

 

Issuance

Date

Expiration

Date

Exercise

Price

 

Shares

Underlying

Warrants on

Issuance Date

 

Shares Issued

upon Warrant

Exercises as of

December 31,

2015

 

Shares

Underlying

Warrants

Outstanding as of

December 31,

2015

 

2013 Warrants

12/16/2013

12/16/2018

$

7.53

 

 

1,420,250

 

 

(304,774

)

 

1,115,476

 

2014 Warrants

8/5/2014

8/5/2019

$

5.13

 

 

1,000,000

 

 

(610,771

)

 

389,229

 

2015 Series A Warrants

2/3/2015

2/3/2020

$

1.00

 

 

2,216,667

 

 

(321,670

)

 

1,894,997

 

2015 Series B Warrants

2/3/2015

8/3/2015

 

-

 

 

2,216,667

 

 

(1,935,901

)

 

-

 

2015 Series C Warrants

5/19/2015

5/19/2020

$

3.60

 

 

430,000

 

 

-

 

 

430,000

 

2015 Series D Warrants

12/11/2015

12/11/2020

$

1.40

 

 

10,050,000

 

 

-

 

 

10,050,000

 

2015 Series E Warrants

12/11/2015

12/11/2016

$

0.01(1)

 

 

8,000,000

 

 

(1,471,000

)

 

6,529,000

 

 

 

 

 

 

 

 

25,333,584

 

 

(4,644,116

)

 

20,408,702

 

 

 

Issuance

Date

 

Expiration

Date

 

Exercise

Price as of December 31, 2017

 

 

Shares

Underlying

Warrants on

Issuance Date

 

 

Shares Issued

upon Warrant

Exercises as of

December 31,

2017

 

 

Shares

Underlying

Warrants

Outstanding as of

December 31,

2017 (4)

 

2013 Warrants

 

12/16/2013

 

12/16/2018

 

$

8.99

 

 

 

71,013

 

 

 

15,239

 

 

 

55,774

 

2014 Warrants

 

08/05/2014

 

08/05/2019

 

$

6.83

 

 

 

50,000

 

 

 

30,538

 

 

 

19,462

 

Series A Warrants

 

02/03/2015

 

02/03/2020

 

$

0.68

 

 

 

110,833

 

 

 

99,416

 

 

 

11,417

 

Series B Warrants

 

02/03/2015

 

08/03/2015

 

 

-

 

(1)

 

110,833

 

 

 

110,833

 

 

 

-

 

Series C Warrants

 

05/19/2015

 

05/19/2020

 

$

5.50

 

 

 

21,500

 

 

 

-

 

 

 

21,500

 

Series D Warrants

 

12/11/2015

 

12/11/2020

 

$

2.00

 

 

 

502,500

 

 

 

501,570

 

 

 

930

 

Series E Warrants

 

12/11/2015

 

12/11/2020

 

 

-

 

(1)

 

400,000

 

 

 

400,000

 

 

 

-

 

Series F Warrants

 

04/01/2016

 

04/01/2021

 

$

2.00

 

 

 

514,644

 

 

 

233,857

 

 

 

280,787

 

Series G Warrants

 

04/01/2016

 

04/01/2017

 

 

-

 

(1)

 

328,571

 

 

 

328,571

 

 

 

-

 

Series H Warrants

 

04/01/2016

 

10/01/2016

 

 

-

 

(1)

 

1,029,286

 

 

 

1,029,286

 

 

 

-

 

Series I Warrants

 

09/13/2016

 

09/13/2021

 

$

11.00

 

 

 

712,503

 

 

 

-

 

 

 

712,503

 

Series J Warrants

 

09/13/2016

 

09/13/2017

 

 

-

 

 

 

185,000

 

 

 

185,000

 

 

 

-

 

Series K Warrants

 

02/17/2017

 

2/17/2022

 

$

0.60

 

 

 

6,250,000

 

 

 

160,000

 

 

 

6,090,000

 

Series L Warrants

 

02/17/2017

 

02/17/2018

 

 

-

 

(1)

 

570,000

 

 

 

570,000

 

 

 

-

 

Series M-A Warrants

 

02/17/2017

 

11/17/2017

 

 

-

 

(1), (2)

 

2,305,000

 

 

 

1,485,000

 

 

 

-

 

Series M-B Warrants

 

02/17/2017

 

11/17/2017

 

 

-

 

(1), (3)

 

3,945,000

 

 

 

3,945,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

17,106,683

 

 

 

9,094,310

 

 

 

7,192,373

 

  

(1)

The exercise price is $1.00Warrants have either been fully exercised and/or expired as of December 31, 2017.    

(2)

In October 2017, 1,485,000 Series M warrants were repriced between $0.60 and $0.65 per warrant. Of those warrants that were repriced, all were exercised in the fourth quarter of 2017, providing proceeds of $1.0 million.

(3)

In September 2017, 3,945,000 Series M warrants were repriced to $0.60. Of those warrants that were repriced, all were exercised in the second half of 2017, providing proceeds of $2.4 million.

(4)

This table does not include 1,393 equity-classified warrants issued between 2008 through 2012, with $0.99 prepaid.strike prices between $17.70 and $24.45 per share.

 

The agreements governing the above warrants include the following terms:

·

the 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;

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

 

·

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 (as 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

89


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

agreements) that assumes the warrant 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, an amount of cash equal to the value of such holder’s warrants as determined in accordance with the Black Scholes option pricingan appropriate valuation model and the terms of the respective warrant agreement.

92


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

·

Additionally, the agreement governing the Series B Warrants included the following additional term(s):

if, commencing on the 30th day after the Series B Warrants are issued and continuing through the expiration date of the Series B Warrants, the adjusted market price (as defined in the warrant agreement governing the terms of the Series B Warrants) of a share of the Company’s common stock was less than $3.00 (as adjusted for stock splits, stock dividends, recapitalization and other similar events), then the holders of the Series B Warrants could have exercised the Series B Warrants in a cashless exercise. This cashless exercise provision would have, subject to certain limitations set forth in the warrant agreement, permitted holders of such Series B Warrants to obtain a number of shares of the Company’s common stock equal to 100% of (i) the aggregate dollar amount of Series B Warrants being exercised divided by the market price less (ii) the number of shares into which such Series B Warrants would then be exercised on a cash basis.  The Series B Warrants expired on August 3, 2015.

·

Additionally, the Series E warrants do not contain any anti-dilution protection that applies to the other warrants as described above.

Based on these terms, the Company has determined that theall warrants issued since 2013 Warrants, the 2014 Warrants, and the 2015 Warrants (together, the(the “Warrants”) qualify as derivatives and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The fair value of the Warrants was estimated to be $10.5$2.0 million and $3.1$2.7 million as of December 31, 20152017 and December 31, 2014,2016, respectively. The increasedecrease in the estimated fair value of the Warrants represents an unrealized lossgain which has been recorded as a lossgain from the change in fair value of derivative warrant liability in the consolidated statements of operations.

 

During the twelve months ended December 31, 2015, Common Stock2017, common stock was issued as a result of exercise of Warrants as described below:

 

Twelve Months Ended December 31, 2015

 

 

Common Stock Issued

 

 

Proceeds (1)

 

2013 Warrants

 

304,774

 

 

$

1,057,010

 

2014 Warrants

 

610,771

 

 

 

2,204,540

 

2015 Series A Warrants

 

321,670

 

 

 

1,302,750

 

2015 Series B Warrants

 

1,935,901

 

 

 

5,586,564

 

2015 Series C Warrants

 

-

 

 

 

-

 

2015 Series D Warrants

 

-

 

 

 

-

 

2015 Series E Warrants

 

1,471,000

 

 

 

14,710

 

 

 

4,644,116

 

 

$

10,165,573

 

 

Twelve Months Ended

December 31, 2017

 

 

Common Stock

Issued

 

 

Proceeds

 

Series K Warrants

 

160,000

 

 

 

106,000

 

Series L Warrants

 

570,000

 

 

 

5,700

 

Series M-A Warrants

 

1,485,000

 

 

 

950,250

 

Series M-B Warrants

 

3,945,000

 

 

 

2,367,000

 

 

 

6,160,000

 

 

$

3,428,950

 

 

(1)

Proceeds received from exercise of Warrants are net of inducement payments.

In May 2015, certain holders

During the twelve months ended December 31, 2017, we issued 160,000 shares of common stock as a result of the 2013exercise of Series K Warrants, agreed to570,000 shares of common stock as a result of the exercise some or all of their 2013Series L Warrants for cash, atand 5,430,000 shares of common stock as a result of the then-currentexercise of Series M Warrants, resulting in a total proceeds of approximately $3.4 million.

In addition, in September 2017, as permitted by Section 2(a) of the Series M Warrants agreement the Board of Directors of the Company approved a voluntarily reduction of the exercise price of $15.30the Series M Warrants exercisable into 3,945,000 shares of the Company’s common stock from an exercise price of $2.35 per share. As an inducement to exercise the 2013 Warrants, the Company agreed to pay each such holder a cash inducement fee in an amount equal to $11.55 for each share of common stock issued upon such exercise, which resulted in net proceeds to the Company of $3.75$0.60 per share. In addition, certain holders of the 2014 Warrants agreed to exercise some or all of their 2014 Warrants for cash, at the then-current exercise price of $9.60 per share. As an inducement to exercise the 2014 Warrants, the Company agreed to pay each such holder a cash inducement fee in an amount equal to $5.85 for each share of common stock, issued upon suchfor the remaining term of these warrants (The Series “M-B” Warrants). Except for the reduction in exercise which resulted in net proceeds toprice, the terms of these Series M-B Warrants remained unchanged. In September 2017, the Company issued 3,500,000 shares of $3.75 per share. The Company received aggregate proceeds, net of inducement fees, of approximately $3.3 million from the exercisescommon stock as a result of the 2013exercise of these Series M-B Warrants. In the fourth quarter of 2017, the remaining 445,000 Series M-B Warrants for which the exercise price had been adjusted to $0.60 were exercised.

   In October 2017, the Board of Directors of the Company approved voluntarily reductions of the exercise price of additional Series M Warrants exercisable into 1,185,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.65 per share of common stock, and 2014Series M Warrants described above.exercisable into 300,000 shares of the Company’s common stock from an exercise price of $2.35 per share of common stock to $0.60 per share of common stock. These, along with the remainder of the Series M Warrants for which the original exercise price was not reduced comprise the Series M-A Warrants.   Except for the reduction in exercise price, the terms of these Series M Warrants remained unchanged. During the fourth quarter of 2017, all Series M-A warrants for which the exercise price was reduced were exercised. The remaining Series M-A warrants expired during the fourth quarter of 2017.

   

        

     As of December 31, 2017, all of the Series B, E, G, H, J and M Warrants for which the exercise price had been adjusted were fully exercised or expired.  

8. Senior Secured Debt Secured Debt and Convertible

2020 Notes   

Senior Secured DebtThe following table sets forth information pertaining to the 2020 Notes which is included in the Company’s consolidated

90


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

balance sheets (in thousands).

 

Principal

Amount

of 2020 Notes

 

 

Debt

Discount

 

 

 

 

Debt Issue

Costs

 

 

Total 2020 Notes

 

 

2020 Notes Embedded Derivative

 

 

Total 2020 Notes and 2020 Notes Embedded Derivative

 

Balance - December 31, 2016

$

-

 

 

$

-

 

 

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Issuance of 2020 Notes and related discounts and

   issue costs

$

16,492

 

 

$

(3,009

)

 

 

 

$

(800

)

 

$

12,683

 

 

$

6,975

 

 

$

19,658

 

Amortization of debt discount

 

-

 

 

 

508

 

 

 

 

 

-

 

 

 

508

 

 

 

-

 

 

 

508

 

Amortization of debt issue costs

 

-

 

 

 

-

 

 

 

 

 

135

 

 

 

135

 

 

 

-

 

 

 

135

 

Paid-in-kind interest

 

165

 

 

 

-

 

 

 

 

 

-

 

 

 

165

 

 

 

-

 

 

 

165

 

Change in fair value of 2020 Notes embedded derivative

 

-

 

 

 

-

 

 

 

 

 

-

 

 

 

-

 

 

 

(1,751

)

 

 

(1,751

)

Balance - December 31,2017

$

16,657

 

 

$

(2,501

)

 

 

 

$

(665

)

 

$

13,491

 

 

$

5,224

 

 

$

18,715

 

On April 19, 2017, the Company entered into an Exchange and Purchase Agreement (the “Purchase Agreement”) with WB Gevo, LTD (the “Holder”) the holder of 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, in its capacity as representative of the Holder (“Whitebox”). Pursuant to the terms of the Purchase Agreement, the 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 “Exchange”). Pursuant to the Purchase Agreement, the Company also granted the Holder an option (the “Purchase Option”) to purchase up to an additional aggregate principal amount of $5.0 million of 2020 Notes (the “Option Notes”), at a purchase price equal to the aggregate principal amount of such Option Notes purchased, having identical terms (other than with respect to the issue date and restrictions on transfer relating to compliance with applicable securities law) to the 2020 Notes issued, at any time on or within ninety (90) days of the closing of the Exchange. The right to purchase Option Notes expired as of September 30, 2017. On June 20, 2017, the Company completed the Exchange, terminated the 2017 Notes Indenture and cancelled the 2017 Notes.  The Company recognized an approximately $4.0 million loss which has been recorded as loss on exchange or conversion of debt within the consolidated statements of operations.

The 2020 Notes will mature on March 15, 2020 and are secured by a first lien on substantially all of the Company’s assets. The 2020 Notes bear interest at a rate equal to 12% per annum (with 2% potentially payable as PIK Interest (as defined and described below) at the Company’s option), payable on March 31, June 30, September 30, and December 31 of each year. Under certain circumstances, the Company has 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”). In the event the Company pays any portion of the interest due on the 2020 Notes as PIK Interest, the maximum aggregate principal amount of 2020 Notes that could be convertible into shares of the Company’s common stock will be increased. Additional shares of the Company’s common stock may also become issuable pursuant to the 2020 Notes in the event the Company is required to make certain make-whole payments as provided in the 2020 Notes Indenture.

The 2020 Notes are convertible into shares of the Company’s common stock, subject to certain terms and conditions. The initial conversion price of the 2020 Notes is equal to $0.7359 per share of common stock, or 1.3589 shares of common stock per $1 principal amount of 2020 Notes (the “Conversion Price”). In addition, upon certain equity financing transactions by the Company, the Holders will have a one-time right to reset the Conversion Price (the “Reset Provision”) (i) in the first ninety (90) days following the Exchange Date, at a 25% premium to the common stock price in the equity financing and (ii) after ninety (90) and to and including one hundred eighty (180) days following the closing of the Exchange, at a 35% premium to the common stock share price in the equity financing. Following an exercise of the Reset Provision, the Holders will also have a right to consent to certain equity financings by the Company during the one hundred eighty (180) days following the closing of the Exchange.

Each Holder has agreed not to convert its 2020 Notes into shares of Company common stock to the extent that, after giving effect to such conversion, the number of shares of common stock beneficially owned by such Holder and its affiliates would exceed 4.99% of Company common stock outstanding at the time of such conversion (the “4.99% Ownership Limitation”); provided that a

91


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Holder may, at its option and upon sixty-one (61) days’ prior notice to the Company, increase such threshold to 9.99% (the “9.99% Ownership Limitation”). If a conversion of 2020 Notes by Whitebox would exceed the 4.99% Ownership Limitation or the 9.99% Ownership Limitation, as applicable, the Purchase Agreement contains a provision granting the holder a fully funded prepaid warrant for such common stock with a term of nine months, subject to a 6 month extension, which it can draw down from time to time.

Other than as set forth in the Reset Provision, the 2020 Notes do not contain any anti-dilution adjustments for future equity issuances that are below the Conversion Price, and adjustments to the Conversion Price will 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.

Under certain circumstances, we 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 Notes.

2017 Notes   

In May 2014, the Company entered into a term loan agreement (the “Loan Agreement”) with the lenders party thereto from time to time (each, a “Lender” and collectively, the “Lenders”) and Whitebox Advisors, LLC, as administrative agent for the Lenders (“Whitebox”), with a maturity date of March 15, 2017, pursuant to which the Lenders committed to provide one or more senior secured term loans to the Company in an aggregate amount of up to approximately $31.1 million on the terms and conditions set forth

93


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

in the Loan Agreement (collectively, the “Term Loan”). The first and only advance of the Term Loan in the amount of $22.8 million, (the “First Advance”), net of discounts and issue costs of $1.6 million and $1.5 million, respectively, was made to the Company in May 2014. Also in May 2014, the Company and its subsidiaries entered into an Exchange and Purchase Agreement (the “Exchange and Purchase Agreement”) with WB Gevo, Ltd. and the other Lenders party thereto from time to time and Whitebox, in its capacity as administrative agent for the Lenders. Pursuant to the terms of the Exchange and Purchase Agreement, the Lenders were given the right, subject to certain conditions, to exchange all or a portion of the outstanding principal amount of the Term Loan for the Company’s 2017 Notes, (as defined below), which arewere convertible into shares of the Company’s common stock.  While outstanding, the Term Loan bore an interest rate equal to 15% per annum, of which 5% was payable in cash and 10% was payable in kind and capitalized and added to the principal amount of the Term Loan.

In June 2014, the Lenders exchanged all $25.9 million of outstanding principal amount of Term Loan provided in the First Advance for 10% convertible senior secured notes due 2017 (the “2017 Notes” and, together with the 2022 Notes, the “Convertible Notes”), together with accrued paid-in-kind interest of $0.2 million. The terms of the 2017 Notes arewere set forth in an indenture by and among the Company, its subsidiaries in their capacity as guarantors, and Wilmington Savings Fund Society, FSB, as trustee (the “2017 Notes Indenture”).

On February 13, 2017, the Company and its subsidiaries, as guarantors, entered into an Tenth Supplemental Indenture (the “Tenth Supplemental Indenture”) with Wilmington Savings Fund Society, FSB, as trustee and collateral trustee, and Whitebox, relating to the 2017 Notes. The Tenth Supplemental Indenture amended the 2017 Notes will mature on March 15, 2017. The 2017 Notes have a conversion price (the “Conversion Price”) equalIndenture to, $17.38 per share or 0.0576 shares per $1 principal amount of 2017 Notes. Optional prepaymentamong other things, (i) extend the maturity date of the 2017 Notes will not be permitted. Theto June 23, 2017, (ii) increase the interest rate on the 2017 Notes bear interest at a rate equalfrom 10.0% to 10%12.0% per annum, which is payable 5%and (iii) required the Company to pay down approximately $9.6 million in cashprincipal outstanding leaving the remaining principal balance of the 2017 Notes at approximately $16.5 million.

On June 20, 2017, the Company and under certain circumstances, 5% in kind and capitalized and added to the Holder exchanged all of the outstanding principal amount of the 2017 Notes for an equal principal amount of the 2020 Notes. As a result, at December 31, 2017, the outstanding principal amount of the 2017 Notes was zero.

 While the 2017 Notes arewere outstanding, the Company iswas required to maintain an interest reserve in an amount equal to 10% of the aggregateoriginal outstanding principal amount of $26.1 million, to be adjusted on an annual basis. As of December 31, 2015,2016, there was a balance of $2.6 million in the interest reserve account. This amount iswas classified as restricted deposits.

The 2017 Notes Indenture contains customary affirmative and negative covenants for agreements of this type and events of default, including, restrictions on disposing of certain assets, granting or otherwise allowing the imposition of a lien against certain assets, incurring certain amounts of additional indebtedness, making investments, acquiring or merging with another entity, and making dividends and other restricted payments, unless the Company receives the prior approval of the required holders. The 2017 Notes Indenture also contains limitations on the ability of the holder to assign or otherwise transfer its interest in the 2017 Notes.  The 2017 Notes are secured by a lien on substantially all of the assets of the Company and is guaranteed by Agri-Energy and Gevo Development (together, the “Guarantor Subsidiaries” or “Guarantors”). On June 6, 2014, in connection with the issuance of the 2017 Notes, the Company and the Guarantor Subsidiaries entered into a Pledge and Security Agreement in favor of the collateral trustee. The collateral pledged includes substantially all of the assets of the Company and the Guarantor Subsidiaries, including intellectual property and real property.  Agri-Energy has also entered into a mortgage with respect to the real property located in Luverne Minnesota.

The holders of the 2017 Notes may, at any timedeposits until the closesecond quarter of business on the business day immediately preceding the maturity date, convert the principal amount of the 2017 Notes, or any portion of such principal amount which is at least $1,000, into shares of the Company’s common stock. Upon conversion of the 2017 Notes, the Company will deliver shares of common stock at a conversion rate of 0.0576 shares of common stock per $1.00 principal amount of the 2017 Notes (equivalent to a conversion price of approximately $17.38 per share of common stock). Such conversion rate is subject to adjustment in certain circumstances, including in the event that there is a dividend or distribution paid on shares of the common stock or a subdivision, combination or reclassification of the common stock. The Company also has the right to increase the conversion rate (i) by any amount for a period of at least 20 business days if the Company’s board of directors determines that such increase would be in the Company’s best interest or (ii) to avoid or diminish any income tax to holders of shares of common stock or rights to purchase shares of common stock in connection with any dividend or distribution. In addition, subject to certain conditions described herein, each holder who exercises its option to voluntarily convert its 2017 Notes will receive a make-whole payment in an amount equal to any unpaid interest that would otherwise have been payable on such 2017 Notes through the maturity date (a “Voluntary Conversion Make-Whole Payment”). Subject to certain limitations, the Company may pay any Voluntary Conversion Make-Whole Payments either in cash or in shares of common stock, at its election.

The Company has the right to require holders of the 2017 Notes to convert all or part of the 2017 Notes into shares of its common stock if the last reported sales price of the common stock over any 10 consecutive trading days equals or exceeds 150% of the applicable conversion price (a “Mandatory Conversion”). Each holder whose 2017 Notes are converted in a Mandatory Conversion will receive a make-whole payment for the converted notes in an amount equal to any unpaid interest that would have otherwise been payable on such 2017 Notes through the maturity date (a “Mandatory Conversion Make-Whole Payment”). Subject to certain limitations, the Company may pay any Mandatory Conversion Make-Whole Payments either in cash or in shares of common stock, at its election. The Company did not require any holders to convert in 2014 and has not required any holders to convert through the twelve months ended December 31, 2015.

94


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

If a fundamental change of the Company occurs, the holders of 2017 Notes may require the Company to repurchase all or a portion of the 2017 Notes at a cash repurchase price equal to 100% of the principal amount of such 2017 Notes, plus accrued and unpaid interest, if any, through, but excluding, the repurchase date, plus a cash make-whole payment for the repurchased 2017 Notes in an amount equal to any unpaid interest that would otherwise have been payable on such convertible 2017 Notes through the maturity date. A fundamental change includes, among other things, the Company’s common stock ceasing to be listed on a national securities exchange. See Note 20 for information on the Company’s listing status.

On July 31, 2014, January 28, 2015, May 13, 2015, November 12, 2015 and December 7, 2015, we entered into amendments to the 2017 Notes Indenture to, among other things, permit the offering and issuance of additional warrants and the incurrence of indebtedness by us under such additional warrants.  In connection with the November 12, 2015 amendments, we did not issue any warrants or incur any indebtedness.

On June 1, 2015, the Company entered into further amendments to the 2017 Notes Indenture to, among other things, permit (i) the execution, delivery, and performance of the FCStone Agreements (as defined below) and the related Guaranty (as defined below), (ii) the incurrence of indebtedness by the Company and Agri-Energy pursuant thereto and (iii) the making of the investments by the Company and Agri-Energy thereunder.

On August 22, 2015, the Company entered into further amendments to the 2017 Notes Indenture to, among other things, permit (i) the execution, delivery, and performance of the License Agreement (as defined below) and (ii) the exchange of all or any portion of  the 2022 Notes for common stock issued by the Company.

In connection with the transactions described above, the Company also entered into a Registration Rights Agreement, dated May 9, 2014 (the “Registration Rights Agreement”), pursuant to which the Company filed a registration statement on Form S-3 registering the resale of approximately 1.2 million shares of the Company’s common stock which are issuable under the 2017 Notes. This registration statement was declared effective on July 25, 2014.

The Company has elected the fair value option for accounting of the 2017 Notes in order for management to mitigate income statement volatility caused by measurement basis differences between the embedded instruments or to eliminate complexities of applying certain accounting models. Accordingly, the principal amount of 2017 Notes outstanding at December 31, 2015 of $26.1 million has been recorded at its estimated fair value of $21.6 million and is included in the 2017 Notes recorded at fair value on the consolidated balance sheets at December 31, 2015. Debt issuance costs of $1.5 million were expensed at issuance and a gain of $3.9 million has been recognized in subsequent periods in connection with the election of the fair value option.  Change in the estimated fair value of the 2017 Notes represents an unrealized gain included in gain (loss) from change in fair value of 2017 Notes in the consolidated statements of operations. The fair value of the 2017 Notes at the issuance date were equal to the net proceeds from the loan.  During the twelve months ended December 31, 2015, the Company incurred cash interest expense of $2.6 million related to the 2017 Notes.

The following table sets forth the inputs to the lattice model that were used to value the 2017 Notes for which the fair value option was elected.  

 

December 31,

 

December 31,

 

 

2015

 

2014

 

Stock price

$

0.62

 

$

4.80

 

Conversion Rate

 

57.55

 

 

57.55

 

Conversion Price

$

17.38

 

$

17.38

 

Maturity date

March 15, 2017

 

March 15, 2017

 

Risk-free interest rate

 

0.74

%

 

0.80

%

Estimated stock volatility

 

140.0

%

 

85.0

%

Estimated credit spread

 

30.0

%

 

15.0

%

95


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

The following table sets forth information pertaining to the 2017 Notes which is included in the Company’s consolidated balance sheets (in thousands).

 

Principal Amount of Term Loans

 

 

Principal Amount of 2017 Notes

 

 

Change in Estimated Fair Value

 

 

Total

 

Balance - December 31, 2013

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Issuance of Term Loan

 

25,907

 

 

 

-

 

 

 

-

 

 

 

25,907

 

Exchange of Term Loan for 2017 Notes

 

(25,907

)

 

 

25,907

 

 

 

-

 

 

 

-

 

Non-cash paid-in-kind interest expense

 

-

 

 

 

201

 

 

 

-

 

 

 

201

 

Gain from change in fair value of debt

 

-

 

 

 

 

 

 

 

(648

)

 

 

(648

)

Balance - December 31, 2014

$

-

 

 

$

26,108

 

 

$

(648

)

 

$

25,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain from change in fair value of debt

 

-

 

 

 

-

 

 

 

(3,895

)

 

 

(3,895

)

Balance - December 31, 2015

$

-

 

 

$

26,108

 

 

$

(4,543

)

 

$

21,565

 

Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the 2017 Notes. For example, the estimated fair value will generally decrease with: (1) a decline in the stock price; (2) decreases in the estimated stock volatility; and (3) a decrease in the estimated credit spread. The change in the estimated fair value of the 2017 Notes during the year ended December 31, 2015, represents an unrealized gain which has been recorded as a gain from change in fair value of 2017 Notes in the consolidated statements of operations.

Secured Debt

The following table sets forth information pertaining to the Company’s secured debt issued to TriplePoint Capital LLC (“TriplePoint”) which is included in the Company’s consolidated balance sheets (in thousands).  

 

December 31,

 

 

2015

 

 

2014

 

Secured debt

 

 

 

 

 

 

 

TriplePoint - May 2014 Advance

$

504

 

 

$

822

 

Total secured debt

 

504

 

 

 

822

 

Less:

 

 

 

 

 

 

 

Unamortized debt discounts

 

(19

)

 

 

(49

)

 

 

485

 

 

 

773

 

Less current portion of debt

 

(332

)

 

 

(288

)

Long-term portion of debt

$

153

 

 

$

485

 

Debt discounts associated with the issuance of the Company’s secured debt and convertible notes are recorded on the consolidated balance sheets as a reduction to related debt balances. The Company amortizes debt discount to interest expense over the term of the debt or expected life of the debt using the effective interest method.

Amended Agri-Energy Loan Agreement. In October 2011, the Original Agri-Energy Loan Agreement was amended and restated (the “Amended Agri-Energy Loan Agreement”) to provide Agri-Energy with additional term loan facilities of up to $15.0 million to pay a portion of the costs, expenses, and other amounts associated with the retrofit of the Agri-Energy Facility to produce isobutanol.  In October 2011, Agri-Energy borrowed $10.0 million under the additional term loan facilities which originally matured in October 2015. In January 2012, Agri-Energy borrowed an additional $5.0 million under the additional term loan facilities which originally matured December 2015, bringing the total borrowed under the additional term loan facilities to $15.0 million.

May 2014 Amendments. In May 2014, the Company and its subsidiaries entered into a Consent Under and Third Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement and Omnibus Amendment to Loan Documents (the “2014 Amendment”) pursuant to which TriplePoint amended its agreements with the Company and its subsidiaries and consented to (a) the execution, delivery, and performance of the Loan Agreement, the Exchange and Purchase Agreement, the Registration Rights Agreement, the 2017 Notes Indenture, the 2017 Notes, and the other documents related thereto (collectively the “Senior Loan Documents”); (b) the incurrence of the Term Loan with Whitebox and any other indebtedness under the Senior Loan Documents

96


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

(collectively, the “Senior Indebtedness”); (c) the consummation of the exchange of the Term Loan for the 2017 Notes; (d) the offering, issuance and sale of the 2017 Notes to Whitebox and the conversion of any 2017 Notes into the common stock of the Company pursuant to the terms of the 2017 Notes Indenture; (e) the guaranty of the Senior Indebtedness provided by the Guarantors; (f) the liens granted by each of the Company and the Guarantors to secure the Senior Indebtedness and the other obligations under the Senior Loan Documents; (g) the consummation of any transactions contemplated by, and the terms of, the Senior Loan Documents by the Company and the Guarantors; and (h) the payment and performance of any of the obligations under the Senior Loan Documents by the Company and the Guarantors, including the making of dividends and distributions by the Guarantors to the Company for the purpose of enabling the Company to make any payments under the Senior Loan Documents.

As part of the 2014 Amendment, the Company repaid $9.8 million in principal payments due under the foregoing loan agreements with TriplePoint and entered into an amended loan agreement with TriplePoint. At such time, debt issuance costs were written off. At December 31, 2014, the amended loan agreement had a principal balance of $0.8 million, which amortizes over 36 months and bears interest at a rate equal to 9% per annum and matures in May 2017. There were no additional concessions or terms of the agreement which would require recognition of a gain or loss due to this amended agreement. As of December 31, 2014, Agri-Energy has granted TriplePoint a junior security interest in all of its assets as security for its obligations under the Amended Agri-Energy Loan Agreement.

On July 31, 2014, January 28, 2015, May 13, 2015, November 11, 2015 and December 7, 2015, we entered into further amendments to the Amended Agri-Energy Loan Agreement and the Gevo Security Agreement to, among other things, permit the offering and issuance of additional warrants and the incurrence of indebtedness by us under such additional warrants.  In connection with the November 11, 2015 amendments, we did not issue any warrants or incur any indebtedness.

At December 31, 2015, we were in compliance with the debt covenants under the Amended Agri-Energy Loan Agreement. As of December 31, 2015, Agri-Energy has granted TriplePoint a junior security interest in, and a lien upon, all of its assets as security for its obligations under the Amended Agri-Energy Loan Agreement. Gevo, Inc. has also guaranteed Agri-Energy’s obligations under the Amended Agri-Energy Loan Agreement. As additional security, concurrently with the execution of the Amended Agri-Energy Loan Agreement, (i) Gevo Development entered into a limited recourse continuing guaranty in favor of TriplePoint, (ii) Gevo Development entered into an amended and restated limited recourse membership interest pledge agreement in favor of TriplePoint, pursuant to which it pledged the membership interests of Agri-Energy as collateral to secure the obligations under its guaranty and (iii) Gevo, Inc. entered into a security agreement which secured its guarantee of Agri-Energy’s obligations under the Amended Agri-Energy Loan Agreement.  Under the terms of the Amended Agri-Energy Loan Agreement, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if the following conditions are satisfied: (i) the Retrofit of the Agri-Energy Facility is complete and the facility is producing commercial volumes of isobutanol, (ii) its net worth is greater than or equal to $10.0 million, and (iii) no event of default has occurred and is continuing under the agreement.

     

2022 Notes

The following table sets forth information pertaining to the 2022 Notes which is included in the Company’s consolidated balance sheets (in thousands).

 

 

Embedded Derivatives

 

 

Principal Amount of 2022 Notes

 

 

Debt Discount

 

 

Total

 

Balance - December 31, 2013

$

3,470

 

 

$

26,900

 

 

$

(15,869

)

 

$

14,501

 

Amortization of debt discount

 

-

 

 

 

-

 

 

 

2,648

 

 

 

2,648

 

Gain from change in fair value of embedded derivatives

 

(3,470

)

 

 

-

 

 

 

-

 

 

 

(3,470

)

Balance - December 31, 2014

$

-

 

 

$

26,900

 

 

$

(13,221

)

 

$

13,679

 

Amortization of debt discount

 

-

 

 

 

-

 

 

 

3,557

 

 

 

3,557

 

Write-off of debt discount associated with extingishment of debt

 

 

 

 

 

 

 

 

 

1,900

 

 

 

1,900

 

Conversion of debt to stock

 

 

 

 

 

(2,000

)

 

 

 

 

 

 

(2,000

)

3(a)9 exchange

 

 

 

 

 

(2,500

)

 

 

 

 

 

 

(2,500

)

Balance - December 31, 2015

$

-

 

 

$

22,400

 

 

$

(7,764

)

 

$

14,636

 

92


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

Principal

Amount

of 2022 Notes

 

 

Debt

Discount

 

 

Debt Issue

Costs

 

 

Total

 

Balance - December 31, 2016

$

9,575

 

 

$

(1,307

)

 

$

(47

)

 

$

8,221

 

Amortization of debt discount

 

-

 

 

 

149

 

 

 

-

 

 

 

149

 

Amortization of debt issue costs

 

-

 

 

 

-

 

 

 

6

 

 

 

6

 

Exchange of 2022 Notes

 

(8,885

)

 

 

-

 

 

 

-

 

 

 

(8,885

)

One-time repurchase of debt

 

(175

)

 

 

-

 

 

 

-

 

 

 

(175

)

Write-off of debt discount and debt issue costs associated with

   extinguishment of debt

 

-

 

 

 

1,158

 

 

 

41

 

 

 

1,199

 

Balance - December 31, 2017

$

515

 

 

$

-

 

 

$

-

 

 

$

515

 

 

In July 2012, the Company sold $45.0 million in aggregate principal amount of 2022 Notes, withfor net proceeds of $40.9 million, after accounting for $2.7 million and $1.4 million of discounts and issue costs, respectively. The 2022 Notes bear interest at 7.5% which is to be paid semi-annually in arrears on January 1 and July 1 of each year. The 2022 Notes will mature inon July 1, 2022, unless earlier repurchased, redeemed or converted. During the yearstwelve-months ended December 31, 2015, 20142017, 2016 and 2013,2015, the Company recorded $3.7

97


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

$0.2 million, $2.8$4.0 million and $3.4$3.7 million, respectively, of non-cash interest expense related to the amortization of debt discounts and issue costs, and recorded $1.8$1.2 million, $2.0$2.5 million, and $2.3$1.9 million respectively, of cashexpense related to the write-off of debt discount and debt issue costs associated with extinguishment or conversion of debt; and $0.05 million and $1.2 million and $1.8 million, respectively, of interest expense related to the 2022 Notes.

The amortization of debt issue costs, and debt discounts and cash interest are included as a component of interest expense in the consolidated statements of operations. The Company amortizes debt discounts and debt issue costs associated with the 2022 Notes using an effective interest rate of approximately 40% from the issuance date through July 1, 2017, a five-year period, which represents the date the holders can require the Company to repurchase the 2022 Notes.

The 2022 Notes are convertible at an initiala conversion rate of 175.66970.5856 shares of the Company’s common stock per $1,000 principal amount of 2022 Notes, subject to adjustment in certain circumstances as described in the Indenture. This is equivalent to an initiala conversion price of approximately $5.69$1,707.65 per share of common stock. Holders may convert the 2022 Notes at any time prior to the close of business on the third business day immediately preceding the maturity date of July 1, 2022.

If a holder electselected to convert its 2022 Notes prior to July 1, 2017, such holder shall bewas entitled to receive, in addition to the consideration upon conversion, a Coupon Make-Whole Payment. The Coupon Make-Whole Payment iswas equal to the sum of the present values of the number of semi-annual interest payments that would have been payable on the 2022 Notes that a holder hashad elected to convert from the last day through which interest was paid up to but excluding July 1, 2017, computed using a discount rate of 2%. The Company maycould pay any Coupon Make-Whole Payment either in cash or in shares of common stock at its election. Under the Amended Agri-Energy Loan Agreement with TriplePoint, the Company is prohibited from making any Coupon Make-Whole Payments in cash prior to the payment in full of all remaining outstanding obligations under the Amended Agri-Energy Loan Agreement. If the Company electselected to pay in common stock, the stock willwould be valued at 90% of the average of the daily volume weighted average prices of the Company’s common stock for the 10 trading days preceding the date of conversion. In November 2015, we issued 1,107,833Prior to 2016, the Company converted $20.1 million in outstanding 2022 Notes in return for 28,978 shares of the Company’s common stock, to redeem 2,500 bonds at a face value of $1,000 per bond and reducewhich, 7,331 represented amounts owed under the liabilityCoupon Make-Whole Payment. Additionally, the Company issued 55,392 shares in exchange for the redemption of $2.5 million of the 2022 Notes. No holders of the 2022 Notes by $2.5 million. The net loss on the extinguishment of the 2022 Notes was $0.05 million.  In February 2015, we issued 170,041 shares of common stockelected to convert, 2,000 bonds at a face value of $1,000 per bond to reduce the liability of the 2022 Notes by $2.0 million.   The net gain on the extinguishment of the 2022 Notes was $0.3 million.

If a Make-Whole Fundamental Change (as defined in the Indenture) occurs and a holder elects to convert its 2022 Notes prior to July 1, 2017, the applicable conversion rate will increase based upon reference to the table set forth in Schedule A of the Indenture. In no event will the conversion rate increase to more than 202.0202 per $1,000 principal amount of 2022 Notes.period has expired.

The Company shall havehad a provisional redemption right (“Provisional Redemption”) to redeem, at its option, all or any part of the 2022 Notes at a price payable in cash, beginning on July 1, 2015 and prior to July 1, 2017, provided that the Company’s common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the trading day immediately prior to the date of the redemption notice exceeds 150% of the conversion price for the 2022 Notes in effect on such trading day. On or after July 1, 2017, the Company shall havehas an optional redemption right (“Optional Redemption”) to redeem, at its option, all or any part of the 2022 Notes at a price payable in cash. The price payable in cash for the Optional Redemption or Provisional Redemption is equal to 100% of the principal amount of 2022 Notes redeemed plus any accrued and unpaid interest thereon through, but excluding, the repurchase date.

The holders of the 2022 Notes had a one-time option to require the Company to repurchase on July 1, 2017 (or on the first business day following such date), at a purchase price, payable in cash, equal to one hundred percent (100%) of the principal amount of any 2022 Notes to be so purchased, plus accrued and unpaid interest. Prior to July 1, 2017, certain holders of the 2022 Notes delivered notices to the trustee of the 2022 Notes requiring the repurchase of $175,000 principal amount of the 2022 Notes, plus

93


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

accrued and unpaid interest, which was completed on July 3, 2017.

In the second half of 2016, the Company issued 951,801 shares in exchange for the redemption of $12.8 million in outstanding 2022 Notes. In the first half of 2017, the Company issued 2,982,053 shares in exchange for $8.9 million in outstanding 2022 Notes, resulting in approximately $1.0 million loss on exchange of debt.

If a Fundamental Change (as defined in the 2022 Notes Indenture) occurs, at any time, then each holder will have the right to require the Company to repurchase all of such holder’s 2022 Notes, or any portion thereof that is an integral multiple of $1,000 principal amount, for cash at a repurchase price of 100% of the principal amount of such 2022 Notes plus any accrued and unpaid interest thereon through, but excluding, the repurchase date.

If there is an Event of Default (as defined in the 2022 Notes Indenture) under the 2022 Notes, the holders of not less than 25% in principal amount of Outstanding Notes (as defined in the Indenture)outstanding notes by notice to the Company and the trustee may, and the trustee at the request of such holders shall, declare the principal amount of all the Outstandingoutstanding 2022 Notes and accrued and unpaid interest thereon to be due and payable immediately.  There have been no eventsEvents of defaultDefault as of December 31, 2015.2017

Outstanding Obligations

The following sets forthIn the Company’s obligations to repay principal by year relating to its secured debt with TriplePoint andfirst quarter of 2018, the Convertible Notes at December 31, 2015 (in thousands).Company issued 780,303 shares in exchange for the redemption of the remaining $515,000 in outstanding 2022 Notes.

 

 

Amount

 

2016

$

349

 

2017

 

26,263

 

2018

 

-

 

2019

 

-

 

2020 and thereafter

 

22,400

 

 

 

 

 

Total

$

49,012

 

98


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

 

9. Capital Stock

As of December 31, 2015,2017, the Company has authorized 250.0 million and 10.0 million shares of common and preferred stock, respectively. respectively, of which there are 21.8 million shares of common stock outstanding and zero shares of preferred stock outstanding.

The holders of the Company’s common stock have one vote per share. The board of directors has the authority, without action by its stockholders, to designate and issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The Company’s amended and restated certificate of incorporation provides that the Company’s board of directors will be divided into three classes, with staggered three-year terms and provides that all stockholder actions must be effected at a duly called meeting of the stockholders and not by a written consent. The amended and restated certificate of incorporation also provides that only the board of directors may call a special meeting of the stockholders and requires the approval of either a majority of the directors then in office or 66 2/3% of the voting power of all then outstanding capital stock for the adoption, amendment or repeal of any provision of the Company’s amended and restated bylaws. In addition, the amendment or repeal of certain provisions of the Company’s amended and restated certificate of incorporation requires the approval of 66 2/3% of the voting power of all then outstanding capital stock.

Common Stock Offerings

In December 2015, we issued 10,050,000 units of common stock shares and warrants.  The Series A units included 2,050,000 shares of common stock and 2,050,000 Series D Warrants.  The shares of common stock and Series D Warrants were sold together as common stock units for a purchase price of $1.00 per unit but were immediately separable and issued separately. The Series D Warrants have an exercise price of $1.40 per share, are exercisable from the date of original issuance and will expire on December 11, 2020.  The Series B units included 8,000,000 Series D Warrants and 8,000,000 Series E Warrants.  The Series D Warrants and Series E Warrants were sold together as a unit for a purchase price of $0.99 per unit but were immediately separable and issued separately. The Series E Warrants have an exercise price of $0.01 per share, are exercisable from the date of original issuance and will expire on December 11, 2016.  The gross proceeds from this offering were approximately $9.97 million.         

In May 2015, we issued and sold 4,300,000 shares of common stock and Series C warrants to purchase an additional 430,000 shares of common stock.  The shares of common stock and the Series C Warrants were sold together as common stock units for a purchase price of $4.00 per unit, but were immediately separable and issued separately.  The Series C Warrants have an exercise price of $3.60 per share and are exercisable from the date of the original issuance and will expire on May 19, 2020.  The gross proceeds from this offering were approximately $17.2 million, not including any future proceeds from the exercise of warrants.

In February 2015, we issued and sold 2,216,667 shares of common stock, Series A warrants to purchase an additional 2,216,667 shares of common stock and Series B warrants to purchase an additional 2,216,667 shares of common stock. The shares of common stock, the Series A Warrants and the Series B Warrants were sold together as common stock units for a purchase price of $3.00 per unit, but were immediately separable and issued separately. The Series A Warrants have an exercise price of $1.00 per share, are exercisable from the date of original issuance and will expire on February 3, 2020. The Series B Warrants had an exercise price of $3.00 per share and were exercisable from the date of original issuance until they expired on August 3, 2015. The gross proceeds from this offering were approximately $6.7 million, not including any future proceeds from the exercise of the warrants.

In August 2014, the Company issued and sold 2,000,000 common stock units at an offering price of $0.60 per common stock unit. Each common stock unit consisted of one share of the Company’s common stock and a 2014 Warrant to purchase 0.5 shares of the Company’s common stock, resulting in net proceeds of approximately $16.4 million after deducting paid and unpaid underwriting discounts and commissions and other offering costs.  The Company allocated $2.4 million of the proceeds from the offering of common stock units to the 2014 Warrants based upon their estimated value which was recorded as additional paid-in capital.

In December 2013, the Company issued and sold 1,420,250 common stock units at an offering price of $1.35 per common stock unit. Each common stock unit consisted of one share of the Company’s common stock and a 2013 Warrant to purchase one share of the Company’s common stock, resulting in net proceeds of $26.4 million after deducting paid and unpaid underwriting discounts and commissions and other offering costs.  The Company allocated $4.0 million of the proceeds from the offering of common stock units to the 2013 Warrants based upon their estimated value which was recorded as additional paid-in capital.

In July 2012, the Company issued 12.5 million shares of its common stock at an offering price of $4.95 per share, resulting in net proceeds of $57.4 million, after deducting underwriting discounts and commissions and other offering costs.

99

94


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

Common Stock Warrants

The following table sets forth a summary of outstanding warrants to purchase shares of the Company’s common stock as of December 31, 2015.  

 

Issue Date

 

Expiration Date

 

Outstanding

 

 

Exercise Price

 

Virgin Green Fund I, L.P.

January 2008

 

February 2016

 

 

1,920

 

 

$

82.20

 

CDP Gevo, LLC

September 2009

 

September 2016

 

 

54,185

 

 

$

40.50

 

TriplePoint Capital LLC

August 2010

 

August 2017

 

 

13,334

 

 

$

17.70

 

TriplePoint Capital LLC

October 2011

 

October 2018

 

 

10,469

 

 

$

17.70

 

TriplePoint Capital LLC

January 2012

 

October 2018

 

 

2,094

 

 

$

17.70

 

Genesis Select

June 2013

 

June 2018

 

 

2,000

 

 

$

24.45

 

2013 Warrants

December 2013

 

December 2018

 

 

1,115,476

 

 

$

7.53

 

2014 Warrants

August 2014

 

August 2019

 

 

389,229

 

 

$

5.13

 

2015 Series A Warrants

February 2015

 

February 2020

 

 

1,894,997

 

 

$

1.00

 

2015 Series C Warrants

May 2015

 

May 2020

 

 

430,000

 

 

$

3.60

 

2015 Series D Warrants

December 2015

 

December 2020

 

 

10,050,000

 

 

$

1.40

 

2015 Series E Warrants

December 2015

 

December 2016

 

 

6,529,000

 

 

$

0.01

 

Total

 

 

 

 

 

20,492,704

 

 

 

 

 

See Note 13 for a discussion of the warrants issued to CDP Gevo, LLC (“CDP”) for the purchase of shares of the Company’s common stock.  See Note 7 for a discussion of all Warrants issued and subsequent changes in the exercise price.

In connection with signing its loan agreements with TriplePoint, the Company has issued warrants to purchase shares of its common stock. The fair values of the warrants were estimated using the Black-Scholes option pricing model.  The Company records the fair value of these warrants as debt discount which is amortized to interest expense over the terms of the borrowing. In conjunction with the December 2013 amendment to the debt agreements with TriplePoint (see Note 8), the exercise price for the three outstanding warrants to purchase shares of the Company’s common stock held by TriplePoint were re-priced to reflect an exercise price equal $17.70. The Company calculated the estimated incremental fair value of the warrants based upon the Black-Scholes option pricing model.  The incremental fair value is determined as the difference between the estimated fair value of the warrants immediately prior the re-pricing and the estimated fair value of the warrants after the re-pricing.  The Company recorded the incremental fair value, $0.2 million, as a component of debt discount.

Reverse Stock Split

On April 15, 2015, the Board of Directors of the Company approved a reverse split of the Company’s common stock, par value $0.01, at a ratio of one-for-fifteen.   This reverse stock split became effective on April 20, 2015 and, unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying consolidated financial statements have, where applicable, been adjusted retroactively to reflect this reverse stock split.

10. Equity Incentive Plans

2006 Omnibus Securities and Incentive Plan. During 2006, the Company established the Gevo, Inc. 2006 Omnibus Securities and Incentive Plan (the “2006 Plan”). Pursuant to the 2006 Plan, the Company granted stock awards to employees directors, and consultantsdirectors of the Company. Upon adoption of the Gevo, Inc. 2010 Stock Incentive Plan (as amended, the “2010 Plan”), no further grants can be made under the 2006 Plan. At December 31, 2015,2017, a total of 102,987837 shares of Gevo common stock were reserved for issuance upon the exercise of outstanding stock option awards under the 2006 Plan.  To the extent outstanding awards under the 2006 Plan expire, or are forfeited, cancelled, settled, or become unexercisable without the issuance of shares, the shares of common stock subject to such awards will be available for future issuance under the 2010 Plan.

2010 Stock Incentive Plan. In February 2011, the Company’s stockholders approved the 2010 Plan, which was subsequently amended in June 2013, and amended and restated in July 2015, June 2016 and November 2016, and provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards to employees and directors of the Company. Stock options granted under the 2010 Plan have an exercise price that is at least equal to the fair market value of the Company’s common stock on the date the stock option is granted and expire ten years after the date of grant. At December 31, 2015,2017, a total of

100


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

685,271 45,594 shares of Gevo common stock were reserved for issuance upon the exercise of outstanding stock option awards under the 2010 Plan, and an additional 59,316133,607 shares were available for grant.

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 85,7094,285 shares of common stock for issuance under the ESPP, of which 76,6293,802 shares as of December 31, 20152017 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.

 

 

11. Stock-Based Compensation

Stock-Based Compensation Expense. The following table sets forth the Company’s stock-based compensation expense (in thousands).

 

Year Ended December 31,

Year Ended December 31,

 

2015

 

2014

 

 

2013

 

 

2017

 

 

2016

 

 

2015

 

Stock options and ESPP awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

131

 

$

303

 

 

$

640

 

 

$

37

 

 

$

62

 

 

$

131

 

Selling, general and administrative

 

401

 

837

 

 

 

1,837

 

 

 

122

 

 

 

321

 

 

 

401

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

576

 

487

 

 

 

14

 

 

 

12

 

 

 

116

 

 

 

576

 

Selling, general and administrative

 

1,467

 

1,233

 

 

 

1,381

 

 

 

17

 

 

 

143

 

 

 

1,467

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

10

 

-

 

 

 

-

 

 

 

70

 

 

 

28

 

 

 

10

 

Selling, general and administrative

 

62

 

-

 

 

 

-

 

 

 

163

 

 

 

216

 

 

 

62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

-

 

 

-

 

 

 

39

 

 

Total stock-based compensation

 

2,647

 

 

2,860

 

 

 

3,911

 

 

$

421

 

 

$

886

 

 

$

2,647

 

 

Determining Fair Value of Share-Based Payment Awards. The following table sets forth the Black-Scholes option pricing model assumptions and resulting grant date fair value for stock options granted.  

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

2015

 

Risk-free interest rate

 

1.62

%

 

 

1.74

%

 

 

1.26

%

 

2.01

%

 

 

1.49

%

 

 

1.62

%

Expected dividend yield

None

 

 

None

 

 

None

 

None

 

 

None

 

 

None

 

Expected volatility factor

 

106.89

%

 

 

71.13

%

 

 

71.96

%

 

119.00

%

 

 

106.70

%

 

 

106.89

%

Expected option life (in years)

 

5.77

 

 

 

5.75

 

 

5.8

 

 

5.77

 

 

 

5.77

 

 

 

5.77

 

Weighted average grant date fair value

$

1.77

 

 

$

13.35

 

 

$

17.70

 

$

0.86

 

 

$

5.66

 

 

$

35.40

 

 

95


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Due to the Company’s limited history of grant activity, the expected life of options granted was estimated using the “simplified method” in accordance with SEC Staff Accounting Bulletin 110, where the expected life equals the arithmetic average of the vesting term and the original contractual term of the options. The volatility factor was determined based upon management’s estimate using inputs from comparable public companies. The risk-free interest rate assumption is determined based upon observed interest rates appropriate for the expected term of the Company’s employee stock options. The dividend yield assumption is based on the Company’s history of dividend payouts.

An annual forfeiture rate is estimated at the time of grant for all share-based payment awards, and revised, if necessary, in subsequent periods if the actual forfeiture rate differs from the Company’s estimate. Forfeitures have been estimated by the Company based upon historical and expected forfeiture experience. Estimated forfeiture rates used for the periods presented were from 0% to 5%.

101


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Stock Option Award Activity. Stock option activity under the Company’s option plans at December 31, 20152017 and changes during the year ended December 31, 20152017 were as follows.

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

 

 

 

 

Number of

 

 

Exercise

 

 

Term

 

 

Aggregate

 

 

Options

 

 

Price

 

 

(years)

 

 

Intrinsic Value

 

Options outstanding at December 31, 2014

 

234,961

 

 

$

55.80

 

 

 

5.61

 

 

$

-

 

Granted

 

267,664

 

 

 

2.19

 

 

 

 

 

 

 

 

 

Canceled or forfeited

 

(20,839

)

 

 

40.58

 

 

 

 

 

 

 

 

 

Exercised

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options outstanding at December 31, 2015

 

481,786

 

 

$

26.79

 

 

 

7.28

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at December 31, 2015

 

231,346

 

 

$

51.48

 

 

 

4.92

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options vested and expected to vest at December 31, 2015

 

481,763

 

 

$

26.79

 

 

 

7.28

 

 

$

-

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

 

 

 

 

Number of

 

 

Exercise

 

 

Term

 

 

Aggregate

 

 

Options

 

 

Price

 

 

(years)

 

 

Intrinsic Value

 

Options outstanding at December 31, 2016

 

16,915

 

 

$

289.73

 

 

 

 

 

 

$

-

 

Granted

 

60,000

 

 

 

1.01

 

 

 

 

 

 

 

 

 

Canceled or forfeited

 

(30,484

)

 

 

1.01

 

 

 

 

 

 

 

 

 

Exercised

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

Options outstanding at December 31, 2017

 

46,431

 

 

$

106.19

 

 

 

8.25

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options exercisable at December 31, 2017

 

29,013

 

 

$

165.47

 

 

 

7.85

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options vested and expected to vest at December 31, 2017

 

46,431

 

 

$

106.19

 

 

 

8.25

 

 

$

-

 

 

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic values (the difference between the closing price of Gevo’s common stock on the last trading day of the 20152017 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, 2015.2017. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 2014 and 2013 was $0.0 million, $0.0 million and $0.2 million, respectively.zero. 

The following table summarizes information associated with outstanding and exercisable stock options at December 31, 2015.2017.

 

 

 

Options Outstanding

 

 

Options Exercisable

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Weighted-

 

 

Average

 

Range of

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

Average

 

 

Remaining

 

Exercise

 

Number of

 

 

Average Exercise

 

 

Contractual Life

 

 

Number of

 

 

Exercise

 

 

Contractual Life

 

Prices

 

Options

 

 

Price

 

 

in Years

 

 

Options

 

 

Price

 

 

in Years

 

$2.19 to $2.55

 

 

264,015

 

 

$

2.19

 

 

 

9.57

 

 

 

36,981

 

 

$

2.19

 

 

 

9.49

 

$5.25 to $7.35

 

 

25,138

 

 

$

6.92

 

 

 

1.31

 

 

 

25,138

 

 

$

6.92

 

 

 

1.31

 

$13.20 to $21.90

 

 

81,826

 

 

$

19.69

 

 

 

5.87

 

 

 

61,079

 

 

$

19.42

 

 

 

5.06

 

$23.10 to $92.25

 

 

65,387

 

 

$

34.95

 

 

 

4.71

 

 

 

62,728

 

 

$

35.24

 

 

 

4.59

 

$116.55 to $171.30

 

 

29,459

 

 

$

146.88

 

 

 

3.11

 

 

 

29,459

 

 

$

146.88

 

 

 

3.10

 

$190.05 to $287.10

 

 

15,961

 

 

$

246.25

 

 

 

4.18

 

 

 

15,961

 

 

$

246.25

 

 

 

4.18

 

 

 

Options Outstanding

 

 

Options Exercisable

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

Weighted-

 

 

Average

 

Range of

 

 

 

 

 

Weighted-

 

 

Remaining

 

 

 

 

 

 

Average

 

 

Remaining

 

Exercise

 

Number of

 

 

Average Exercise

 

 

Contractual Life

 

 

Number of

 

 

Exercise

 

 

Contractual Life

 

Prices

 

Options

 

 

Price

 

 

in Years

 

 

Options

 

 

Price

 

 

in Years

 

$0.00 to $51.00

 

 

43,968

 

 

$

14.03

 

 

 

8.65

 

 

 

26,550

 

 

$

18.35

 

 

 

8.49

 

$105.00 to $147.00

 

 

80

 

 

$

144.90

 

 

 

0.00

 

 

 

80

 

 

$

144.90

 

 

 

0.00

 

$264.00 to $438.00

 

 

586

 

 

$

368.79

 

 

 

0.33

 

 

 

586

 

 

$

368.79

 

 

 

0.33

 

$462.00 to $1,845.00

 

 

801

 

 

$

715.51

 

 

 

1.89

 

 

 

801

 

 

$

715.51

 

 

 

1.89

 

$2,331.00 to $3,426.00

 

 

637

 

 

$

2,938.98

 

 

 

0.29

 

 

 

637

 

 

$

2,938.98

 

 

 

0.29

 

$3,801.00 to $5,742.00

 

 

360

 

 

$

4,556.47

 

 

 

1.69

 

 

 

360

 

 

$

4,556.47

 

 

 

1.69

 

 

 

 

46,431

 

 

$

106.19

 

 

 

8.25

 

 

 

29,013

 

 

$

165.47

 

 

 

7.85

 

 

96


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

As of December 31, 2015, $0.72017, $0.1 million of total unrecognized compensation cost related to stock options is expected to be recognized as an expense by the Company in the future over a weighted-average period of approximately one year.

There is a maximum contractual term of 10 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.

Restricted Stock. The Company periodically grants restricted stock awards to employees (including board members) and non-employee consultants.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 three to six years, for awards that vest based upon a service period. For performance based restricted stock awards, the Company recognizes expense over the requisite service period.

102


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Non-vested restricted stock awards at December 31, 20152017 and changes during the year ended December 31, 20152017 were as follows.

 

 

 

 

 

Weighted-

 

 

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

 

 

Average

 

Number of

 

 

Grant-Date

 

Number of

 

 

Grant-Date

 

Shares

 

 

Fair Value

 

Shares

 

 

Fair Value

 

Non-vested at December 31, 2014

 

58,351

 

 

$

22.05

 

Non-vested at December 31, 2016

 

8,823

 

 

$

47.51

 

Granted

 

784,741

 

 

 

2.05

 

 

-

 

 

 

-

 

Vested

 

(504,476

)

 

 

3.65

 

 

(5,730

)

 

 

49.50

 

Canceled or forfeited

 

(10,353

)

 

 

15.00

 

 

-

 

 

 

-

 

Non-vested at December 31, 2015

 

328,263

 

 

$

2.74

 

Non-vested at December 31, 2017

 

3,093

 

 

$

43.80

 

 

The total fair value of restricted stock that vested during the years ended December 31, 2017, 2016 and 2015 2014was $0.2 million, $0.3 million, and 2013 was $1.4 million $1.5 million and $1.5 million, , respectively. As of December 31, 2015,2017, the total unrecognized compensation expense, net of estimated forfeitures, relating to restricted stock awards was $0.8$0.1 million, which is expected to be recognized over a weighted-average period of approximately two years.

one year.

 

12. Significant Agreements

Off-Take, Distribution and Marketing Agreements

Ethanol Marketing Agreement with C&N, a subsidiary of Mansfield Oil Company. Substantially all ethanol sold by Agri-Energy from the date of acquisition through December 31, 2015 was sold to C&N pursuant to an ethanol purchase and marketing agreement.  The ethanol purchase and marketing agreement with C&N was entered into in April 2009 and automatically renews for subsequent one-year terms unless either party terminates the agreement 60 days before the end of term. Under the terms of the agreement, C&N will market substantially all of Agri-Energy’s ethanol production from the Agri-Energy Facility and will pay to Agri-Energy the gross sales price paid by the end customer less expenses and a marketing fee.

Jet Fuel Supply Agreements with the Defense Logistics Agency (U.S. Air Force, U.S. Army and U.S. Navy). During September 2011, the Company was awarded a contract for the procurement of up to 11,000 gallons of alcohol-to-jet (ATJ) fuel for the purposes of certification and testing by the U.S. Air Force.  The term of the agreement was through December 2012.  The Company recorded $0.6 million of revenue under this award during the year ended December 31, 2012.  In September 2012, the Company was awarded an additional contract by the U.S. Air Force for the procurement of up to 45,000 gallons of biojet fuel.   In March 2013, the Company entered into a contract with the Defense Logistics Agency to supply the U.S. Army with 3,650 gallons of biojet fuel and in May 2013 this initial order was increased by 12,500 gallons.  In September 2013, the Company entered into a contract with the Defense Logistics Agency to supply the U.S. Navy with 20,000 gallons of biojet fuel. During the years ended December 31, 2015, 2014 and 2013, the Company recorded $1.0 million, $2.0 million and $1.9 million, respectively, of revenue associated with shipments of biojet fuel under these contracts.      

Alaska Airlines. In May 2015, we entered into a strategic alliance agreement with Alaska Airlines. Pursuant to the terms of this agreement, Alaska Airlines agreed to purchase an initial quantity of our ATJ when we secure ASTM D7566 certification. In the event that we do not secure ASTM certification by December 31, 2016, the agreement will automatically terminate unless we and Alaska Airlines agree in writing to an extension. In February 2016, we entered into a purchase agreement with Alaska Airlines to supply an additional 20,000 gallons of ATJ. It is anticipated that Gevo will deliver the 20,000 gallons to Alaska Airlines within 90 days of the ASTM D7566 certification being received. All of the ATJ to be supplied under these agreements is expected to be produced from isobutanol at a hydrocarbon processing demonstration plant (“Hydrocarbons Demo Plant”) near Houston, Texas, in partnership with South Hampton Resources, Inc. (“South Hampton”).

BCD Chemie. In April 2015, we entered into a first purchase order to supply isooctene to BCD Chemie, a subsidiary of Brenntag AG, a leading chemical distributor based in Germany. BCD Chemie is targeting applications in Europe to replace petroleum-based hydrocarbons to enable companies to meet regulatory requirements for renewable content in fuels while satisfying the performance requirements of their customers. We subsequently entered into additional purchase orders to supply isooctene to BCD Chemie into 2016. To date, the total value of the purchase orders to BCD Chemie is over $1 million. 

103


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Development and Commercialization Agreements

Development and Commercialization Agreements with ICM. In October 2008, the Company signed development and commercialization agreements with ICM, Inc. (“ICM”).

Under the terms of the development agreement, the Company performed commercial-scale isobutanol production trials in ICM’s research plant and facility in St. Joseph, Missouri (the “Demonstration Plant”). The Company was required to pay for or reimburse ICM for engineering fees, equipment, plant modification costs, project fees and various operating expenses. In December 2011, the development agreement was amended to extend the term indefinitely. The development agreement, as amended, may be cancelled by either party with 30 days’ prior written notice. The Company did not incur any operating expenses or capital expenditures relating to the Demonstration Plant during the years ended December 31, 2015, 2014 or 2013.  

The commercialization agreement, which was amended and restated in August 2011, is effective through October 2018, and outlines the terms and fees under which ICM acts as the Company’s exclusive provider of certain engineering and construction services. Also, under the commercialization agreement, the Company is ICM’s exclusive technology partner for the production of butanols, pentanols and propanols from the fermentation of sugars.

The Company has also engaged ICM to perform engineering studies, plant evaluations and other services. In August 2011, the Company entered into a work agreement with ICM whereby ICM will provide engineering, procurement and construction services for the retrofit of ethanol plants.

Effective March 28, 2016, the Development Agreement with ICM, Inc., dated October 16, 2008 and the Commercialization Agreement with ICM, dated October 16, 2008, as amended, were terminated.  Gevo and ICM elected to terminate these agreements because the agreements were no longer deemed to be in the best interest of the parties due to the passage of time and the development of their respective businesses.

Joint Research, Development, License and Commercialization Agreement with The Coca-Cola Company. During November 2011, the Company entered into a joint research, development, license and commercialization agreement with The Coca-Cola Company (“Coca-Cola”). During the first two years of the agreement, Coca-Cola agreed to pay the Company a fixed price fee for a research program outlined in the agreement. The Company recognizes these fees as revenue over the performance period. The payments received are not refundable. The Company did not recognize revenue under this agreement during the years ended December 31, 2014 and 2015 and the Company recognized $1.4 million  during the year ended December 31, 2013.

License Agreements

Joint Development Agreement with Praj Industries Limited.  In November 2015, we entered into a joint development agreement with Praj Industries Limited (“Praj”), which establishes a strategic relationship to: (i) jointly develop our technology for use in certain ethanol plants that utilize certain non-corn based feedstocks (the “Feedstock”); (ii) jointly develop an engineering package for greenfield isobutanol plants and retrofitting ethanol plants to produce renewable isobutanol from the Feedstock; and (iii) license our technology to build greenfield isobutanol plants and retrofit certain ethanol plants to produce isobutanol. We and Praj will jointly develop and optimize the parameters to produce isobutanol from the Feedstock. After the development work is completed, we will negotiate commercial license agreements with Praj and third party licensees. Praj has the exclusive right to supply equipment and process engineering services for (i) certain greenfield isobutanol plants covered by the joint development agreement and (ii) the addition of isobutanol capacity for certain ethanol plants that utilize the Feedstock and Praj technology. Praj agreed to meet certain milestones to maintain its exclusive rights. We will negotiate and license our technology for producing isobutanol directly with the ethanol plants covered by the JDA and will also have the right to supply biocatalysts, nutrient packages, and support services to such plants. Praj will be the EPC services supplier for the ethanol plants covered by the JDA and we will be the exclusive seller of all isobutanol produced by such plants.

Licensing Agreement with Porta. In January 2016, we entered into a license agreement and joint development agreement with Porta to construct multiple isobutanol plants in Argentina using corn as a feedstock, the first of which is expected to be wholly owned by Porta and is anticipated to begin producing isobutanol in 2017.  The plant is expected to have a production capacity of up to five million gallons of isobutanol per year. Once the plant is operational, Gevo expects to generate revenues from this licensing arrangement, through royalties, sales and marketing fees, and other revenue streams such as yeast sales. The agreements also contemplate Porta constructing at least three additional isobutanol plants for certain of their existing ethanol plant customers. For these projects, Gevo would be the direct licensor of its technology and the marketer for any isobutanol produced, and would expect to receive all royalties and sales and marketing fees generated from these projects. Porta would provide the EPC services for the projects. The production capacity of these additional plants is still to be determined.

104


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Patent Cross-License Agreement with Butamax Advanced Biofuels, LLC.  On August 22, 2015, the Company entered into a Patent Cross-License Agreement (the “License Agreement”) with Butamax Advanced Biofuels, LLC (“Butamax”) to license certain patent rights.

Pursuant to the terms of the License Agreement, each party received a non-exclusive license under certain patents and patent applications owned or licensed (and sublicensable) by the other party for the production and use of biocatalysts in the manufacture of isobutanol using certain production process technology for the separation of isobutanol, and to manufacture and sell such isobutanol in any fields relating to the production or use of isobutanol and isobutanol derivatives, subject to the customer-facing field restrictions described below.  Each party also received a non-exclusive license to perform research and development on biocatalysts for the production, recovery and use of isobutanol.

Each party may produce and sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis.  Butamax will be the primary customer-facing seller of isobutanol in the field of fuel blending (subject to certain exceptions, the “Direct Fuel Blending” field) and the Company will be the primary customer-facing seller of isobutanol in the field of jet fuel for use in aviation gas turbines (the “Jet” field, also subject to certain exceptions).  As such, subject to each party’s right to sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis, the Company will only sell isobutanol through Butamax in the Direct Fuel Blending field subject to a royalty based on the net sales price for each gallon of isobutanol sold or transferred by the Company, its affiliates or sublicensees within the Direct Fuel Blending field (whether through Butamax or not) and on commercially reasonable terms to be negotiated between the parties, and Butamax will only sell isobutanol through the Company in the Jet field subject to a royalty based on the net sales price for each gallon of isobutanol sold or transferred by Butamax, its affiliates or sublicensees within the Jet field (whether through the Company or not) and on commercially reasonable terms to be negotiated between the parties; provided, that each party may sell up to fifteen million gallons of isobutanol in a given year directly to customers in the other party’s customer-facing field on a royalty-free basis so long as the isobutanol volumes are within the permitted 30 million gallons of isobutanol sold or otherwise transferred per year in any field described above and, in certain instances, each party may then sell up to the total permitted 30 million gallons per year in the other party’s customer-facing field on a royalty-free basis. In addition, in order to maintain its status as the primary customer-facing seller in these specific fields, each party must meet certain milestones within the first five years of the License Agreement.  If such milestones are not met as determined by an arbitration panel, then the other party will have the right to sell directly to customers in the other party’s customer-facing field subject to the payment of certain royalties to the other party on such sales.

In addition to the royalties discussed above for sales of isobutanol in the Direct Fuel Blending field, and subject to the Company’s right to sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis, the Company will pay to Butamax a royalty per gallon of isobutanol sold or transferred by the Company, its affiliates or sublicensees within the field of isobutylene applications (other than isobutylene for paraxylene, isooctane, Jet, diesel and oligomerized isobutylene applications).  Likewise, in addition to the royalties discussed above for sales of isobutanol in the Jet field, and subject to Butamax’s right to sell up to 30 million gallons of isobutanol per year in any field on a royalty-free basis, Butamax will pay to the Company a royalty per gallon of isobutanol sold or transferred by Butamax, its affiliates or sublicensees within the fields of marine gasoline, retail packaged fuels and paraxylene (except for gasoline blending that results in use in marine or other fuel applications).  The royalties described above will be due only once for any volume of isobutanol sold or transferred under the License Agreement, and such royalties accrue when such volume of isobutanol is distributed for end use in the particular royalty-bearing field.  All sales of isobutanol in other fields will be royalty-free, subject to the potential technology fee described below.

In the event that the Company, its affiliates or sublicensees choose to employ a certain solids separation technology for the production of isobutanol at one of their respective plants, the Company is granted an option to license such technology from Butamax on a non-exclusive basis subject to the payment of a one-time technology license fee based on the rated isobutanol capacity for each such plant (subject to additional fees upon expansion of such capacity).  The Company also received the option to obtain an engineering package from Butamax to implement this solids separation technology on commercially reasonable terms to be negotiated between the parties and subject to the technology fee described above and an additional technology licensing fee for use of the solids separation technology applicable to ethanol capacity as provided in such engineering package from Butamax (which capacity is not duplicative of the rated isobutanol capacity referenced above) in instances where Butamax provides an engineering package for use at a particular plant that will run isobutanol and ethanol production side-by-side using the licensed solids separation technology at such plant.

The License Agreement encompasses both parties’ patents for producing isobutanol, including biocatalysts and separation technologies, as well as for producing hydrocarbon products derived from isobutanol, including certain improvements and new patent applications filed within seven years of the date of the License Agreement.  While the parties have cross-licensed their patents for making and using isobutanol, the parties will not share their own proprietary biocatalysts with each other.  The parties may use third parties to manufacture biocatalysts on their behalf and may license their respective technology packages for the production of

105


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

isobutanol to third parties, subject to certain restrictions.  A third party licensee would be granted a sub-license, and would be subject to terms and conditions that are consistent with those under the License Agreement.

Under the License Agreement, the parties have also agreed to certain limitations on the making or participating in a challenge of certain of the other party’s patents.  The License Agreement will continue in effect until the expiration of the licensed patents, unless earlier terminated by a party as provided in the License Agreement.  The parties also have certain termination rights with respect to the term of the license granted to the other party under the License Agreement upon the occurrence of, among other things, a material uncured breach by the other party.  In the event that a party’s license is terminated under the License Agreement, such party’s sublicense agreements may be assigned to the other party, subject to certain restrictions.

Other Significant Agreements

In June 2011, the Company announced that it had successfully produced fully renewable and recyclable polyethylene terephthalate (“PET”) in cooperation with Toray Industries, Inc. (“Toray Industries”). Working directly with Toray Industries, the Company employed prototypes of commercial operations from the petrochemical and refining industries to make para-xylene from isobutanol. Toray Industries used the Company’s bio-para-xylene (“bio-PX”) and commercially available renewable mono ethylene glycol to produce fully renewable PET films and fibers. In June 2012, the Company entered into a definitive agreement with Toray Industries, as amended in October 2013, for the joint development of an integrated supply chain for the production of bio-PET. Pursuant to the terms of the agreement with Toray Industries, the Company received $1.0 million which was used by the Company for the design and construction of a demonstration plant. In May 2014, the Company successfully shipped the requisite volumes of bio-PX associated with its contract with Toray Industries and, as a result, the Company recognized the $1.0 million, as well as revenue associated with the sale of the bio-PX, as a component of hydrocarbon revenue in the second quarter of 2014. At December 31, 2013, the Company included the $1.0 million as deferred revenue, a component of accounts payable and accrued liabilities in its consolidated balance sheets.

In December 2011, the Company entered into a commercial off-take and marketing agreement with Land O’Lakes Purina Feed LLC (“Land O’Lakes Purina Feed”) for the sale of iDGs™ produced by the Agri-Energy Facility. Land O’ Lakes Purina Feed provides farmers and ranchers with an extensive line of agricultural supplies (feed, seed, and crop protection products) and services. Pursuant to the agreement, Land O’Lakes Purina Feed will be the exclusive marketer of the Company’s iDGs™ and modified wet distiller’s grains for the animal feed market. The agreement has an initial three-year term following the first commercial sales of iDGs™ with automatic one-year renewals thereafter unless terminated by one of the parties. Further, the Company’s plans to work with Land O’Lakes Purina Feed to explore opportunities to upgrade the iDGs™ for special value-added applications in feed markets.  No amounts have been incurred under this agreement as of December 31, 2014. Land O’Lakes Purina Fees also provides marketing services for the sale of the Company’s ethanol distiller grains.

Within its research and development activities, the Company routinely enters into research and license agreements with various entities. Future royalty payments may apply under these license agreements if the technologies are used in future commercial products. In addition, the Company may from time to time make gifts to universities and other organizations to expand research activities in its fields of interest. Any amounts paid under these agreements are generally recorded as research and development expenses as incurred.

The Company has been awarded grants or cooperative agreements from a number of government agencies, including the U.S. Department of Energy, U.S. National Science Foundation, U.S. Environmental Protection Agency, U.S. Army Research Labs and the U.S. Department of Agriculture. Any recorded revenues related to these grants and cooperative agreements are recorded within grant and other revenue in the Company’s consolidated statements of operations.

In June 2015, Agri-Energy entered into a Price Risk Management, Origination and Merchandising Agreement (the “Origination Agreement”) with FCStone Merchant Services, LLC (“FCStone”) and a Grain Bin Lease Agreement with FCStone (the “Lease Agreement” and, together with the Origination Agreement, the “FCStone Agreements”). Pursuant to the Origination Agreement, FCStone will originate and sell to Agri-Energy, and Agri-Energy will purchase from FCStone, the entire volume of corn grain used by Agri-Energy’s plant in Luverne, Minnesota. The initial term of the Origination Agreement will continue for a period of eighteen months and will automatically renew for additional terms of one year unless Agri-Energy gives notice of non-renewal to FCStone. FCStone will receive an origination fee for purchasing and supplying Agri-Energy with all of the corn used by Agri-Energy’s plant in Luverne, Minnesota. As security for the payment and performance of all indebtedness, liabilities and obligations of Agri-Energy to FCStone, Agri-Energy granted to FCStone a security interest in the corn grain stored in grain storage bins owned and operated by Agri-Energy (“Storage Bins”) and leased to FCStone pursuant to the Lease Agreement. Pursuant to the Lease Agreement, FCStone will lease Storage Bins from Agri-Energy to store the corn grain prior to title of the corn grain transferring to Agri-Energy upon Agri-Energy’s purchase of the corn grain. FCStone agrees to lease Storage Bins sufficient to store 700,000 bushels of corn grain and agrees to pay to Agri-Energy $175,000 per year. The term of the Lease Agreement will run concurrently with the Origination Agreement, and

106


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

will be extended, terminated, or expire in accordance with the Origination Agreement. The Company also entered into an unsecured guaranty (the “Guaranty”) in favor of FCStone whereby the Company guaranteed the obligations of Agri-Energy to FCStone under the Origination Agreement. The Guaranty shall terminate on the earlier to occur of (i) April 15, 2020 or (ii) termination of the Origination Agreement.

The Company has been awarded grants or cooperative agreements from a number of government agencies, including the U.S. Department of Energy, U.S. National Science Foundation, U.S. Environmental Protection Agency, Army Research Labs and the U.S. Department of Agriculture. Revenues recorded related to these grants and cooperative agreements are recorded within grant and other revenue in the Company’s consolidated statements of operations.

13. Gevo Development

Gevo, Inc. currently owns 100% of the outstanding equity interests of Gevo Development.

Gevo, Inc. made capital contributions to Gevo Development of $7.9$8.9 million, $26.5$12.3 million, and $29.6$7.9 million, respectively, during the years ended December 31, 2015, 2014,2017, 2016, and 2013.2015.

The following table sets forth (in thousands) the net loss incurred by Gevo Development (including Agri-EnergyLuverne after September 22, 2010, the closing date of the acquisition) which has been fully allocated to Gevo, Inc.’s capital contribution account based upon its capital contributions (for the period prior to September 2010) and 100% ownership (for the period after September 22, 2010).

 

 

Year Ended December 31,

 

 

2015

 

 

2014

 

 

2013

 

Gevo Development Net Loss

$

(12,294

)

 

$

(14,778

)

 

$

(19,243

)

 

Year Ended December 31,

 

 

2017

 

 

2016

 

 

2015

 

Gevo Development Net Loss

$

(12,653

)

 

$

(12,983

)

 

$

(12,294

)

   

In connection with the formation of Gevo Development in September 2009, the Company granted CDP a warrant to purchase 57,200 shares of the Company’s common stock. The warrant has an exercise price of $40.50 per share which represented the estimated fair value of Gevo, Inc.’s common stock on the date of grant. The warrant expires in September 2016, unless terminated earlier as provided in the warrant agreement.

The accounts of Agri-Energy are consolidated within Gevo Development as a wholly owned subsidiary which is then consolidated into Gevo, Inc. As of December 31, 2015,2017, Gevo Development does not have any assets that can be used only to settle obligations of Gevo Development. However, as of December 31, 2015, under the terms of the Amended Agri-Energy Loan Agreement with TriplePoint, as amended, subject to certain limited exceptions, Agri-Energy is only permitted to pay dividends if all principal balances due to TriplePoint have been paid.

 

14. Redfield Energy, LLC

InAs previously disclosed, in June 2011, Gevo Developmentwe entered into an isobutanol joint venture agreementIsobutanol Joint Venture Agreement (the “Joint Venture Agreement”) with Redfield Energy, LLC, a South Dakota limited liability company (“Redfield”), and executed the second amended and restated operating agreement of Redfield (together with the Joint Venture Agreement, the “Joint Venture Documents”). Under the terms of the Joint Venture Documents,between our wholly-owned subsidiary, Gevo Development and Redfield haveEnergy, LLC (“Redfield”), under which we agreed to work togetherwith Redfield to retrofitRetrofit Redfield’s approximately 50 million gallon per year ethanol production facility located near Redfield, South Dakota (the “Redfield Facility”) for the commercial production of isobutanol.  UnderDuring the termsfourth quarter of 2017, we entered into an Agreement with Redfield, pursuant to which we and Redfield agreed to terminate the Joint Venture Agreement Redfield has issued 100 Class G membership units in Redfield (the “Class G Units”) to Gevo Development. Gevo Development is the sole holder of Class G units, which entitle Gevo Development to certain information and governance rights with respect to Redfield, including the right to appoint two members of Redfield’s 11-member board of managers. The Class G units currently carryall respects.  There are no interest in the allocation of profits, lossestermination fees or other distributionsobligations of Redfield and no voting rights. Such rights will vest upon the commencement of commercial isobutanol production at the Redfield Facility, at which time Gevo Development anticipates consolidating Redfield’s operations because Gevo anticipates it will control the activities that are most significant to the entity.either party in connection with such termination.

Gevo Development will be responsible for all costs associated with the retrofit of the Redfield Facility. Redfield will remain responsible for certain expenses incurred by the facility including certain repair and maintenance expenses and any costs necessary to ensure that the facility is in compliance with applicable environmental laws. The Company anticipates that the Redfield Facility will continue its current ethanol production activities during much of the retrofit. Once the retrofit assets have been installed, the ethanol

10797


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

production operations will be suspended to enable testing of the isobutanol production capabilities of the facility (the “Performance Testing Phase”). During the Performance Testing Phase, Gevo Development will be entitled to receive all revenue generated by the Redfield Facility and will make payments to Redfield to cover the costs incurred by Redfield to operate the facility plus the profits, if any, that Redfield would have received if the facility had been producing ethanol during that period (the “Facility Payments”). Gevo Development has also agreed to maintain an escrow fund during the Performance Testing Phase as security for its obligation to make the Facility Payments.

If certain conditions are met, commercial production of isobutanol at the Redfield Facility will begin upon the earlier of the date upon which certain production targets have been met or the date upon which the parties mutually agree that commercial isobutanol production at the Redfield Facility will be commercially viable at the then-current production rate. At that time, (i) Gevo Development will have the right to appoint a total of four members of Redfield’s 11-member board of managers, and (ii) the voting and economic interests of the Class G units will vest and Gevo Development, as the sole holder of the Class G Units, will be entitled to a percentage of Redfield’s profits, losses and distributions, to be calculated based upon the demonstrated isobutanol production capabilities of the Redfield Facility.

Gevo Development, or one of its affiliates, will be the exclusive marketer of all products produced by the Redfield Facility once commercial production of isobutanol has begun. Additionally, Gevo, Inc. will license the technology necessary to produce isobutanol at the Redfield Facility to Redfield, subject to the continuation of the marketing arrangement described above. In the event that the isobutanol production technology fails or Redfield is permanently prohibited from using such technology, Gevo Development will forfeit the Class G Units and lose the value of its investment in Redfield.

Gevo, Inc. entered into a guaranty effective as of June 2011, pursuant to which it has unconditionally and irrevocably guaranteed the payment by Gevo Development of any and all amounts owed by Gevo Development pursuant to the terms and conditions of the Joint Venture Agreement and certain other agreements that Gevo Development and Redfield expect to enter into in connection with the retrofit of the Redfield Facility.

As of December 31, 2015, the Company has incurred $0.4 million in preliminary project engineering and permitting process costs for the future retrofit of the Redfield Facility which have been recorded on the Company’s consolidated balance sheets in deposits and other assets. Gevo has no obligation to Retrofit the Redfield Facility.

   

 

15.

13. Income Taxes  

There is no provision for income taxes because the Company has incurred operating losses since inception. As of December 31, 2015,2017, the Company had federal and state net operating loss carryforwards of approximately $307.9$359.2 million and $336.7 million, respectively, which may be used to offset future taxable income. The Company also had federal research and development tax credit carryforwards and other federal tax credit carryforwards which aggregate to $5.6$3.5 million at December 31, 2015.2017. These carryforwards expire at various times through 20352037 and may be limited in their annual usage by Section 382 of the Internal Revenue Code, as amended, relating to ownership changes.

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,

 

December 31,

2015

 

 

2014

 

2017

 

 

2016

 

 

Deferred tax assets:

 

 

 

 

 

 

 

Deferred tax assets, net:

 

 

 

 

 

 

 

 

Net operating loss carryforwards

$

123,647

 

 

$

115,870

 

$

100,631

 

 

$

133,514

 

 

Research and other credits

 

5,610

 

 

 

6,047

 

 

3,482

 

 

 

3,482

 

 

Other temporary differences

 

4,804

 

 

 

(2,478

)

 

3,266

 

 

 

2,319

 

 

Deferred tax assets - before valuation allowance

 

134,061

 

 

 

119,439

 

 

107,379

 

 

 

139,315

 

 

Valuation allowance

 

(134,061

)

 

 

(119,439

)

 

(107,379

)

 

 

(139,315

)

 

Net deferred tax assets - after valuation allowance

$

-

 

 

$

-

 

$

-

 

 

$

-

 

 

 

 

The Company’s deferred tax assets represent an unrecognized future tax benefit.

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, 2015.2017. The Company has provided a full valuation allowance on its deferred tax assets at December 31, 20152017 and 2014,2016, as management believes it is more likely than not that the related deferred tax asset will not be realized. The reported

108


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

amount of income tax expense differs from the amount that would result from applying domestic federal statutory tax rates to pretax losses, primarily because of changes in the valuation allowance.

The following table sets forth reconciling items from income tax computed at the statutory federal rate.  

 

Year Ended December 31,

 

Year Ended December 31,

 

2015

 

 

2014

 

 

2013

 

2017

 

 

2016

 

 

2015

 

Federal income tax at statutory rate

 

35.0

%

 

 

35.0

%

 

 

35.0

%

 

35.0

%

 

 

35.0

%

 

 

35.0

%

State income taxes, net of federal benefits

 

5.4

%

 

 

4.5

%

 

 

5.7

%

 

7.5

%

 

 

2.9

%

 

 

5.4

%

Research and other credits

 

-1.2

%

 

 

-1.3

%

 

 

-2.2

%

 

0.0

%

 

 

(5.8

%)

 

 

(1.2

%)

Impact of change in statutory tax rates

 

(183.8

%)

 

 

0.0

%

 

 

0.0

%

Permanent deductions

 

-4.0

%

 

 

-2.2

%

 

 

-1.5

%

 

7.5

%

 

 

(18.0

%)

 

 

(4.0

%)

Valuation allowance

 

-35.2

%

 

 

-36.0

%

 

 

-37.0

%

 

133.8

%

 

 

(14.1

%)

 

 

(35.2

%)

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

0.0

%

 

 

(0.0

%)

 

 

0.0

%

 

 

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 has concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements. The Company’s evaluation was performed for the tax periods from inception to December 31, 2015,2017, which remain subject to examination by major tax jurisdictions as of December 31, 2015.2017.

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

98


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

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.

In December 2017, the federal government of the United States of America passed the “Tax Cuts and Jobs Act”. The Company has evaluated the impact, if any, on the Company’s financial statements, including tax disclosures. As of December 31, 2017, the Company does not consider the new tax reform to materially impact to the Company’s financial statements except for certain reductions in the estimated valuation of net operating loss carryforwards and the associated offsetting valuation allowance.  

 

16.

14. 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. Effective January 2013, the Company elected to cease providing an employer match.

 

17.15. Commitments and Contingencies

Leases. During the year ended December 31, 2012, the Company entered into a six year software license agreement. The Company concluded that the software license agreement qualifies as a capital lease. Accordingly, at December 31, 2015,2017 and 2016, the Company had capital lease liabilities of $0.2 million zeroand $0.2$0.1 million included in accounts payable and accrued liabilities and other long-term liabilities, respectively on its consolidated balance sheet. At December 31, 2014, the Company had capital lease liabilities of $0.2 million and $0.3 million included in accounts payable and accrued liabilities and other long-term liabilities, respectively on its consolidated balance sheets.

The Company has an operating lease for its office, research, and production facility in Englewood, Colorado (the “Colorado Facility”) with a term expiring in July 2021. The Company also maintains a corporate apartment in Colorado, which has a lease term expiring during the next 12 months. The Company maintains an operating lease for rail cars Luverne Facility, with the lease term expiring in July 2020.

Rent expense for the years ended December 31, 2017, 2016 and 2015 2014 and 2013 was $0.5$1.6 million, $0.5$1.7 million, and $0.6$1.6 million, respectively. The Company recognizes rent expense on its operating leases on a straight-line basis.

109


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

The table below shows the future minimum payments under non-cancelable operating leases and capital leases at December 31, 20152017 (in thousands).

 

Operating Leases

 

 

Capital Lease

 

 

Total Lease Payments

 

Operating Leases

 

2016

 

1,530

 

 

 

162

 

 

 

1,692

 

2017

 

1,475

 

 

 

167

 

 

 

1,642

 

2018

 

1,483

 

 

 

-

 

 

 

1,483

 

$

1,421

 

2019

 

968

 

 

 

-

 

 

 

968

 

 

907

 

2020 and Thereafter

 

661

 

 

 

-

 

 

 

661

 

2020

 

394

 

2021

 

200

 

2022

 

-

 

Thereafter

 

-

 

Total

$

6,117

 

 

$

329

 

 

$

6,446

 

$

2,922

 

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, 2015 and 2014,2017and 2016, the Company did not have any liabilities associated with indemnities.

In addition, the Company, as permitted under Delaware law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, 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

99


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

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, 2015.2017.

 

 

18.16. Fair Value Measurements and Fair Value of Financial Instruments

Accounting standards define fair value, outline a framework for measuring fair value, and detail the required disclosures about fair value measurements. Under these standards, fair value is defined 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. Standards establish a hierarchy in determining the fair market value of an asset or liability. The fair value hierarchy has three levels of inputs, both observable and unobservable. Standards require the utilization of the highest possible level of input to determine fair value.

Level 1 – inputs include quoted market prices in an active market for identical assets or liabilities.

Level 1 – inputs include quoted market prices in an active market for identical assets or liabilities.

Level 2 – inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.

Level 2 – inputs are market data, other than Level 1, that are observable either directly or indirectly. Level 2 inputs include quoted market prices for similar assets or liabilities, quoted market prices in an inactive market, and other observable information that can be corroborated by market data.

Level 3 – inputs are unobservable and corroborated by little or no market data.

Level 3 – inputs are unobservable and corroborated by little or no market data.

100


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

These tables present the carrying value and fair value, by fair value hierarchy, of our financial instruments, excluding cash and cash equivalents, accounts receivable and accounts payable; as carrying value approximately fair value due to their short-term nature; at December 31, 2017 and 2016, respectively (in thousands).

 

 

 

 

 

Fair Value Measurements at December 31, 2017 (In thousands)

 

 

Fair Value at

December 31, 2017

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

Recurring:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Warrant Liability

$

1,951

 

 

$

-

 

 

$

-

 

 

$

1,951

 

2020 Notes Embedded Derivative Liability

 

5,224

 

 

 

-

 

 

 

-

 

 

 

5,224

 

Total Recurring Fair Value Measurements

$

7,175

 

 

$

-

 

 

$

-

 

 

$

7,175

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonrecurring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corn and finished goods inventory

$

1,916

 

 

$

189

 

 

$

1,727

 

 

$

-

 

 

$

1,916

 

 

$

189

 

 

$

1,727

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2016 (In thousands)

 

 

Fair Value at

December 31, 2016

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

Recurring:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Warrant Liability

$

2,698

 

 

$

-

 

 

$

1,884

 

 

$

814

 

2017 Notes

 

25,769

 

 

 

-

 

 

 

-

 

 

 

25,769

 

Total Recurring Fair Value Measurements

$

28,467

 

 

$

-

 

 

$

1,884

 

 

$

26,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonrecurring

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corn and finished goods inventory

$

1,327

 

 

$

108

 

 

$

1,219

 

 

$

-

 

 

$

1,327

 

 

$

108

 

 

$

1,219

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using Significant Unobservable Inputs

(Level 3) (in thousands)

 

 

 

Derivative Warrant Liability

 

 

2017 Notes

 

 

2020 Embedded Derivative Liability

 

Opening Balance

 

$

814

 

 

$

25,769

 

 

$

-

 

Transfers into Level 3

 

 

1,884

 

 

 

-

 

 

 

-

 

Transfers out of Level 3

 

 

-

 

 

 

-

 

 

 

-

 

Total (gains) or losses for the period

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

(5,101

)

 

 

339

 

 

 

(1,751

)

Included in other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

Purchases, issues, sales and settlements

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

 

 

-

 

 

 

-

 

 

 

-

 

Issues

 

 

5,671

 

 

 

-

 

 

 

6,975

 

Sales

 

 

-

 

 

 

-

 

 

 

-

 

Settlements

 

 

(1,317

)

 

 

(26,108

)

 

 

-

 

Closing balance

 

$

1,951

 

 

$

-

 

 

$

5,224

 

101


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

Fair Value Methodology

Inventories.The Company records its corn inventory at fair value only when the Company’s cost of corn purchased exceeds the market value for corn. The Company determines the market value of corn and dry distiller’s grain based upon Level 1 inputs using quoted market prices. The Company incurred a write-down of inventory of $0.3 million and $0.1 million for the twelve months ended December 31, 2015 and 2014, respectively. The Company records its ethanol, isobutanol and hydrocarbon inventory at average cost.market using Level 2 inputs.   

Secured Debt. The Company has estimated the fair value of its secured debt obligations based upon discounted cash flows with Level 3 inputs, such as the terms that management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and other market factors.

110


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

2017 Notes.  The Company hashad estimated the fair value of the 2017 Notes to be $21.6 million and $25.5$25.8 million at December 31, 2015 and 2014, respectively, based upon Level 2 inputs, including the market price of the Company’s common stock.2016, utilizing a binomial lattice model. The Company has valuedderecognized the liability when it exchanged the 2017 Notes and all of its components using the fair value option as there are no embedded instruments which qualify for equity presentation. See Note 8 for the fair value inputs used to estimate2020 Notes on June 20, 2017, and the fair valueobligation now is accounted for as a component of the 2017 Notes. On the date of issuance in May 2014, the 20172020 Notes were a term loan and recorded at fair value at that date.related 2020 Note Embedded Liability.

20222020 Notes Embedded Derivative.  The Company has estimated the fair value of the 20222020 Notes including the embedded derivative, to be $14.6$13.5 million at June 20, 2017, the date the Company exchanged the 2017 Notes for the 2020 Notes, utilizing a binomial lattice model. The Company has elected to account for the 2020 Notes using the amortized cost method and $19.4reported at $13.5 million, net of debt discount and issuance costs at December 31, 2015 and 2014, respectively, based upon Level 2 inputs, including the market price of the 20222017.

2020 Notes derived from actual trades of the 2022 Notes.Embedded Derivative. The Company had estimated the fair value of the embedded derivative on a stand-alone basis to be $0.0 million and $0.0$5.2 million at December 31, 20152017 based upon Level 3 inputs. See Note 6, Embedded Derivatives and 2014,Derivative Warrant Liabilities, for the fair value inputs used to estimate the fair value of the 2020 Notes with and without the embedded derivative and the fair value of the embedded derivative.

2022 Notes Embedded Derivative. The Company had estimated the fair value of the embedded derivative on a stand-alone basis to be $0 million at December 31, 2017 and December 31, 2016, respectively, based upon Level 23 inputs. See Note 6, Embedded Derivatives and Derivative Warrant Liabilities, for the fair value inputs used to estimate the fair value of the 2022 Notes with and without the embedded derivative and the fair value of the embedded derivative.

Derivative Warrant Liability. In December 2013,Prior to 2017, the Company issued the 2013 Warrants to purchase 1,420,250 shares of the Company’s common stock. Based on the terms of the 2013 Warrants, the Company determined the 2013 Warrants qualified as a derivative and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period.  The Company determined the estimated fair value of the 2013 Warrants as of December 31, 2014 to be $1.4 million based upon Level 2 inputs, utilizing an analysis of actual historical market trades of the 2013 Warrants and the Black Scholes model.   The Company determined the estimated fair value of the 2013 Warrants as of December 31, 2015 to be $0.2 million based upon Level 3 inputs utilizing the Black Scholes model due to the lack of market trades of the 2013 Warrants during the period.

In August of 2014, the Company issued 2014 Warrants to purchase 1,000,000 shares of the Company’s common stock. Based on the terms of the 2014 Warrants, the Company determined the 2014 Warrants qualify as a derivative and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The Company determined the estimated fair value of the 2014 Warrants as of December 31, 2014 to be $1.7 million based upon Level 2 inputs utilizing an analysis of actual historical market trades of the 2014 Warrants. The Company determined the estimated fair value of the 2014 Warrants as of December 31, 2015 to be $0.1 million based upon Level 3 inputs utilizing the Black Scholes model. The Company relied on Level 3 inputs for estimating the fair value of the 2014 Warrants as of December 31, 2015 due to the lack of market trades of the 2014 Warrants during the period.

In February of 2015, the Company issued Series A Warrants to purchase 2,216,667 shares of the Company’s common stock.  Based on the terms of the Series A Warrants, the Company determined that the Series A Warrants qualify as a derivative and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The Company determined the estimated fair value of the Series A Warrants at the issuance date of February 3, 2015 to be $1.4 million and as of December 31, 2015 to be $0.9 million based upon Level 3 inputs utilizing a Monte-Carlo simulation model. The Company relied on Level 3 inputs for estimating the fair value of the Series A, Warrants as of February 3, 2015Series F and December 31, 2015 due toSeries K warrants using a Monte-Carlo model (Level 3). For all other warrants the lack of market trades ofCompany valued these using a standard Black-Scholes model (Level 2). However, beginning in the first quarter 2017, the Company valued the Series A Warrants around those respective dates.

In FebruaryF and K using a Monte-Carlo model (Level 3) and other warrants using Black-Scholes models comprised of 2015,some inputs requiring the Company issued Series B Warrants to purchase 2,216,667 sharesuse of the Company’s common stock.  Based on the terms of the Series B Warrants, the Company determined that the Series B Warrants qualify as a derivative and, as such, are presented as a derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period.Monte-Carlo models (Level 3). The Company determined thehas estimated fair value of the Series B Warrants at the issuance date of February 3, 2015 to be $2.5 million based upon Level 3 inputs utilizing the Black Scholes model and as of December 31, 2015 to be $0.0 million as the Series B Warrants expired on August 3, 2015.

In May of 2015, the Company issued Series C Warrants to purchase 430,000 shares of the Company’s common stock.  Based on the terms of the Series C Warrants, the Company determined that the Series C Warrants qualify as a derivative and, as such, are presented as derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The Company determined the estimated fair value of the Series C Warrants at the issuance date of May 19, 2015 to be $1.2 million and as of December 31, 2015 to be $0.1 million based upon Level 3 inputs utilizing the Black Scholes model. The Company relied on Level 3 inputs for estimating the fair value of the Series C Warrants as of May 19, 2015 and December 31, 2015 due to the lack of market trades of the Series C Warrants around those respective dates.

In December 2015, we issued 10,050,000  Series D Warrants and 8,000,000 Series E Warrants. Based on the terms of the Series D Warrants and Series E Warrants, the Company determined that the each of the Series D Warrants and Series E Warrants qualify as a derivative and, as such, are presented as derivative warrant liability on the consolidated balance sheets and recorded at fair value each reporting period. The Company determined the estimated fair value of the Series D Warrants to be $5.7 million as of the issuance date and $5.2$2.0 million as of December 31, 2015 utilizing a Monte-Carlo simulation model.  The Company relied on Level 1 inputs for

111


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)2017.

 

estimating the fair value of the Series E Warrants, and determined the fair value to be $5.3 million as of the issuance date and $4.0 million as of December 31, 2015.    

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.

 

.

19..

17. Segments

We have determined that we have two operating segments: (i) Gevo, Inc. segment; and (ii) Gevo Development/Agri-Energy segment. We organize our business segments based on the nature of the products and services offered through each of our consolidated legal entities. Transactions between segments are eliminated in consolidation.  

Gevo Segment. Our Gevo segment is responsible for all research and development activities related to the future production of isobutanol, including the development of our proprietary biocatalysts, the production and sale of renewable jet and other fuels, our Retrofit process and the next generation of chemicals and biofuels that will be based on our isobutanol technology. Our Gevo segment also develops, maintains and protects our intellectual property portfolio, develops future markets for our isobutanol and provides corporate oversight services.

Gevo Development/Agri-Energy. Our Gevo Development/Agri-Energy segment is currently responsible for the operation of our Luverne Facility and the production of ethanol, isobutanol and related products.

102


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 Development, 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,

 

 

2017

 

 

2016

 

 

2015

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

1,097

 

 

$

2,425

 

 

$

2,911

 

Gevo Development / Agri-Energy

 

26,439

 

 

 

24,788

 

 

 

27,226

 

Consolidated

$

27,536

 

 

$

27,213

 

 

$

30,137

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

(10,603

)

 

$

(11,045

)

 

$

(19,723

)

Gevo Development / Agri-Energy

 

(12,679

)

 

 

(12,940

)

 

 

(12,204

)

Consolidated

$

(23,282

)

 

$

(23,985

)

 

$

(31,927

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

2,951

 

 

$

7,789

 

 

$

8,147

 

Gevo Development / Agri-Energy

 

-

 

 

 

48

 

 

 

96

 

Consolidated

$

2,951

 

 

$

7,837

 

 

$

8,243

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization expense:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

473

 

 

$

738

 

 

$

856

 

Gevo Development / Agri-Energy

 

6,168

 

 

 

6,009

 

 

 

5,717

 

Consolidated

$

6,641

 

 

$

6,747

 

 

$

6,573

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions of plant, property and equipment:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

120

 

 

$

350

 

 

$

7

 

Gevo Development / Agri-Energy

 

1,786

 

 

 

5,588

 

 

 

1,457

 

Consolidated

$

1,906

 

 

$

5,938

 

 

$

1,464

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2017

 

 

2016

 

 

 

 

 

Total assets:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

87,507

 

 

$

110,072

 

 

 

 

 

Gevo Development / Agri-Energy

 

149,758

 

 

 

156,749

 

 

 

 

 

Intercompany eliminations (1)

 

(148,412

)

 

 

(154,497

)

 

 

 

 

Consolidated (2)

$

88,853

 

 

$

112,324

 

 

 

 

 

(1)

Includes intercompany sales of $0.4 and $0.2 million, respectively for hydrocarbon sales.

��

(2)

All other significant non-cash items relate to the activities of Gevo

18. Subsequent Events

At-The-Market Offering Agreement

On February 13, 2018, the Company entered into an At-The-Market Offering Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (the “Agent”), which provides for the issuance and sale from time to time by the Company of up to $5,000,000 of shares of common stock, par value $0.01 per share (the “Shares”). The financial results of Gevo Development and Agri-EnergyShares have been aggregatedregistered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to our Registration Statement on Form S-3 (File No. 333-211370). Sales of the Shares, if any, may be made by any method permitted by law deemed to be an “at-the-market offering” as defined in Rule 415(a)(4) of the following table as this segment has historically been responsibleSecurities Act, including sales made directly on or through the Nasdaq Capital Market or any other existing trading market for the productionShares, in negotiated transactions at market prices prevailing at the time of ethanol andsale or at prices related products and will be responsible for the production of isobutanol and related products.to such prevailing

 

Year Ended December 31,

 

 

2015

 

 

2014

 

 

2013

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

2,911

 

 

$

4,718

 

 

$

4,822

 

Gevo Development / Agri-Energy

 

27,226

 

 

 

23,548

 

 

 

3,402

 

Consolidated

$

30,137

 

 

$

28,266

 

 

$

8,224

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

(19,723

)

 

$

(26,567

)

 

$

(39,745

)

Gevo Development / Agri-Energy

 

(12,204

)

 

 

(13,210

)

 

 

(15,770

)

Consolidated

$

(31,927

)

 

$

(39,777

)

 

$

(55,515

)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

8,147

 

 

$

10,446

 

 

$

5,815

 

Gevo Development / Agri-Energy

 

96

 

 

 

1,578

 

 

 

3,486

 

Consolidated

$

8,243

 

 

$

12,024

 

 

$

9,301

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

856

 

 

$

937

 

 

$

1,160

 

Gevo Development / Agri-Energy

 

5,717

 

 

 

3,943

 

 

 

2,233

 

Consolidated

$

6,573

 

 

$

4,880

 

 

$

3,393

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions of plant, property and equipment:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

7

 

 

$

116

 

 

$

591

 

Gevo Development / Agri-Energy

 

1,457

 

 

 

4,778

 

 

 

9,215

 

Consolidated

$

1,464

 

 

$

4,894

 

 

$

9,806

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2015

 

 

2014

 

 

 

 

 

Total assets:

 

 

 

 

 

 

 

 

 

 

 

Gevo

$

100,688

 

 

$

95,680

 

 

 

 

 

Gevo Development / Agri-Energy

 

157,663

 

 

 

49,961

 

 

 

 

 

Intercompany eliminations

 

(155,223

)

 

 

(46,713

)

 

 

 

 

Consolidated

$

103,128

 

 

$

98,928

 

 

 

 

 

112103


GEVO, INC.

Notes to Consolidated Financial Statements (Continued)

 

20. Subsequent Eventsmarket prices and/or any other method permitted by law.  The Company intends to use the net proceeds from this offering to fund working capital and for other general corporate purposes, which may include the repayment of outstanding indebtedness.

Notice

Eco-Energy Ethanol and Isobutanol Purchase and Marketing Agreement

During the first quarter of Deficiency from NASDAQ Stock Market

On January 25, 2016, we received2018, Agri-Energy, entered into an Ethanol and Isobutanol Purchase and Marketing Agreement (the “Agreement”) with Eco-Energy, LLC (“Eco-Energy”), which provides for the sale and marketing of ethanol produced at the Luverne Facility. Pursuant to the Agreement, Eco-Energy will purchase ethanol for its own use or account, or purchase ethanol to sell and market to third parties, at market prices at the time of a deficiency letter frompurchase order for the Listing Qualifications Departmentsale of the NASDAQ Stock Market, notifying us that,ethanol. Agri-Energy will also pay Eco-Energy a marketing fee for any product sold to third parties under the prior 30 consecutive business days,terms of the closing bid priceAgreement. Agri-Energy may also sell isobutanol to Eco-Energy under the terms of ourthe Agreement, however, Agri-Energy is under no obligation to sell any isobutanol to Eco-Energy.

Exchange of 2022 Notes

See Note 8 “Debt” for disclosure of the exchange of the 2022 Notes for shares of the Company’s common stock was not maintained at the minimum  required closing bid price of at least $1.00 per share as required for continued listing on the NASDAQ Capital Market. In accordance with NASDAQ Listing Rules, we have an initial compliance period of 180 calendar days, or until July 23, 2016, to regain compliance with this requirement. To regain compliance, the closing bid price of our common stock must be $1.00 per share or more for a minimum of 10 consecutive business days at any time before July 25, 2016.  If we regain compliance,  NASDAQ will have provided written notification and close the matter.

If we do not regain compliance by July 25, 2016, we may be eligible for an additional 180 calendar day compliance period.  To qualify, the Company would need to meet the continued listing requirement for market value of publicly held shares ($1 million), and all other initial listing standards, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency, or if the Company is otherwise not eligible, NASDAQ would notify the company that its securities would be subject to delisting.  In the event of such a notification, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.

Licensing Agreement with Porta.

In January 2016, we entered into a license agreement and joint development agreement with Porta to construct multiple isobutanol plants in Argentina using corn as a feedstock, the first quarter of which is expected to be wholly owned by Porta and is anticipated to begin producing isobutanol in 2017.  The plant is expected to have a production capacity of up to five million gallons of isobutanol per year. Once the plant is operational, Gevo expects to generate revenues from this licensing arrangement, through royalties, sales and marketing fees, and other revenue streams such as yeast sales. The agreements also contemplate Porta constructing at least three additional isobutanol plants for certain of their existing ethanol plant customers. For these projects, Gevo would be the direct licensor of its technology and the marketer for any isobutanol produced, and would expect to receive all royalties and sales and marketing fees generated from these projects. Porta would provide the EPC services for the projects. The production capacity of these additional plants is still to be determined.2018.

 

 

 


Item 9.

Changes in and Disagreements with AccountantsAccountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and ChiefPrincipal Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosures.

Based on their evaluation as of December 31, 2015,2017, our Chief Executive Officer and ChiefPrincipal Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2015.2017.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

In connection with the preparation of the interim financial statements for the third quarter ended September 30, 2014, management identified a material weakness in internal control over financial reporting related to the accounting for the offering costs and common stock warrants related to the August 2014 offering. As a result management implemented remediation steps to address the material weakness and to improve the internal controls over financial reporting. Specifically, management enhanced controls and policies with respect to review and analysis of all working papers, performed additional analysis of our accounting treatments, and engaged outside specialists to perform, review and document the accounting treatment of non-rountine transactions.  As of December 31, 2015, the Company’s management believes the identified material weakness has been remediated.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and ChiefPrincipal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control—Integrated Framework (1992(2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based upon the results of the evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2015.2017.

Changes in Internal Control Over Financial Reporting

Except as set forth above, there have beenThere were no changes in our internal control over financial reporting during the fourth quarter of 2015ended December 31, 2017 that have  materially affected, or are reasonably likely to materially affect, our internal control over financial reporting identified in connection with the previously mentioned evaluation.  reporting.


Item 9B.

Other Information

In December 2016,

As previously disclosed, in June 2011, we entered into the First Amendmentan Isobutanol Joint Venture Agreement (the “Joint Venture Agreement”) with Redfield Energy, LLC (“Redfield”), under which we agreed to Leasework with Hines REIT 345 Inverness Drive, LLC, effective as of December 11, 2015.  This amendment of our lease for our corporate headquarters extended the term until July 2021 and reduced the amount of leased space from 29,865 square feetRedfield to approximately 19,241 square feet, effective July 2016.  We believe that theRetrofit Redfield’s  ethanol production facility with the reduced square footage will be adequate for our needslocated near Redfield, South Dakota for the immediate futurecommercial production of isobutanol.  On November 5, 2017, we entered into an Agreement with Redfield, pursuant to which we and that, should it be needed, additional space can be leased to accommodate any future growth.  

Effective February 2, 2016, Gevo terminated the Exclusive License Agreement, by and between Gevo and The Regents of the University of California, dated September 6, 2007, as amended (the “UCLA License”).  Gevo electedRedfield agreed to terminate this agreement because Gevo determined itthe Joint Venture Agreement in all respects.  There are no longer needed the UCLA License for its business.

Effective March 28, 2016, the Development Agreementtermination fees or other obligations of either party in connection with ICM, Inc. (“ICM”), dated October 16, 2008 and the Commercialization Agreement with ICM, dated October 16, 2008, as amended, were terminated.  Gevo and ICM elected to terminate these agreements because the agreements were no longer deemed to be in the best interest of the parties due to the passage of time and the development of their respective businesses.

Effective March 28, 2016, Gevo terminated the License Agreement with Cargill Incorporated, dated February 19, 2009.  Gevo elected to terminate this agreement because Gevo determined it no longer needed the Cargill technology for its business.such termination.

 

 

 


PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The information required by this item will be included in the definitive proxy statement for our 20162018 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2015,2017, and is incorporated into this Report by reference.

Item 11.

Executive Compensation

The information required by this item will be included in the definitive proxy statement for our 20162018 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2015,2017, and is incorporated into this Report by reference.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item will be included in the definitive proxy statement for our 20162018 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2015,2017, and is incorporated into this Report by reference.

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this item will be included in the definitive proxy statement for our 20162018 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2015,2017, and is incorporated into this Report by reference.

Item 14.

Principal Accountant Fees and Services

The information required by this item will be included in the definitive proxy statement for our 20162018 annual meeting of stockholders or an amendment to this Report to be filed with the SEC within 120 days after our fiscal year ended December 31, 2015,2017, and is incorporated into this Report by reference.

 

 

 


PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

(a)(1) Financial Statements

The following consolidated financial statements are included:

 

 

Page

Report of Independent Registered Public Accounting Firm

7771

Consolidated Balance Sheets

7972

Consolidated Statements of Operations

8073

Consolidated Statements of Stockholders’ Equity

8174

Consolidated Statements of Cash Flows

8275

Notes to Consolidated Financial Statements

8578

(a)(2) Financial Statement Schedules

All financial statement schedules have been omitted because they are not applicable or are not required, or because the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

 


(a)(3) Exhibits

 

 

 

 

 

 

Previously Filed

 

 

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

Exhibit

No.

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

3.1

 

 

Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

 

10-K

 

 

001-35073

 

 

March 29, 2011

 

 

3.1

 

 

 

Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

10-K

 

001-35073

 

March 29, 2011

 

3.1

 

 

3.2

 

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

 

8-K

 

 

001-35073

 

 

June 10, 2013

 

 

3.1

 

 

 

Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

8-K

 

001-35073

 

June 10, 2013

 

3.1

 

 

3.3

 

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

 

8-K

 

 

001-35073

 

 

July 9, 2014

 

 

3.1

 

 

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

8-K

 

001-35073

 

July 9, 2014

 

3.1

 

 

3.4

 

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

 

8-K

 

 

001-35073

 

 

April 22, 2015

 

 

3.1

 

 

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

8-K

 

001-35073

 

April 22, 2015

 

3.1

 

 

3.5

 

 

Amended and Restated Bylaws of Gevo, Inc.

 

 

10-K

 

 

001-35073

 

 

March 29, 2011

 

 

3.2

 

 

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Gevo, Inc.

 

8-K

 

001-35073

 

January 6, 2017

 

3.1

 

 

3.6

 

Amended and Restated Bylaws of Gevo, Inc.

 

10-K

 

001-35073

 

March 29, 2011

 

3.2

 

 

4.1

 

 

Form of the Gevo, Inc. Common Stock Certificate.

 

 

S-1

 

 

333-168792

 

 

January 19, 2011

 

 

4.1

 

 

 

Form of the Gevo, Inc. Common Stock Certificate.

 

S-1

 

333-168792

 

January 19, 2011

 

4.1

 

 

4.2

 

 

Fifth Amended and Restated Investors’ Rights Agreement, dated March 26, 2010.

 

 

S-1

 

 

333-168792

 

 

August 12, 2010

 

 

4.2

 

 

 

Fifth Amended and Restated Investors’ Rights Agreement, dated March 26, 2010.

 

S-1

 

333-168792

 

August 12, 2010

 

4.2

 

 

4.3†

 

 

Stock Issuance and Stockholder’s Rights Agreement, by and between Gevo, Inc. and California Institute of Technology, dated July 12, 2005.

 

 

S-1

 

 

333-168792

 

 

August 12, 2010

 

 

4.3

 

 

 

Stock Issuance and Stockholder’s Rights Agreement, dated July 12, 2005, by and between Gevo, Inc. and California Institute of Technology.

 

S-1

 

333-168792

 

August 12, 2010

 

4.3

 

 

4.4

 

 

Amended and Restated Warrant to purchase shares of Common Stock issued to CDP Gevo, LLC, dated September 22, 2010.

 

 

S-1

 

 

333-168792

 

 

October 1, 2010

 

 

4.4

 

 

 

Amended and Restated Warrant to purchase shares of Common Stock issued to CDP Gevo, LLC, dated September 22, 2010.

 

S-1

 

333-168792

 

October 1, 2010

 

4.4

 

 

4.5

 

 

Warrant to purchase shares of Preferred Stock, issued to Virgin Green Fund I, L.P., dated January 18, 2008.

 

 

S-1

 

 

333-168792

 

 

August 12, 2010

 

 

4.9

 

 

4.6

 

 

Plain English Warrant Agreement No. 0647-W-01, by and between Gevo, Inc. and TriplePoint Capital LLC, dated August 5, 2010.

 

 

S-1

 

 

333-168792

 

 

October 1, 2010

 

 

4.11

 

 

 

Plain English Warrant Agreement No. 0647-W-01, dated August 5, 2010, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

S-1

 

333-168792

 

October 1, 2010

 

4.11

 

 

4.7

 

 

Plain English Warrant Agreement No. 0647-W-02, by and between Gevo, Inc. and TriplePoint Capital LLC, dated August 5, 2010.

 

 

S-1

 

 

333-168792

 

 

October 1, 2010

 

 

4.12

 

 

 

Plain English Warrant Agreement No. 0647-W-02, dated August 5, 2010, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

S-1

 

333-168792

 

October 1, 2010

 

4.12

 

 

4.8

 

 

Plain English Warrant Agreement No. 0647-W-03, by and between Gevo, Inc. and TriplePoint Capital LLC, dated October 20, 2011.

 

 

8-K

 

 

001-35073

 

 

October 26, 2011

 

 

10.7

 

 

 

Plain English Warrant Agreement No. 0647-W-03, dated October 20, 2011, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

October 26, 2011

 

10.7

 

 

4.9

 

 

First Amendment to Plain English Warrant Agreement, relating to Warrant Number 0647-W- 01, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

4.1

 

 

 

First Amendment to Plain English Warrant Agreement, relating to Warrant Number 0647-W- 01, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

December 12, 2013

 

4.1

 

 

4.10

 

 

First Amendment to Plain English Warrant Agreement, relating to Warrant Number 0647-W- 02, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

4.2

 

 

 

First Amendment to Plain English Warrant Agreement, relating to Warrant Number 0647-W- 02, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

December 12, 2013

 

4.2

 

 

4.11

 

 

First Amendment to Plain English Warrant Agreement, relating to Warrant Number 0647-W- 03, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

4.3

 

 

 

First Amendment to Plain English Warrant Agreement, relating to Warrant Number 0647-W- 03, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

December 12, 2013

 

4.3

 

 

4.12

 

 

Common Stock Warrant, issued to Genesis Select Corporation, dated June 6, 2013.

 

 

10-Q

 

 

001-35073

 

 

August 14, 2013

 

 

4.9

 

 

 

Common Stock Warrant, issued to Genesis Select Corporation, dated June 6, 2013.

 

10-Q

 

001-35073

 

August 14, 2013

 

4.9

 

 


 

 

 

 

 

Previously Filed

 

 

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

Exhibit

No.

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

4.13

 

 

Common Stock Unit Warrant Agreement, dated December 16, 2013, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

4.1

 

 

 

Common Stock Unit Warrant Agreement, dated December 16, 2013, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

8-K

 

001-35073

 

December 12, 2013

 

4.1

 

 

4.14

 

 

Indenture, dated as of July 5, 2012, between Gevo, Inc. and Wells Fargo Bank, National Association, as trustee.

 

 

8-K

 

 

001-35073

 

 

July 5, 2012

 

 

4.1

 

 

 

Exchange and Purchase Agreement, dated April 19, 2017, by and among Gevo, Inc., the guarantors party thereto, the holders named in Schedule I thereto, and Whitebox Advisors LLC, in its capacity as representative of the holders.

 

8-K

 

001-35073

 

April 20, 2017

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.15

 

First Supplemental Indenture, dated as of July 5, 2012, to the Indenture dated as of July 5, 2012, by and among Gevo, Inc. and Wells Fargo Bank, National Association, as trustee.

 

8-K

 

001-35073

 

July 5, 2012

 

4.2

 

 

 

Indenture, dated June 20, 2017, by and among Gevo, Inc., the guarantors party thereto, and Wilmington Savings Fund Society, FSB, as trustee and collateral trustee.

 

8-K

 

001-35073

 

June 20, 2017

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.16†

 

Indenture by and among Gevo, Inc., the guarantors named on the signature page thereto and Wilmington Savings Fund Society, FSB, dated June 6, 2014 (for 10% Convertible Senior Secured Notes due 2017).

 

8-K

 

001-35073

 

June 12, 2014

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.16

 

Registration Rights Agreement, dated June 20, 2017, by and among Gevo, Inc. and the investors named therein.

 

8-K

 

001-35073

 

June 20, 2017

 

4.2

 

 

4.17

 

First Supplemental Indenture, dated July 31, 2014, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee, and WB Gevo, Ltd., as Requisite Holder.

 

8-K

 

001-35073

 

August 1, 2014

 

4.1

 

 

 

Common Stock Unit Warrant Agreement, dated August 5, 2014, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

8-K

 

001-35073

 

August 6, 2014

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.18

 

Second Supplemental Indenture and First Amendment to Pledge and Security Agreement, dated January 28, 2015, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee, and WB Gevo, Ltd.

 

8-K

 

001-35073

 

January 30, 2015

 

4.1

 

 

 

2015 Common Stock Unit Series A Warrant Agreement, dated August 5, 2014, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

8-K

 

001-35073

 

February 4, 2015

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.19†

 

Exchange and Purchase Agreement by and among Gevo, Inc., Gevo Development, LLC, Agri-Energy, LLC, WB Gevo, Ltd., Whitebox Advisors LLC, in its capacity as administrative agent, and Whitebox Advisors LLC, in its capacity as representative of the Purchaser, and each other party who thereafter executes and delivers a Joinder Agreement, dated May 9, 2014.

 

8-K

 

001-35073

 

May 23, 2014

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.19

 

2015 Common Stock Unit Series C Warrant Agreement, dated May 19, 2015, by and between Gevo, Inc. and the American Stock Transfer & Trust Company LLC.

 

8-K

 

001-35037

 

May 20, 2015

 

4.1

 

 

4.20

 

Registration Rights Agreement by and among Gevo, Inc., WB Gevo, Ltd., and each other party who thereafter executes and delivers a Joinder Agreement, dated May 9, 2014.

 

8-K

 

001-35073

 

May 15, 2014

 

4.2

 

 

 

Form of Series D Warrant to Purchase Common Stock.

 

8-K

 

001-35037

 

December 15, 2015

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.21

 

Common Stock Unit Warrant Agreement, dated August 5, 2014, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

8-K

 

001-35073

 

August 6, 2014

 

4.1

 

 

 

Form of Amendment No. 1 to Series D Warrant.

 

8-K

 

001-35037

 

June 13, 2016

 

4.3

 

 

4.22

 

 

2015 Common Stock Unit Series A Warrant Agreement, dated August 5, 2014, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

 

8-K

 

 

001-35073

 

 

February 4, 2015

 

 

4.1

 

 

 

Form of Series F Warrant to Purchase Common Stock.

 

8-K

 

001-35037

 

April 5, 2016

 

4.1

 

 

4.23

 

 

2015 Common Stock Unit Series B Warrant Agreement, dated August 5, 2014, by and between Gevo, Inc. and the American Stock Transfer & Trust Company, LLC.

 

 

8-K

 

 

001-35073

 

 

February 4, 2015

 

 

4.2

 

 

 

Form of Series I Warrant to Purchase Common Stock.

 

8-K

 

001-35037

 

September 15, 2016

 

4.1

 

 

4.24

 

Form of Series K Warrant to Purchase Common Stock.

 

8-K

 

001-35037

 

February 22, 2017

 

4.1

 

 

10.1†

 

Ethanol Purchasing and Marketing Agreement, dated April 1, 2009, by and between C&N Ethanol Marketing Corporation and Agri-Energy, LP.

 

S-1

 

333-168792

 

November 4, 2010

 

10.26

 

 

10.2†

 

License Agreement, dated July 12, 2005, by and between Gevo, Inc. and the California Institute of Technology, as amended.

 

S-1

 

333-168792

 

November 4, 2010

 

10.6

 

 

10.3

 

Amendment No. 4, dated October 1, 2010, to the License Agreement, by and between Gevo, Inc. and the California Institute of Technology, dated July 12, 2005.  

 

S-1

 

333-168792

 

October 21, 2010

 

10.10

 

 


 

 

 

 

 

 

Previously Filed

 

 

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.24

 

Third Supplemental Indenture, dated  May 13, 2015, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee, Wilmington Savings Fund Society, FSB, as collateral trustee, and WB Gevo, Ltd., as Requisite Holder

 

8-K

 

001-35037

 

May 15, 2015

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.25

 

2015 Common Stock Unit Series C Warrant Agreement, dated May 19, 2015 by and between Gevo, Inc. and the American Stock Transfer & Trust Company LLC.

 

8-K

 

001-35037

 

May 20, 2015

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.26

 

Fourth Supplemental Indenture, dated June 1, 2015, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee, Wilmington Savings Fund Society, FSB, as collateral trustee, and WB Gevo, Ltd., as Requisite Holder.

 

10-Q

 

001-35037

 

August 7, 2015

 

4.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.27

 

Fifth Supplemental Indenture, dated August 22, 2015, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee, Wilmington Savings Fund Society, FSB, as collateral trustee, and WB Gevo, Ltd., as Requisite Holder.

 

10-Q

 

001-35037

 

November 5, 2015

 

4.27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.28

 

Seventh Supplemental Indenture, dated December 7, 2015, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee and collateral trustee, and WB Gevo, Ltd., as Requisite Holder.

 

8-K

 

001-35037

 

December 9, 2015

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.29

 

Form of Series D Warrant To Purchase Common Stock.

 

8-K

 

001-35037

 

December 15, 2015

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  4.30

 

Form of Series E Warrant To Purchase Common Stock.

 

8-K

 

001-35037

 

December 15, 2015

 

4.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.31

 

Eighth Supplemental Indenture, dated March 28, 2016, by and among Gevo, Inc., the guarantors party thereto, Wilmington Savings Fund Society, FSB, as trustee and collateral trustee, and WB Gevo, Ltd., as Requisite Holder.

 

8-K

 

001-35037

 

March 29, 2016

 

4.1

 

 

 

10.1

 

 

Plain English Growth Capital Loan and Security Agreement, by and between Gevo Inc. and TriplePoint Capital, LLC, dated August 5, 2010.

 

 

S-1

 

 

333-168792

 

 

October 21, 2010

 

 

10.23

 

 

 

10.2

 

 

First Amendment to Plain English Growth Capital Loan and Security Agreement, by and between Gevo Inc. and TriplePoint Capital, LLC, dated August 5, 2010.

 

 

8-K

 

 

001-35073

 

 

October 26, 2011

 

 

10.2

 

 

 

10.3

 

 

Plain English Growth Capital Loan and Security Agreement, by and between Gevo Development, LLC and TriplePoint Capital, LLC, dated August 5, 2010.

 

 

S-1

 

 

333-168792

 

 

October 21, 2010

 

 

10.24

 

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

No.

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

10.6#

 

Gevo, Inc. 2006 Omnibus Securities and Incentive Plan.

 

S-1

 

333-168792

 

August 12, 2010

 

10.11

 

 

10.7#

 

Form of Stock Option Agreement under the 2006 Omnibus Securities and Incentive Plan.

 

S-1

 

333-168792

 

August 12, 2010

 

10.13

 

 

10.8#

 

Gevo, Inc. Amended and Restated 2010 Stock Incentive Plan.

 

10-Q

 

001-35073

 

November 14, 2016

 

10.4

 

 

10.9#

 

Form of Restricted Stock Unit Agreement under the 2010 Stock Incentive Plan.

 

S-1

 

333-168792

 

January 19, 2011

 

10.15

 

 

10.10#

 

Form of Restricted Stock Award Agreement under the 2010 Stock Incentive Plan.

 

10-K

 

001-35073

 

March 29, 2011

 

10.21

 

 

10.11#

 

Form of Stock Option Award Agreement under the 2010 Stock Incentive Plan.

 

10-K

 

001-35073

 

March 29, 2011

 

10.22

 

 

10.12#

 

Gevo, Inc. Employee Stock Purchase Plan.

 

S-8

 

333-172771

 

March 11, 2011

 

4.7

 

 

10.13#

 

Gevo, Inc. Executive Health Management Plan.

 

10-Q

 

001-35073

 

November 2, 2011

 

10.1

 

 

10.14#

 

Form of Indemnification Agreement between Gevo, Inc. and its directors and officers.

 

S-1

 

333-168792

 

January 19, 2011

 

10.33

 

 

10.15#

 

Employment Agreement, dated June 4, 2010, by and between Gevo, Inc. and Patrick Gruber.

 

S-1

 

333-168792

 

November 4, 2010

 

10.14

 

 

10.16#

 

Amendment Agreement, dated December 21, 2011, by and between Gevo, Inc. and Patrick Gruber.

 

8-K

 

001-35073

 

December 27, 2011

 

10.1

 

 

10.17#

 

Second Amendment Agreement, dated February 16, 2015, by and between Gevo, Inc. and Patrick Gruber.

 

8-K

 

001-35073

 

February 17, 2015

 

10.1

 

 

10.18#

 

Employment Agreement, dated June 4, 2010, by and between Gevo, Inc. and Christopher Ryan.

 

S-1

 

333-168792

 

November 4, 2010

 

10.16

 

 

10.19#

 

Offer Letter, dated April 10, 2014, by and between Gevo, Inc. and Mike Willis.

 

10-K

 

001-35073

 

April 15, 2014

 

10.38

 

 

10.20#†

 

Transaction Bonus Agreement, dated September 6, 2016, by and between Gevo, Inc. and Mike Willis.

 

10-K

 

001-35073

 

March 31, 2017

 

10.20

 

 

10.21#

 

Offer of Employment Letter, dated December 21,2015, for Geoffrey T. Williams, Jr.

 

10-Q

 

001-35073

 

May 9, 2017

 

10.1

 

 

10.22#

 

Change of Control Agreement for Geoffrey T. Williams, Jr., dated February 18, 2016.

 

10-Q

 

001-35073

 

May 9, 2017

 

10.2

 

 

10.23†

 

Lease of Space, dated September 13, 2012, between Hines REIT 345 Inverness Drive, LLC and Gevo, Inc.

 

10-K

 

001-35073

 

March 26, 2013

 

10.48

 

 

10.24†

 

Price Risk Management, Origination and Merchandising Agreement, dated June 1, 2015, by and between Agri-Energy, LLC and FCStone Merchant Services, LLC.

 

10-Q

 

001-35073

 

August 7, 2015

 

10.3

 

 

10.25

 

Grain Bin Lease Agreement, dated June 1, 2015, by and between Agri-Energy, LLC and FCStone Merchant Services LLC.

 

10-Q

 

001-35073

 

August 7, 2015

 

10.4

 

 


 

 

 

 

 

 

Previously Filed

 

 

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

 

10.4

 

 

Joinder Agreement and First Amendment, by and among Gevo Development, LLC, Agri-Energy, LLC and TriplePoint Capital, LLC dated September 22, 2010, to the Plain English Growth Capital Loan and Security Agreement, by and between Gevo Development, LLC and TriplePoint Capital, LLC dated August 5, 2010.

 

 

S-1

 

 

333-168792

 

 

October 21, 2010

 

 

10.25

 

 

 

10.5

 

 

Amended and Restated Plain English Growth Capital Loan and Security Agreement, by and between Agri-Energy, LLC and TriplePoint Capital LLC, dated October 20, 2011.

 

 

10-K

 

 

001-05073

 

 

February 28, 2012

 

 

10.6

 

 

 

10.6

 

 

Plain English Limited Recourse Continuing Guaranty, by Gevo Development, LLC in favor of TriplePoint Capital LC dated as of October 20, 2011.

 

 

8-K

 

 

001-35073

 

 

October 26, 2011

 

 

10.4

 

 

 

10.7

 

 

Amended and Restated Limited Recourse Membership Interest Pledge Agreement, by Gevo Development, LLC in favor of TriplePoint Capital LLC, dated as of October 20, 2011.

 

 

8-K

 

 

001-35073

 

 

October 26, 2011

 

 

10.4

 

 

 

10.8

 

 

First Amendment to Plain English Security Agreement, by and between Gevo, Inc. and TriplePoint Capital LLC, dated October 20, 2011.

 

 

8-K

 

 

001-35073

 

 

October 26, 2011

 

 

10.5

 

 

 

10.9

 

 

First Amendment to Plain English Security Agreement, by and between Agri-Energy, LLC and TriplePoint Capital LLC, dated October 20, 2011.

 

 

8-K

 

 

001-35073

 

 

October 26, 2011

 

 

10.6

 

 

 

10.10†

 

 

Ethanol Purchasing and Marketing Agreement, by and between C&N Ethanol Marketing Corporation and Agri-Energy Limited Partnership, dated April 1, 2009.

 

 

S-1

 

 

333-168792

 

 

November 4, 2010

 

 

10.26

 

 

 

10.11†

 

 

License Agreement, by and between Gevo, Inc. and the California Institute of Technology, dated July 12, 2005, as amended.

 

 

S-1

 

 

333-168792

 

 

November 4, 2010

 

 

10.6

 

 

 

10.12

 

 

Amendment No. 4, dated October 1, 2010, to the License Agreement, by and between Gevo, Inc. and the California Institute of Technology, dated July 12, 2005.

 

 

S-1

 

 

333-168792

 

 

October 21, 2010

 

 

10.10

 

 

 

10.13†

 

 

First Amended and Restated Limited Liability Company Agreement of Gevo Development, LLC, dated August 5, 2010.

 

 

S-1

 

 

333-168792

 

 

November 4, 2010

 

 

10.8

 

 

 

10.14†

 

 

Isobutanol Joint Venture Agreement, by and between Gevo Development, LLC and Redfield Energy, LLC, dated June 15, 2011.

 

 

10-Q

 

 

001-35073

 

 

August 3, 2011

 

 

10.1

 

 

 

10.15†

 

 

Second Amended and Restated Operating Agreement of Redfield Energy, LLC, dated June 13, 2011.

 

 

10-Q

 

 

001-35073

 

 

August 3, 2011

 

 

10.2

 

 

 

10.16#

 

 

2006 Omnibus Securities and Incentive Plan.

 

 

S-1

 

 

333-168792

 

 

August 12, 2010

 

 

10.11

 

 

 

10.17#

 

 

Form of Stock Option Agreement under the 2006 Omnibus Securities and Incentive Plan.

 

 

S-1

 

 

333-168792

 

 

August 12, 2010

 

 

10.13

 

 

 

10.18#

 

 

Gevo, Inc. Amended and Restated 2010 Stock Incentive Plan.

 

 

8-K

 

 

001-35073

 

July 10, 2015

 

 

10.1

 

 

 

 

 

 

Incorporated by Reference

 

 

Exhibit

No.

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

10.26

 

Unsecured Guaranty Agreement, dated June 1, 2015, by Gevo, Inc. in favor of FCStone Merchant Services, LLC.

 

10-Q

 

001-35073

 

August 7, 2015

 

10.5

 

 

10.27†

 

First Amendment to Grain Bin Lease Agreement, dated December 21, 2017, Agri-Energy, LLC and FCStone Merchant Services, LLC.

 

 

 

 

 

 

 

 

 

X

10.28†

 

First Amendment to Price Risk Management, Origination and Merchandising Agreement, dated December 21, 2017, Agri-Energy, LLC and FCStone Merchant Services, LLC.

 

 

 

 

 

 

 

 

 

X

10.29†

 

Settlement Agreement and Mutual Release, dated August 22, 2015, by and among Gevo, Inc., Butamax Advanced Biofuels, LLC, E.I. du Pont de Nemours & Company and BP Biofuels North America LLC.

 

10-Q

 

001-35073

 

November 5, 2015

 

10.2

 

 

10.30†

 

Patent Cross-License Agreement, dated August 22, 2015, by and between Gevo, Inc. and Butamax Advanced Biofuels LLC.

 

10-Q

 

001-35073

 

November 5, 2015

 

10.3

 

 

10.31†

 

Joint Development Agreement, dated November 6, 2015, by and between Gevo, Inc. and Praj Industries Ltd.

 

8-K

 

001-35073

 

November 10, 2015

 

10.1

 

 

10.32†

 

Development License Agreement, dated November 6, 2015, by and between Gevo, Inc. and Praj Industries Ltd.

 

8-K

 

001-35073

 

November 10, 2015

 

10.2

 

 

10.33†

 

Supplemental Agreement (to Joint Development Agreement), dated November 16, 2017, by and between Gevo, Inc. and Praj Industries Ltd.

 

8-K

 

001-35073

 

November 21, 2017

 

10.1

 

 

10.34†

 

Supplemental Agreement (to Development License Agreement), dated November 16, 2017, by and between Gevo, Inc. and Praj Industries Ltd.

 

8-K

 

001-35073

 

November 21, 2017

 

10.2

 

 

10.35†

 

Joint Development Agreement, dated February 1, 2016, by and between Gevo, Inc. and Porta Hnos S.A.

 

8-K

 

001-35073

 

February 5, 2016

 

10.1

 

 

10.36†

 

Commercial License Agreement, dated February 1, 2016, by and between Gevo, Inc. and Porta Hnos S.A.

 

8-K

 

001-35073

 

February 5, 2016

 

10.2

 

 

10.37

 

First Amendment to Lease, effective December 11, 2015, between Hines REIT 345 Inverness Drive, LLC.

 

10-K

 

001-35073

 

March 30, 2016

 

10.62

 

 

10.38

 

Form of Securities Purchase Agreement, dated June 10, 2016, by and between Gevo, Inc. and each purchaser identified therein.

 

8-K

 

001-35073

 

June 13, 2016

 

10.1

 

 

10.39

 

Form of Exchange Agreement.

 

8-K

 

001-35073

 

September 9, 2016

 

10.3

 

 

10.40†

 

Supply Agreement, effective May 15, 2017, by and between Gevo, Inc. and HCS Holding GmbH.

 

8-K

 

001-35073

 

May 4, 2017

 

10.1

 

 

21.1

 

List of Subsidiaries.

 

S-1

 

333-168792

 

October 1, 2010

 

10.10

 

 

 

23.1

 

Consent of Grant Thornton  LLP.

 

 

 

 

 

 

 

 

 

X


 

 

 

 

 

 

Previously Filed

 

 

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

 

10.19#

 

 

Form of Restricted Stock Unit Agreement under the 2010 Stock Incentive Plan.

 

 

S-1

 

 

333-168792

 

 

January 19, 2011

 

 

10.15

 

 

 

10.20#

 

 

Form of Restricted Stock Award Agreement under the 2010 Stock Incentive Plan.

 

 

10-K

 

 

001-35073

 

 

March 29, 2011

 

 

10.21

 

 

 

10.21#

 

 

Form of Stock Option Award Agreement under the 2010 Stock Incentive Plan.

 

 

10-K

 

 

001-35073

 

 

March 29, 2011

 

 

10.22

 

 

 

10.22#

 

 

Employee Stock Purchase Plan.

 

 

S-8

 

 

333-172771

 

 

March 11, 2011

 

 

4.7

 

 

 

10.23#

 

 

Gevo, Inc. Executive Health Management Plan.

 

 

10-Q

 

 

001-35073

 

 

November 2, 2011

 

 

10.1

 

 

 

10.24#

 

 

Form of Indemnification Agreement between Gevo, Inc. and its directors and officers.

 

 

S-1

 

 

333-168792

 

 

January 19, 2011

 

 

10.33

 

 

 

10.25#

 

 

Employment Agreement, by and between Gevo, Inc. and Patrick Gruber, dated June 4, 2010.

 

 

S-1

 

 

333-168792

 

 

November 4, 2010

 

 

10.14

 

 

 

10.26#

 

 

Amendment Agreement, by and between Gevo, Inc. and Patrick Gruber, dated December 21, 2011.

 

 

8-K

 

 

001-35073

 

 

December 27, 2011

 

 

10.1

 

 

 

10.27#

 

 

Second Amendment Agreement, by and between Gevo, Inc. and Patrick Gruber, dated February 16, 2015

 

 

8-K

 

 

001-35073

 

 

February 17, 2015

 

 

10.1

 

 

 

10.28#

 

 

Employment Agreement, by and between Gevo, Inc. and Christopher Ryan, dated June 4, 2010.

 

 

S-1

 

 

333-168792

 

 

November 4, 2010

 

 

10.16

 

 

 

10.29#

 

 

Employment Agreement, by and between Gevo, Inc. and Brett Lund, dated June 4, 2010.

 

 

S-1

 

 

333-168792

 

 

November 4, 2010

 

 

10.18

 

 

 

10.30#

 

 

Amendment No. 1 to Employment Agreement, by and between Gevo, Inc. and Brett Lund, dated April 5, 2012.

 

 

8-K

 

 

001-35073

 

 

April 9, 2012

 

 

10.1

 

 

 

10.31#

 

 

Offer Letter, by and between Gevo, Inc. and Mike Willis, dated April 10, 2014.

 

 

10-K

 

 

001-35073

 

 

April 15, 2014

 

 

10.38

 

 

 

10.32#

 

 

Offer Letter, by and between Gevo, Inc. and Greg Roda, effective as of September 5, 2013.

 

 

10-K

 

 

001-35073

 

 

April 15, 2014

 

 

10.39

 

 

 

10.33

 

 

Second Amendment to the Plain English Security Agreement, made and entered into as of June 29, 2012, by and among Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

July 5, 2012

 

 

10.1

 

 

 

10.34

 

 

Second Amendment to Plain English Growth Capital Loan and Security Agreement, made and entered into as of June 29, 2012, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

July 5, 2012

 

 

10.2

 

 

 

10.35

 

 

First Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, made and entered into as of June 29, 2012, by and between Agri-Energy, LLC and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

July 5, 2012

 

 

10.3

 

 

 

10.36†

 

 

Lease of Space between Hines REIT 345 Inverness Drive, LLC and Gevo, Inc.

 

 

10-K

 

 

001-35073

 

 

March 26, 2013

 

 

10.48

 

 


 

 

 

 

 

 

Previously Filed

 

 

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

 

10.37

 

 

Fourth Amendment to Plain English Security Agreement, dated December 11, 2013, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

10.1

 

 

 

10.38

 

 

Second Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated December 11, 2013, by and among Gevo, Inc., Agri-Energy, LLC and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

10.2

 

 

 

10.39

 

 

Plain English Intellectual Property Security Agreement, dated December 11, 2013, between Gevo, Inc. and TriplePoint Capital LLC.

 

 

8-K

 

 

001-35073

 

 

December 12, 2013

 

 

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.40†

 

Term Loan Agreement by and among Gevo, Inc., the Guarantor party thereto from time to time, the Lenders party thereto from time to time, and Whitebox Advisors LLC, as administrative agent for such Lenders, dated May 9, 2014.

 

8-K

 

001-35073

 

May 15, 2014

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.41

 

Consent Under and Third Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement and Omnibus Amendment to Loan Documents, by and among Gevo, Inc., Gevo Development, LLC, Agri-Energy, LLC and TriplePoint Capital LLC, dated May 9, 2014.

 

8-K

 

001-35073

 

May 15, 2014

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.42

 

Consent and Second Amendment to Term Loan Agreement, dated July 31, 2014, by and among Gevo, Inc., the guarantors party thereto, the lender party thereto, and WB Gevo, Ltd., as administrative agent.

 

8-K

 

001-35073

 

August 1, 2014

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.43

 

Fourth Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated July 31, 2014, by and among Gevo, Inc., Agri-Energy, LLC and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

August 1, 2014

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.44

 

Fifth Amendment to Plain English Security Agreement, dated July 31, 2014, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

August 1, 2014

 

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.45

 

Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated January 28, 2015, by and among Gevo, Inc., Agri-Energy, LLC and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

January 30, 2015

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.46

 

Sixth Amendment to Plain English Security Agreement, dated January 28, 2015, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

January 30, 2015

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.47

 

Amendment No. 1 to the First Amended and Restated Limited Liability Company Agreement of Gevo Development, LLC, dated May 9, 2014.

 

8-K

 

001-35073

 

August 14, 2014

 

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.48†

 

Price Risk Management, Origination and Merchandising Agreement, dated June 1, 2015, by and between Agri-Energy, LLC and FCStone Merchant Services, LLC.

 

10-Q

 

001-35073

 

August 7, 2015

 

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

Previously Filed

 

 

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

10.49

 

Grain Bin Lease Agreement, dated June 1, 2015, by and between Agri-Energy, LLC and FCStone Merchant Services LLC.

 

10-Q

 

001-35073

 

August 7, 2015

 

10.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.50

 

Unsecured Guaranty Agreement, dated June 1, 2015, by Gevo, Inc. in favor of FCStone Merchant Services, LLC.

 

10-Q

 

001-35073

 

August 7, 2015

 

10.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.51†

 

Settlement Agreement and Mutual Release, dated August 22, 2015, by and among Gevo, Inc., Butamax Advanced Biofuels, LLC, E.I. du Pont de Nemours & Company and BP Biofuels North America LLC.

 

10-Q

 

001-35073

 

November 5, 2015

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.52†

 

Patent Cross-License Agreement dated, August 22, 2015, by and between Gevo, Inc. and Butamax Advanced Biofuels LLC.

 

10-Q

 

001-35073

 

November 5, 2015

 

10.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.53†

 

Joint Development Agreement, dated November 6, 2015, by and between Gevo, Inc. and Praj Industries Ltd.

 

8-K

 

001-35073

 

November 10, 2015

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.54†

 

Development License Agreement, dated November 6, 2015, by and between Gevo, Inc. and Praj Industries Ltd.

 

8-K

 

001-35073

 

November 10, 2015

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.55†

 

Joint Development Agreement, dated February 1, 2016, by and between Gevo, Inc. and Porta Hnos S.A.

 

8-K

 

001-35073

 

February 5, 2016

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.56†

 

Commercial License Agreement, dated February 1, 2016, by and between Gevo, Inc. and Porta Hnos S.A.

 

8-K

 

001-35073

 

February 5, 2016

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.57

 

Consent Under and Sixth Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated May 13, 2015, by and among Gevo, Inc., Agri-Energy, LLC and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

May 13, 2016

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.58

 

Seventh Amendment to Plain English Security Agreement, dated May 13, 2015, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

May 13, 2015

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.59

 

Consent Under and Eighth Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated December 7, 2015, by and among Gevo, Inc., Agri-Energy, LLC and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

December 9, 2015

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.60

 

Ninth Amendment to Plain English Security Agreement, dated December 7, 2015, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

December 9, 2015

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.61

 

Exchange Agreement dated as of November 13, 2015, by and between 683 Capital Partners, LP and Gevo, Inc.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

10.62

 

First Amendment to Lease of Space between Hines REIT 345 Inverness Drive, LLC, effective as of December 11, 2015.

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 

 

 

 

 

Previously Filed

 

 

 

 

Exhibit

Number

 

Description

 

Form

 

File No.

 

Filing Date

 

Exhibit

 

Filed

Herewith

10.63

 

Consent Under and Ninth Amendment to Amended and Restated Plain English Growth Capital Loan and Security Agreement, dated March 28, 2016, by and among Gevo, Inc., Agri-Energy, LLC and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

March 29, 2016

 

10.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.64

 

Tenth Amendment to Plain English Security Agreement, dated March 28, 2016, by and between Gevo, Inc. and TriplePoint Capital LLC.

 

8-K

 

001-35073

 

March 29, 2016

 

10.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21.1

 

 

List of Subsidiaries.

 

 

S-1

 

 

333-168792

 

 

October 1, 2010

 

 

10.10

 

 

 

 

23.1

 

 

Consent of Grant Thornton  LLP.

 

 

 

 

 

 

 

 

 

 

X

 

 

 

 

 

 

 

 

 

 

 

 

 

23.2

 

Consent of Deloitte & Touche LLP

 

 

 

 

 

 

 

 

 

X

 

24.1

 

 

Power of Attorney (see the signature page to this Report).

 

 

 

 

 

 

 

 

 

 

X

 

31.1

 

 

Section 302 Certification of the Chief Executive Officer.

 

 

 

 

 

 

 

 

 

 

X

 

31.2

 

 

Section 302 Certification of the Chief Financial Officer.

 

 

 

 

 

 

 

 

 

 

X

 

32.1

 

 

Section 906 Certifications of the Chief Executive Officer and Chief Financial Officer.

 

 

 

 

 

 

 

 

 

 

X

 

101

 

 

Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at December 31, 2015 and December 31, 2014, (ii) Consolidated Statements of Operations for each of the three years in the period ended December 31, 2015, (iii) Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2015, (iv) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2015; and (iv) Notes to the Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

X

*

Certain schedules

Incorporated by Reference

Exhibit

No.

Description

Form

File No.

Filing Date

Exhibit

Filed

Herewith

31.1

Section 302 Certification of the Principal Executive Officer.

X

31.2

Section 302 Certification of the Principal Financial Officer.

X

32.1

Section 906 Certifications of the Principal Executive Officer and exhibits referenced in this document have been omitted in accordance with Item 601(b)(2)Principal Financial Officer.

X

101

Interactive Data Files Pursuant to Rule 405 of Regulation S-K. A copyS-T: (i) Consolidated Balance Sheets at December 31, 2017 and December 31, 2016, (ii) Consolidated Statements of any omitted schedule and/or exhibit will be furnished supplement allyOperations for each of the three years in the period ended December 31, 2017, (iii) Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended December 31, 2017, (iv) Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2017; and (iv) Notes to the SEC upon request.Consolidated Financial Statements.

X

Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.

#

Indicates a management contract or compensatory plan or arrangement required to be filed as an exhibit to this Report.arrangement.

(b) Exhibits

See Item 15(a)(3) above.

(c) Financial Statement Schedules

See Item 15(a)(2) above.

 

 

Item 16.

Form 10K-Summary

None.

 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Gevo, Inc.

 

 

By:

/s/ Mike WillisBradford K. Towne

 

Mike WillisBradford K. Towne

Chief FinancialAccounting Officer

 

Date: March 30, 201628, 2018

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Patrick R. Gruber, Mike Willis and Geoffrey T. Williams, jointly and severally, as his or her attorney-in-fact, each with full power of substitution, for him or her, in any and all capacities, to sign each amendment to this report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

 

 

Signatures

 

  

 

Title

 

 

 

Date

 

 

/s/ PATRICK R. GRUBER

  

 

Chief Executive Officer (Principal Executive Officer)

and Director

 

March 30, 201628, 2018

Patrick R. Gruber, Ph.D.

  

 

 

 

/sMIKE wILLISBradford k. towne

  

 

Chief FinancialAccounting Officer (Principal Financial and

Accounting Officer)

 

March 30, 201628, 2018

Mike WillisBradford K. Towne

  

 

 

 

/s/ RUTH I. DREESSEN

  

Chairperson of the Board of Directors

 

March 30, 201628, 2018

Ruth Dreessen

  

 

 

 

 

/s/ GARY W. MIZE

  

Director

 

March 30, 201628, 2018

Gary W. Mize

  

 

 

 

 

/s/ Andy Marsh

  

Director

 

March 30, 201628, 2018

Andy Marsh

  

 

 

 

 

/s/ Johannes Minho roth

  

Director

 

March 30, 201628, 2018

Johannes Minho Roth

  

 

 

 

 

/s/ WILLIAM H. BAUM

  

Director

 

March 30, 201628, 2018

William Baum

  

 

 

 

 

 

126113