Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 20192020

or

For the transition period from ________________ to ________________

Commission File Number 001-35073

GEVO, INC.

(Exact name of registrant as specified in its charter)

345 Inverness Drive South, Building C, Suite 310

Englewood, CO

(303) 858-8358

(Address, including zip code, andRegistrant's telephone number, including

including area code, of registrant’s principal executive offices)code)

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

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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 ☒

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

As of April 30, 2019, 11,885,5242020, 14,883,077 shares of the registrant’s common stock were outstanding.

GEVO, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 20192020

TABLE OF CONTENTS

1. Nature of Business, Financial Condition and Basis of Presentation and Reverse Stock Split

Nature of Business.Business.  Gevo, Inc. (“Gevo” or the “Company,” which, unless otherwise indicated, refers to Gevo, Inc. and its subsidiaries) is a growth-oriented renewable chemicals andfuels company that is commercializing the next generation “low-carbon” fuel company focused on the development and commercialization of renewable low-carbon liquid transportation fuels with the potential to achieve “net zero” greenhouse gas (“GHG”) footprint and address global needs of reducing GHG emissions with sustainable alternatives to petroleum-based products. Low-carbonpetroleum fuels. As next generation renewable fuels, reduceGevo’s hydrocarbon transportation fuels have the advantage of being “drop-in” substitutes for conventional fuels that are derived from crude oil, working seamlessly and without modification in existing fossil-fuel based engines, supply chains and storage infrastructure. In addition to the potential of net zero carbon intensity, oremissions across the levelwhole of greenhouse gas emissions (“GHG”), compared to standard fossil-basedthe fuel life-cycle, Gevo’s renewable fuels across their lifecycle. The most commoneliminate other pollutants associated with the burning of traditional fossil fuels such as particulates and sulfur, while delivering superior performance. Gevo believes that the world is substantially under-supplied with low-carbon, drop-in renewable fuels are renewable fuels.that can be immediately used in existing transportation engines and infrastructure, and Gevo is focused onuniquely positioned to grow in serving that demand.

Gevo’s production processes and fuel products have been proven to work. Gevo uses low-carbon, renewable resource-based carbohydrates as raw materials. In the developmentnear-term, Gevo’s feedstocks will primarily consist of non-food corn. As Gevo’s technology is applied globally, feedstocks can consist of sugar cane, molasses or other cellulosic sugars derived from wood, agricultural residues and productionwaste. Gevo’s patented fermentation yeast biocatalyst produces isobutanol, a four-carbon alcohol, via the fermentation of mainstream fuels likerenewable plant biomass carbohydrates. The resulting renewable isobutanol has a variety of direct applications but, more importantly to Gevo’s fundamental strategy, serves as a building block to make renewable gasoline and jet fuel using simple and common chemical conversion processes. Gevo also plans to reduce or eliminate fossil-based process energy inputs by replacing them with renewable feedstocks that have the potential to lower GHG at a meaningful scaleenergy such as wind-powered electricity and enhance agricultural production, including food and other related products. In addition to serving the low-carbon fuel markets, through Gevo's technology, Gevo can also serve markets for the production of chemical intermediate products for solvents, plastics and building block chemicals.renewable natural gas (“RNG”).

In addition to its ethanol production capabilities, 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. 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, Inc’s facility in Silsbee, Texas (the “South Hampton Facility”). In addition the Company’s production facility located in Luverne, Minnesota (the “Luverne Facility”) has production capacity of about 20 million gallons per year of ethanol, 45-50 kilotons of animal feed, and 3 million pounds of corn oil.

As of March 31, 2019, the Company continues to engage in research and development, business development, business and financial planning, optimizing operations for low-carbon ethanol, isobutanol, and related hydrocarbons production and raising capital to fund future expansion of its Luverne Facility. Ultimately, the Company believes that the attainment of profitable operations is dependent upon future events, including (i) completing certain capital improvements at the Company’s production facility located in Luverne, FacilityMinnesota (the "Luverne Facility") to produce low-carbon ethanol side-by-side with low-carbonincrease the production capacity of renewable gasoline and jet fuel and other related products that can be made from isobutanol; (ii) completing the Company’sCompany's development activities resulting in commercial production and sales of low-carbon ethanol, isobutanol, or isobutanol derived products and/or technology;renewable hydrocarbon products; (iii) obtaining adequate financing to complete the Company’sCompany's development activities, including the build out of low-carbon ethanol capacity and further isobutanol andrenewable hydrocarbon capacity; (iv) gaining market acceptance and demand for the Company’sCompany's products and services; (v) attracting and retaining qualified personnel; and (vi) the achievement ofachieving a level of revenues adequate to support the Company’sCompany's cost structure.

COVID-19.  The novel coronavirus ("COVID-19") pandemic has had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in the financial markets including, among other effects, a decline in the equity markets and reduced liquidity generally for many companies, including the Company. In light of the potential future disruption to the Company's business operations and those of its customers, suppliers and other third parties with whom the Company interacts, the Company considered the impact of the COVID-19 pandemic on its business. This analysis considered the Company's resilience and continuity plans, financial modeling and stress testing of liquidity and financial resources.

The analysis concluded that the COVID-19 pandemic did not have a material adverse impact to the Company's financial results for the first quarter of 2020. Although the COVID-19 pandemic did not have a material adverse impact to the Company’s financial results for the first quarter of 2020, the Company expects that the impact of the COVID-19 pandemic on general economic activity could negatively impact its revenue and operating results for the remainder of 2020. For example, in March 2020, following a temporary suspension of ethanol production at the Luverne Facility, the Company ultimately suspended production for the foreseeable future due to the impact of COVID-19 on the economy and its industry as a whole. There is also a risk that COVID-19 could have a material adverse impact on customer demand and cash flow for the remainder of 2020 and beyond. The Company will continue to monitor the situation and assess possible implications to its business and its stakeholders and will take appropriate actions to help mitigate adverse consequences. The extent to which COVID-19 impacts its business and financial position will depend on future developments, which are difficult to predict, including the severity, duration and scope of the COVID-19 outbreak as well as the types of measures imposed by governmental authorities to contain the virus or address its impact and the duration of those actions and measures.

The Company has considered multiple scenarios, with both positive and negative inputs, as part of the significant estimates and assumptions that are inherent in its financial statements and are based on trends in customer behavior and the economic environment throughout the quarter and beyond as the COVID-19 pandemic has impacted the industries in which the Company operates. These estimates and assumptions include the collectability of billed and unbilled receivables, the estimation of revenue and tangible and intangible assets. With regard to collectability, the Company believes it may face atypical delays in client payments going forward. In addition, management believes that the demand for certain discretionary lines of business may decrease, and that such decrease will impact our financial results in succeeding periods. Non-discretionary lines of business may also be adversely affected, for example because reduced economic activity or disruption in hydrocarbon markets reduces demand for or the extent of renewable alcohol-to-jet fuel (“ATJ”), isooctane and isooctene. The Company believes that these trends and uncertainties are comparable to those faced by other registrants as a result of the pandemic.

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

Following a temporary suspension of ethanol production at the Luverne Facility, the Company ultimately suspended production for the foreseeable future due to the impact of COVID-19, including its effect on the economy and the Company’s industry as a whole. With these steps, the Company expects to save several million dollars of cash burn during 2020.

In response to the impact of the COVID-19 pandemic, the Company reduced its workforce in March 2020, impacting 26 people at the Luverne Facility and four people at the Company's corporate headquarters. (See "Restructuring Expenses" below.) The Company also reduced, and each of Patrick R. Gruber, its Chief Executive Officer, Christopher M. Ryan, its President, Chief Operating Officer and Chief Technology Officer, L. Lynn Smull, its Chief Financial Officer, Timothy J. Cesarek, its Chief Commercial Officer, Geoffrey T. Williams, Jr., its General Counsel and Secretary, and Carolyn M. Romero, its Vice President - Controller and Principal Accounting Officer (collectively, the “Officers”) accepted 20% reductions to their base salaries. These reductions became effective as of April 1, 2020 for a period of 90 days thereafter. In connection with the 20% salary reduction, the Officers were granted Company stock in the form of restricted stock awards in an amount equal to the 20% reduction. Certain remaining employees that earn above a certain dollar threshold also agreed to take a 20% salary reduction over the next three months, with the 20% portion to be paid in the form of restricted stock awards.

In addition, in connection with the impact that the COVID-19 pandemic has had on the economy and on the resulting disruption to the airline industry specifically, the Company and Delta Air Lines, Inc. (“Delta”) amended portions of the Company's previously disclosed Fuel Sales Agreement (the “Delta Agreement”) on April 22, 2020 (the “Delta Amendment”).  The Delta Amendment provides that Delta may terminate the Delta Agreement if the Company does not notify Delta by June 30, 2024 that the facility for the production, refining and delivery of ATJ with a nameplate capacity of up to 12 million gallons per year (the “Facility”) has achieved commercial operation and the ability to produce and deliver the ATJ purchased pursuant to the Delta Agreement (the date upon which such operation occurs is referred to as the “Commencement Date”).

The Delta Amendment also revises the credit support terms in the Delta Agreement to state that the Company and Delta will work to mutually agree upon credit support terms for the take or pay that are acceptable to the Company’s lender to enable the Company to obtain third party financing prior to the earlier of the time that the Company obtains financing for construction of the Facility or otherwise issues a notice to commence construction of the Facility. If the Company and Delta are unable to agree on reasonable credit support terms, the Company may terminate the Delta Agreement. The balance of Delta’s credit support obligations were deleted.

In addition, the Delta Amendment revises the ATJ pricing in the Delta Agreement to the extent that if Brent Crude is below a certain cutoff price as of the date that is 60 days prior to the Commencement Date (the “Commencement Notice Date”), then the pricing adjusts based upon a formula related to the Brent crude prices as of the Commencement Notice Date. The Delta Amendment also provides that, if as of the Commencement Notice Date, the Brent Crude price is below the price adjustment range, Delta may eliminate the take-or-pay requirements of the Delta Agreement, which includes eliminating Delta’s obligation to take-or-pay the 10 million gallons per year of ATJ. Instead, the Delta Agreement would require the Company and Delta to agree at that time on the volumes and price of any ATJ to be sold under the Delta Agreement.

Restructuring Expenses. During the first quarter of 2020, the Company temporarily suspended and ultimately suspended for the foreseeable future its ethanol production at the Luverne Facility. In addition, due to the impact of the COVID-19 pandemic on the global economy and the Company’s industry, in March 2020, the Company reduced its workforce, impacting 26 people at the Luverne Facility and four people at the Company's corporate headquarters. Affected employees were offered a severance package which included a one-time payment, one month of health insurance and acceleration of vesting for any unvested restricted stock awards.

The Company incurred $0.1 million related to severance costs and $0.2 million related to lease agreements for which it will no longer receive value during the three months ended March 31, 2020, which are recorded as Restructuring expenses on the Consolidated Statements of Operations. Restructuring expense totaled $0.02 million and $0.3 million for Gevo and Gevo Development/Agri-Energy segments, respectively.

The Company intends to continue developing its hydrocarbon business, including the planned expansion of the Luverne Facility, and the Company expects to move forward in securing the project funding needed to expand the Luverne Facility. The expansion is designed to allow the Company to produce large quantities of low carbon isobutanol, sustainable aviation fuel and renewable isooctane. The Company also expects to continue engineering efforts for the expansion of isobutanol production and the construction of a commercial renewable hydrocarbon production facility, as well as additional decarbonization projects, at the Luverne Facility.

As of March 31, 2020, the Company had the following liabilities outstanding related to the restructuring expenses included in "Accounts payable and accrued liabilities" in the Consolidated Balance Sheets:

Financial Condition. For the three months ended March 31, 20192020 and 2018,2019, the Company incurred a consolidated net loss of $6.1$9.3 million and $2.5$6.1 million, respectively, and had an accumulated deficit of $435.5$467.2 million atas of March 31, 2019.2020. The Company’s cash and cash equivalents atas of March 31, 20192020 totaled $35.5$9.3 million and are expected to be used for the following purposes: (i) operating activities of the Luverne Facility; (ii) operating activities at the Company’s corporate headquarters in Colorado, includingincluding research and development work; (iii) capital expenditures primarily(ii) development projects associated with the Luverne Facility, including capital expenditures to “de-carbonize” the Luverne Facility; (iv)RNG; (iii) exploration of strategic alternatives and new financings; (iv) debt service obligations; and (v) debt service and repayment obligations.maintaining the Luverne Facility;

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

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 salesissuance of equity and debt securities, borrowings under debt facilities and product sales. The Company’s transition to profitability is dependent upon, among other things, the successful development and commercialization of its product candidates 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 and until it does, the Company will continue to need to raise additional cash.capital. Management intends to fund future operations through additional private and/or public offerings of debt or equity securities. In addition, the Company may seek additional capital through arrangements with strategic partners or from other sources, it may seek to restructure its 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.

Existing working capital was not sufficient to meet the cash requirements to fund planned operations through the period that is one year after the date the Company’s financial statements for the three months ended March 31, 2020 were issued. These conditions raise substantial doubt about the Company’s ability to continue as a going 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 and 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.

At-the-Market Offering Program.In February 2018, the Company commenced an at-the-market offering program, which allows it to sell and issue shares of its common stock from time-to-time. TheIn August 2019, the at-the-market offering program was amended multiple times during 2018 to increase theprovide available capacity under the at-the-market offering program by an aggregate of approximately $84.9$10.7 million.

During the three months ended March 31, 2019,2020, the Company issued 3,244,941425,776 shares of common stock under the at-the-market offering program for grosstotal proceeds of $9.9 million. The Company paid$0.9 million, net of commissions to its sales agent of approximately $0.2 million and incurred other offering related expenses of $0.01 million during the three months ended March 31, 2019.

expenses. As of March 31, 2019,2020, the Company hadhas remaining capacity to issue and sell up to approximately $34.7$7.8 million of additional shares of common stock under the at-the-market offering program. However, pursuant to Instruction I.B.6 to Form S-3, because the Company’s market capitalization was below $75.0 million as of March 27, 2019, the date the Company filed its Annual Report on Form 10-K for the year ended December 31, 2018, the Company may only sell securities via Form S-3 if the aggregate market value of the securities sold by or on behalf of the Company during the twelve-month period immediately prior to and including the date of the sale is no more than one-third of all common voting and nonvoting equity held by non-affiliates of the Company.  Given the amount of common stock sold by the Company under the at-the-market offering program in 2018, the Company is currently unable to issue and sell additional shares of common stock under the at-the-market offering program.

Basis of Presentation. The unaudited consolidated financial statements of the Company (which include the accounts of its wholly-owned subsidiaries Gevo Development, LLC (“Gevo Development”) and Agri-Energy, LLC (“Agri-Energy”)) have been prepared, without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company at March 31, 20192020 and are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included under the heading “Financial Statements and Supplementary Data” in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019.

Reverse Stock Split.Income Taxes. On June 1, 2018,There is no provision for income taxes because the Company effected a reverse stock splithas incurred operating losses since inception.

Concentration of Business Risk.As of March 31, 2020, one customer, Air Total International SA, comprised approximately 52% of the Company's outstanding shares of its common stock by a ratio of one-for-twenty (the “Reverse Stock Split”), and its common stock began trading on the Nasdaq Capital Market on a Reverse Stock Split-basis on June 4, 2018. Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying unaudited consolidated financial statements have, where applicable, been adjusted retroactively to reflect this Reverse Stock Split.

Recent Accounting Pronouncements

Financial Instruments - Credit Losses (Topic 326). Measurement of Credit Losses on Financial Instruments.In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credits Losses on Financial Instruments (“ASU 2016-13”), which replaces accounting for credit losses for most financial assets, including trade accounts receivable, respectively. As of December 31, 2019, three customers, Eco-Energy, LLC (Eco-Energy"), Purina Animal Nutrition, LLC ("Purina"), and certain other instruments that are not measured at fair value through income. ASU 2016-13 replaces the current “incurred loss” model, in which losses are recognized when a loss is incurred asHCS Group GmbH ("HCS") comprised 57%, 13% and 15% of the dateCompany's outstanding trade accounts receivable, respectively.

For the three months ended March 31, 2020 and 2019, Eco-Energy accounted for approximately 73% and 68% of the balance sheet, to an “expected credit loss” model, which includes a broader range of information to estimate expected credit losses over the lifetimeCompany's consolidated revenue, respectively. Purina represented approximately 22% and 18% of the financial asset. It is expected thatCompany's consolidated revenue for the adoption of this standard will primarily apply to the valuationthree months ended March 31, 2020 and 2019, respectively. All are customers of the Company’s trade accounts receivables. The Company sells primarily to a small quantity of large customers with significant balance sheets and those financial assets are often settled within one-to-two weeks after the completion of the corresponding sales transaction. While the Company is in the process of evaluating the impact, if any, that the adoption of this standard will have on the Company’s financial statements, it does not currently anticipate that this will have a material impact on the Company’s consolidated financial statements.Company's Gevo Development/Agri-Energy segment (see Note 14).

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

Adoption of New Accounting Pronouncements. 

Leases (Topic 842). In February 2016, the FASB issued ASU No. 2016-02, Topic 842 Leases (“ASU 2016-02”). ASU 2016-02 requires most contracts which convey over a period of time the right to use or control the use of an asset to be recognized on a company’s 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 was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The standard required using the modified retrospective transition method and apply ASU 2016-02 either at the (i) latter of the earliest comparative period presented in the financial statements or commencement date of the lease, or (ii) beginning of the period of adoption. The Company adopted the standard effective January 1, 2019 with no retrospective adjustment to prior periods presented in the financial statements. There was no impact to the opening balance of retained earnings as of January 1, 2019 as a result of the adoption of this standard. 

As a result of adopting ASU 2016-02, the Company recognized $1.2 million in right-to-use assets and related lease liabilities at January 1, 2019. The Company elected to both (i) elect the short term lease scope exception for leases with original terms of twelve months or less and (ii) the package of practical expedients, which included the ability to classify leases as operating under the new standard, ASU 2016-02, for those leases existing prior to January 1, 2019 that were previously classified as operating under Topic 840 - Leases, the superseded accounting standard for the accounting for leases.

Derivatives and Hedging (Topic 815). Accounting for Certain Financial Instruments with Down Round Provisions. 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 (“ASU 2017-11”), which was effective for fiscal years beginning after December 15, 2018, simplifies the accounting for certain equity-linked financial instruments and embedded features with down round features that reduce the exercise price when the pricing of 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. The adoption of this standard has not materially impacted 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.

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

2. Earnings Per Share

Basic earnings (loss) per share is computed by dividing the net loss for the period by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) 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 three months ended March 31, 20192020 and 20182019 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 outstanding that could potentially dilute the calculation of diluted earnings per share.share:

3. Revenues from Contracts with Customers; Other Revenues

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.

Ethanol sales and related products revenues. Ethanol sales and related products revenues are sold to customers on a “free-on-board,free-on-board, shipping point”point basis. Revenue is recognized when the customer has control of the product. 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.

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

Hydrocarbon revenue. Hydrocarbon revenues include sales of ATJ, isooctene and isooctane and is sold mostly on a “free-on-board,free-on-board, shipping point”point basis. Revenue is recognized when the customer has control of the product. 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.

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 grant, funded by the United States Department of Agriculture, comprised the majority of those revenues since 2014. After reviewing this arrangement, the Company has concluded that this grant consists of a non-reciprocal arrangement, and therefore, does not qualify as a contract pursuant to Topic 606 “Revenues from Contracts with Customers”. Other revenues have included historically occasional short-term (less than one-year) consulting services and leases of certain storage facilities located at the Company's Luverne Facility.

The following table sets forth the components of the Company’s revenues between those generated from contracts with customers and those generated from arrangements that do not constitute a contract with a customer (in thousands):

4. Leases, Right-to-Use Assets and Related Liabilities

The Company enters into various arrangements which constitute a lease as defined by TopicAccounting Standards Codification ("ASC") 842, – Leases, as part of its ongoing business activities and operations. Leases represent a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. Such contracts result in both (a) Right-to-useright-to-use assets, which represent the Company’s right to use an underlying asset for the term of the contract; and (b) a corresponding lease liability which represents the Company’s obligation to make the lease payments arising from the contract, measured on a discounted basis.

The contracts for the Company are comprised of facility, equipment and transportation leases necessary to conduct the Company’s day-to-day operations for which the Company maintains control of right-to-use assets and incurs the related liabilities.

The facility lease includes variable payments for common area maintenance. In addition, the Company elected to adopt both the (a) short-termhas one financing lease exemption for those leases with initial terms of twelve months or less; and (b) the practical expedient to not separate lease components from non-lease components, if applicable. Those leases which qualify for the short-term scope exception consist of certain residential rents for executive apartments, certain of the Company’s railcar leases, and otheroffice equipment leases. There were no leases containing variable lease payments, and none of the Company’s leases contained extension or termination options which were necessary in determining the value of the right-to-use asset and related liabilities. The Company assumed a 12.00% discount rate based, which is consistent with the stated rateincluded in "Loans payable - other" on the Company’s 2020 Notes (as defined below) and best approximation of the rate implicit in the Company’s leases.

Upon adoption of Topic 842 - Leases, the Company recognized a total of $1.2 million of right-to-use assets and related lease liabilities. Within the unaudited consolidated balance sheet at March 31, 2019, (i) $0.3 million of right-to-use assets with a remaining term of less than twelve months are included in Prepaid and other current assets, (ii) $0.5 million of right-to-use assets with a remaining term of exceeding twelve months are included in Deposits and other assets, and for the related lease liabilities, (iii) $0.6 million are included in Accounts payable and accrued liabilities for the current portion and (iv) $0.3 million are included in Other long-term liabilities for the non-current portion.Consolidated Balance Sheets.

There are two contractual agreements related to equipment improvements at the Luverne Facility that were not recognized as of March 31, 20192020 as a result of operating contingencies which must be satisfied before the Company is obligated under the terms of the contract. The total estimated fair value of unrecognized right-to-use assets and related lease liabilities relating to these contracts was approximately $3.0 million as of March 31, 2020 and December 31, 2019.

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

The following table presents the (a) costs by lease category and (b) other quantitative information relating to the Company’s leases.leases (dollars in thousands):

5. Inventories

The following table sets forth the components of the Company’s inventory balances (in thousands).:

6. Property, Plant and Equipment

The following table sets forth the Company’s property, plant and equipment by classification (in thousands).:

7. Embedded Derivatives and Derivative Warrant Liabilities 

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 containcontained 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 monththree-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.

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

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 arewere 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 iswere 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 stock volatility; and (vii) estimated credit spread for the Company.

2020/21 Notes Embedded Derivative

In January 2020, the Company issued 12% convertible senior secured notes due 2020/2021 (the “2020/21 Notes”) in exchange for its 12.0% convertible senior secured notes due March 2020 (the “2020 Notes”). The 2020/21 Notes contain the following embedded derivatives: (i) a Make-Whole Payment (as defined in the 2020/21 Notes Indenture (as defined below) upon either conversion or redemption in certain circumstances; (ii) holder right to require the Company to repurchase the outstanding principal upon a Fundamental Change (as defined in the 2020/21 Notes Indenture); and (iii) 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 2020/21 Notes.

Embedded derivatives are separated from the host contract and the 2020/21 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 2020/21 Notes meet these criteria and, as such, must be valued separate and apart from the 2020/21 Notes as one embedded derivative and recorded at fair value each reporting period.

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 2020/21 Notes and 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.

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

Derivative Warrant Liability

The following table sets forth information pertaining to shares issued upon the exercise of such warrants as of March 31, 2019:

The agreements governing the above warrants include the following terms:

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

There were no warrants exercised during the three months ended March 31, 2019.

As of March 31, 2019, all of the Series B Warrants, Series E Warrants, Series G Warrants, Series H Warrants, Series J Warrants, Series L Warrants and Series M Warrants for which the exercise price had been adjusted were either fully exercised or expired.

8. 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).:

GEVO, INC.

Notes to Consolidated Financial Statements

(unaudited)

9. Debt

2020 Notes and 2020/21 Notes

The following table sets forth information pertaining to the 2020 Notes and 2020/21 Notes which isare included in the Company’s consolidated balance sheets (in thousands).: