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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Gevo, Inc.    GEVO

GEVO, INC.

(GEVO)
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GEVO : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/12/2020 | 06:03am EST

Forward-Looking Statements




This Quarterly Report on Form 10-Q (this "Report") contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). When used anywhere in this Report, the
words "expect," "believe," "anticipate," "estimate," "intend," "plan" and
similar expressions are intended to identify forward-looking statements. These
statements relate to future events or our future financial or operational
performance and involve known and unknown risks, uncertainties and other factors
that could cause our actual results, levels of activity, performance or
achievements to differ materially from those expressed or implied by these
forward-looking statements. These statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and
uncertainties. These forward-looking statements include, among other things,
statements about: the impact of the novel coronavirus ("COVID-19") pandemic
on our business, our financial condition, our results of operation and
liquidity, risks and uncertainties related to our ability to sell our products,
our ability to expand or continue production of isobutanol, renewable
hydrocarbon products and ethanol at our production facility in Luverne Minnesota
(the "Luverne Facility"), our strategy to pursue low-carbon renewable fuels, our
ability to replace our fossil-based energy sources with renewable energy sources
at our production facilities, our ability and plans to construct a commercial
hydrocarbon facility to produce renewable premium gasoline and jet fuel, our
ability to raise additional funds to continue operations and/or expand our
production capabilities, our ability to perform under our existing renewable
hydrocarbon offtake agreements and other supply agreements we may enter into in
the future, our ability to enter into additional hydrocarbon supply agreements,
our ability to obtain project finance debt and third-party equity for our
renewable natural gas project, our ability to produce isobutanol, renewable
hydrocarbon products and ethanol on a commercial level and at a profit,
achievement of advances in our technology platform, the success of our
upgraded production facility, the availability of suitable and cost-competitive
feedstocks, our ability to gain market acceptance for our products, the expected
cost-competitiveness and relative performance attributes of our isobutanol,
renewable hydrocarbon products and ethanol, additional competition and changes
in economic conditions and the future price and volatility of petroleum and
products derived from petroleum. Important factors could cause actual results to
differ materially from those indicated or implied by forward-looking statements
such as those contained in documents we have filed with the U.S. Securities and
Exchange Commission (the "SEC"), including this Report in Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" our
Annual Report on Form 10-K for the year ended December 31, 2019 (our "Annual
Report"), and subsequent reports on Form 10-Q, including Item 1A. "Risk Factors"
of this Report. 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 could cause actual results to differ
materially from results expressed or implied by forward-looking statements
contained in this Report. These forward-looking statements speak only as of the
date of this Report. We undertake no intention or obligation to update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise, and readers should not rely on the forward-looking
statements as representing the Company's views as of any date subsequent to the
date of the filing of this Report.



Unless the context requires otherwise, in this Report the terms "we," "us," "our" and the "Company" refer to Gevo, Inc. and its subsidiaries.

The following discussion should be read in conjunction with our unaudited consolidated financial statements and the related notes and other financial information appearing elsewhere in this Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including, without limitation, the disclosures in our Annual Report.



Company Overview



We are a growth-oriented renewable fuels company that is commercializing the
next generation of renewable low-carbon liquid transportation fuels with the
potential to achieve a "net zero" greenhouse gas ("GHG") footprint and address
global needs of reducing GHG emissions with sustainable alternatives to
petroleum fuels. As next generation renewable fuels, our hydrocarbon
transportation fuels have the advantage of being "drop-in" substitutes for
conventional fuels that are derived from crude oil, working seamlessly and
without modification in existing fossil-fuel based engines, supply chains and
storage infrastructure. In addition to the potential of net zero carbon
emissions across the whole fuel life-cycle, our renewable fuels eliminate other
pollutants associated with the burning of traditional fossil fuels such as
particulates and sulfur, while delivering superior performance. We believe that
the world is substantially under-supplied with low-carbon, drop-in renewable
fuels that can be immediately used in existing transportation engines and
infrastructure, and we are uniquely positioned to grow in serving that demand.



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We use low-carbon, renewable resource-based raw materials as feedstocks. In the
near-term, our feedstocks will primarily consist of non-food corn. As our
technology is applied globally, feedstocks can consist of sugar cane, molasses
or other cellulosic sugars derived from wood, agricultural residues and waste.
Our patented fermentation yeast biocatalyst produces isobutanol, a four-carbon
alcohol, via the fermentation of renewable plant biomass carbohydrates. The
resulting renewable isobutanol has a variety of direct applications but, more
importantly to our fundamental strategy, serves as a building block to make
renewable isooctane (which we refer to as renewable premium gasoline) and
renewable jet fuel using simple and common chemical conversion processes. We
also reduce or eliminate fossil-based process energy inputs by replacing them
with renewable energy such as wind-powered electricity and renewable natural gas
("RNG").



COVID-19



The COVID-19 pandemic has had an adverse impact on global commercial activity,
including the global transportation industry and our supply chain, and has
contributed to significant volatility in the financial markets. In light of the
current and potential future disruption to our own business operations and those
of our customers, suppliers and other third parties with whom we do business, we
considered the impact of the COVID-19 pandemic on our business. This analysis
considered our business' resilience and continuity plans, financial modeling and
stress testing of liquidity and financial resources.



We expect that the impact of the COVID-19 pandemic on general economic activity
will negatively impact our revenue and operating results for at least the
remainder of 2020 and beyond. The suspension of ethanol production at our
Luverne Facility and reduction in our workforce during the first quarter of 2020
due to the impact of COVID-19 had an adverse impact on our financial results for
the third quarter of 2020 reducing revenue by 97% compared to the same period in
2019. We expect that the suspension of ethanol production at the Luverne
Facility and reduction in workforce will allow us to continue to reduce our cash
burn during 2020.



With many of our employees work remotely, we face the risk that unusual working
arrangements could impact the effectiveness of our operations or controls. A
potential COVID-19 infection of any of our key employees could materially and
adversely impact our operations. In addition, it is possible that COVID-19
restrictions could create difficulty for satisfying our legal or regulatory
filing or other obligations, including with the SEC and other regulators.



There is also a risk that COVID-19 could continue to have a material adverse
impact on customer demand and cash flow for the remainder of 2020 and beyond. We
will continue to monitor the situation and assess possible implications to our
business and our stakeholders and will take appropriate actions to help mitigate
adverse consequences. The extent to which COVID-19 continues to impact our
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.



We have considered multiple scenarios, with both positive and negative inputs,
as part of the significant estimates and assumptions that are inherent in our
financial statements and are based on trends in customer behavior and the
economic environment throughout the quarter ended September 30, 2020 and beyond
as the COVID-19 pandemic has impacted the industries in which we operate. 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, we believe we may face atypical delays in client
payments going forward but we have not experienced delays in collection as of
September 30, 2020. In addition, we believe 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
alcohol-to-jet ("ATJ"), isooctane and isooctene. We believe that these trends
and uncertainties are comparable to those faced by other registrants as a result
of the COVID-19 pandemic.



In response to the impact of the COVID-19 pandemic, each of Patrick R. Gruber,
our Chief Executive Officer, Christopher M. Ryan, our President, Chief Operating
Officer and Chief Technology Officer, L. Lynn Smull, our Chief Financial
Officer, Timothy J. Cesarek, our Chief Commercial Officer, Geoffrey T. Williams,
Jr., our General Counsel and Secretary, and Carolyn M. Romero, our Vice
President - Controller and Principal Accounting Officer (collectively, the
"Officers") accepted 20% reductions to their base salaries as of April 1, 2020
and continued until July 31, 2020. 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
effective April 1, 2020 and continued through July 31, 2020, with the 20%
portion to be paid in the form of restricted stock awards.



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In addition, the effectiveness of external parties, including governmental and
non-governmental organizations, in combating the spread and severity of COVID 19
could have a material impact on demand for our business. Further, steps taken by
market counter parties such as commercial airlines could have an impact on their
ability to perform agreements to which we are a party, which could impact our
business. The rapid development and fluidity of this situation precludes any
prediction as to the ultimate adverse impact of COVID 19 on our business.



COVID-19 has materially disrupted, and could continue to materially disrupt, our
own business operations and the services we provide, as well as the business
operations of our customers, suppliers and other third parties with whom we
interact. As an increasing percentage of our colleagues work remotely, we face
the risk that unusual working arrangements could impact the effectiveness of our
operations or controls. A potential COVID-19 infection of any of our key
colleagues could materially and adversely impact our operations. In addition, it
is possible that COVID-19 restrictions could create difficulty for satisfying
our legal or regulatory filing or other obligations, including with the SEC and
other regulators.



New Contracts. As previously disclosed, on April 4, 2019, Gevo, Inc. and Praj
Industries Ltd. ("Praj") entered into a Construction License Agreement ("CLA"),
that certain Joint Development Agreement, effective as of April 1, 2018 (as
amended, the "Feedstock JDA") and that certain Development License Agreement,
effective as of April 1, 2018. On August 13, 2020, we entered into a Master
Framework Agreement (the "MFA") with Praj to collaborate on providing renewable
jet fuel and premium gasoline in India and neighboring countries. The
MFA replaces the CLA effective August 13, 2020.



Under the MFA, Praj has exclusive rights to cause us to enter into negotiations
with third-parties (each, a "Plant Operator") that own or operate refineries for
the production of Biobutanol (defined in the MFA), including conversion of ethyl
alcohol to Biobutanol or for the production of isooctane, jet fuel and/or
similar hydrocarbons (the "Hydrocarbon Transportation Fuel") either in the
Territory (as defined in the MFA) or who are named on the Plant List (as defined
in the MFA). Provided the Plant Operator and the Company enter into such
license, the MFA allows Praj to provide services (such as basic engineering and
design package, supply of critical equipment, supervision services, engineering,
procurement and construction services and additional related services) (the
"Services") to the applicable Plant Operator for (a) production of Biobutanol
from juice, syrup, and/or molasses from sugarcane, beets, bagasse, rice straw,
wheat straw or corn stover, and other additional feedstocks using the process
design package developed under the Feedstock JDA and (b) for the production of
Hydrocarbon Transportation Fuel using the Hydrocarbon PDPs (as defined in the
MFA) for the conversion of Biobutanol to Hydrocarbon Transportation Fuel. Praj
has no rights to commercially produce Biobutanol or otherwise convert Biobutanol
to Hydrocarbon Transportation Fuel under the MFA.



We will receive certain finder's fees to the extent one of our third party
licensees (a) is not previously identified in the various agreements or not
located in certain specified areas, (b) uses Praj's enfinity Technology (as
defined in the MFA) in concert with the Feedstock PDP and (c) the constructed
facilities are of a certain commercial scale. The MFA will continue in effect
for ten years, unless earlier terminated by either party, and automatically
renews for additional one year terms until terminated. If Praj fails to fully
commission Authorized Plants (as defined in the MFA) with the cumulative
capacity to generate five million gallons per year of Biobutanol or Hydrocarbon
Transportation Fuel by the fifth contract year, the exclusive license grants
will terminate (unless otherwise mutually agreed in writing by the parties).



On August 14, 2020, we entered into a Renewable Hydrocarbons Purchase and Sale
Agreement (the "Agreement") with Trafigura Trading LLC ("Trafigura"), pursuant
to which we agreed to supply renewable hydrocarbons to Trafigura. The initial
term of the Agreement is 10 years, and Trafigura has the option to extend the
initial term. Performance under the Agreement is subject to certain conditions
as set forth below, including acquiring a production facility to produce the
renewable hydrocarbon products contemplated by the Agreement and closing a
financing transaction for sufficient funds to acquire and retrofit the
production facility contemplated by the Agreement. We are required to use
commercially reasonable efforts to cause the "Commercial Operations Date" to
occur on or before December 31, 2023. We will sell the renewable hydrocarbons to
Trafigura at certain indexed prices as set forth in the Agreement.



If we do not provide to Trafigura the design, capabilities (including the
expected annual production capacity), specifications, required governmental
authorizations, delivery logistics and location of an additional new project
that we plan to develop or acquire (the "Production Facility") (collectively,
the "Facility Design") to meet the requirements set forth in the Agreement on or
before December 31, 2020, either party may terminate the Agreement. The parties
respective obligations under the Agreement are also subject to certain
Conditions Precedent (as defined in the Agreement), including, but not limited
to, Gevo securing initial financing for the construction of the Production
Facility, and Gevo having entered into engineering, procurement, and
construction agreements for the construction of the Production Facility, in form
and substance reasonably satisfactory to us.



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Subject to the satisfaction or waiver of all of the Conditions
Precedent, we are required to use commercially reasonable efforts to cause the
"Commercial Operations Date" to occur on or before December 31, 2023. The
Commercial Operations Date will be the date on which the Company determines that
the production facility is capable of consistently producing renewable
hydrocarbons conforming to specification and in quantities set forth under the
Agreement, provided that the expected annual production capability is at least
equal to 85% of the annual production capability contemplated by the Facility
Design. If the Commercial Operations Date has not taken place on or before
December 31, 2023 (as may be adjusted in accordance with the Agreement), then
we will be required to pay Trafigura certain liquidated damages.



July 2020 Offering. On July 6, 2020, we completed a public offering (the "July
2020 Offering") of (i) 20,896,666 Series 1 units (the "Series 1 Units") at a
price of $0.60 per Series 1 Unit, and (ii) 9,103,334 Series 2 units (the "Series
2 Units") at a price of $0.59 per Series 2 Unit. The July 2020 Offering was made
under a registration statement on Form S-1 filed with the Securities and
Exchange Commission, declared effective on September 30, 2020.



Each Series 1 Unit consisted of one share of our common stock and one Series
2020-A warrant to purchase one share of our common stock (each, a "Series 2020-A
Warrant"). Each Series 2 Unit consists of a pre-funded Series 2020-B warrant to
purchase one share of our common stock (each, a "Series 2020-B Warrant" and,
together with the Series 2020-A Warrants, the "Warrants") and one Series 2020-A
Warrant. The Series 2020-A Warrants are exercisable beginning on the date of
original issuance and will expire five years from the date of issuance, at an
exercise price of $0.60 per share. The pre-funded Series 2020-B Warrants are
exercisable beginning on the date of issuance at a nominal exercise price of
$0.01 per share of common stock any time until the Series 2020-B Warrants are
exercised in full. In connection with the July 2020 Offering, the Company issued
Series 2020-A Warrants to purchase an aggregate of 30,000,000 shares of common
stock. As of September 30, 2020, all of the Series 2020-B Warrants were
exercised.



The net proceeds to us from the July 2020 Offering were approximately
$16.1 million, after deducting placement agent fees and other offering expenses
payable by us, and not including any future proceeds from the exercise of the
Warrants. We intend to use the net proceeds from the July 2020 Offering to fund
working capital and for other general corporate purposes.



During the three months ended September 30, 2020, we received notices of
exercise from holders of our Series 2020-A Warrants to issue an aggregate of
27,317,834 shares of common stock for total gross proceeds of approximately
$16.4 million. Following these exercises, Series 2020-A Warrants to purchase
2,682,166 shares of our common stock remain outstanding at an exercise price of
$0.60 per share.



August 2020 Offering. On August 25, 2020, we completed a registered direct
offering pursuant to a securities purchase agreement with certain institutional
and accredited investors providing for the issuance and sale by us of an
aggregate of (i) 21,929,313 shares of our common stock (the "Shares") at a price
of $1.30 per share, and (ii) 16,532,232 pre-funded Series 2020-C warrants to
purchase one share of our common stock (each, a "Series 2020-C Warrant") at a
price of $1.29 per Series 2020-C Warrant, in a registered direct offering (the
"August 2020 Offering"). As of September 30, 2020, all of the Series 2020-C
Warrants were exercised.



The net proceeds to us from the August 2020 Offering were approximately
$45.8 million, after deducting placement agent fees and other estimated offering
expenses payable by us, and not including any future proceeds from the exercise
of the Warrants. We intend to use the net proceeds from the August 2020 Offering
to fund working capital and for other general corporate purposes.



Conversion of 2020/21 Notes. On July 10, 2020, certain holders of the 2020/21
Notes converted $2.0 million in aggregate principal amount of 2020/21 Notes
(including the conversion of an additional $0.3 million for make-whole
payment) into an aggregate of 4,169,426 shares of common stock pursuant to the
terms of the 2020/21 Indenture. We recorded a Loss on conversion of 2020/21
Notes of $0.5 million on our Consolidated Statements of Operations.



At-the-Market Offering Program. In February 2018, we commenced an at-the-market
offering program, which allows it to sell and issue shares of its common stock
from time-to-time. In August 2019, the at-the-market offering program was
amended to provide available capacity under the at-the-market offering program
of $10.7 million.



During the nine months ended September 30, 2020, we issued 1,343,121 shares of
common stock under the at-the-market offering program for total proceeds of
$2.2 million, net of commissions and other offering related expenses. No shares
were issued under the at-the-market offering program during the three months
ended September 30, 2020.


As of September 30, 2020, we have remaining capacity to issue up to approximately $6.5 million of common stock under the at-the-market offering program.




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Restructuring Expenses



During the first quarter of 2020, we suspended our ethanol production at the
Luverne Facility. In addition, due to the impact of the COVID-19 pandemic on the
global economy and our industry, we also reduced our workforce impacting 26
people at the Luverne Facility and four people at our corporate headquarters.



We incurred $0.1 million related to severance costs and $0.2 million related to
lease agreements for which we will no longer receive value during the nine
months ended September 30, 2020, which are recorded as Restructuring expenses on
the Consolidated Statements of Operations.



We intend to continue developing our hydrocarbon business, including the planned
expansion of the Luverne Facility, and we expect to move forward in securing the
project funding needed to expand the Luverne Facility. The expansion is designed
to allow us to produce large quantities of low carbon isobutanol, sustainable
aviation fuel and renewable isooctane. We also expect 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.



Financial Condition



We have incurred consolidated net losses since inception and we had a
significant accumulated deficit as of September 30, 2020. Our cash and cash
equivalents at September 30, 2020 totaled $80.6 million, which is primarily
being used for the following:  (i) development of the Luverne Facility expansion
plan; (ii) identification of new production facilities and to plan for expanded
production to fulfill existing off-take agreements; (iii) operating activities
at the Company's corporate headquarters in Colorado, including research and
development work; (iv) development expenses associated with our RNG
projects; (v) exploration of strategic alternatives and additional
financings, including project financing; and (vi) debt service obligations.



The continued operation of our business is dependent upon raising additional
capital through future public and private equity offerings, debt financings or
through other alternative financing arrangements. In addition, successful
completion of our research and development programs and the attainment of
profitable operations are dependent upon future events, including our ability to
raise sufficient capital to expand our commercial production facility,
completion of our development activities resulting in sales of isobutanol or
isobutanol-derived products and/or technology, achieving market acceptance and
demand for our products and services and attracting and retaining qualified
personnel.



We expect to incur future net losses as we continue to fund the development and
commercialization of our products and product candidates. We have primarily
relied on raising capital to fund our operations and debt service obligations by
issuing common stock and warrants in underwritten public offerings. Those
issuances have caused significant dilution to our existing stockholders. While
we have sought, and will continue to seek, other, less dilutive forms of
financing to fund our operations and debt service obligations, there is no
assurance that we will be successful in doing so.



Our transition to profitability is dependent upon, among other things, the
successful development and commercialization of our products and product
candidates, the achievement of a level of revenues adequate to support our cost
structure and securing sufficient financing for the expansion of the Luverne
Facility or a facility at another suitable location. We may never achieve
profitability or generate positive cash flows, and unless and until we do, we
will continue to need to raise additional cash. We intend to fund future
operations through additional private and/or public offerings of debt or equity
securities. In addition, we may seek additional capital through arrangements
with strategic partners or from other sources and we will continue to address
our cost structure. Notwithstanding, there can be no assurance that we will be
able to raise additional funds or achieve or sustain profitability or positive
cash flows from operations, especially in light of the impact of the COVID-19
pandemic on us and the financial markets in general.



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Results of Operations


Comparison of the Three Months Ended September 30, 2020 and 2019



                                                 Three Months Ended September 30,
(in thousands)                                      2020                  2019             Change
Revenue and cost of goods sold
Ethanol sales and related products, net        $            21       $         5,554     $    (5,533 )
Hydrocarbon revenue                                        101                   550            (449 )
Other revenue                                               70                     6              64
Total revenues                                             192                 6,110          (5,918 )

Cost of goods sold                                       2,260                 9,893          (7,633 )

Gross loss                                              (2,068 )              (3,783 )         1,715

Operating expenses
Research and development expense                           870                 1,789            (919 )
Selling, general and administrative expense              3,215                 2,431             784
Restructuring costs                                        (50 )                   -             (50 )

Total operating expenses                                 4,035                 4,220            (185 )

Loss from operations                                    (6,103 )              (8,003 )         1,900

Other income (expense)
Interest expense                                          (473 )                (605 )           132
(Loss) on conversion of 2020/21 Notes to                  (543 )                   -            (543 )
common stock
Gain from change in fair value of derivative
warrant liability                                            -                    (2 )             2
Gain (loss) from change in fair value of
2020/21 Notes and 2020 Notes embedded
derivative liability                                       247                     -             247
Other income                                                36                    (9 )            45

Total other income (expense), net                         (733 )                (616 )          (117 )

Net loss                                       $        (6,836 )$        (8,619 )$     1,783




Revenue. Revenue from the sale of ethanol, isobutanol and related products for
the three months ended September 30, 2020 was $0.02 million, a decrease of
$5.5 million compared to the three months ended September 30, 2019. This
decrease was primarily the result of terminating ethanol and distiller's grains
production at the Luverne Facility in March 2020 as a result of COVID-19 and in
response to an unfavorable commodity environment. During the three months ended
September 30, 2020, we sold 0 gallons of ethanol compared to 3.4 million gallons
of ethanol sold in the three months ended September 30, 2019. We do not expect
to earn revenue from the sale of ethanol, isobutanol and related products while
the Luverne Facility's operations are suspended.



Hydrocarbon revenues are comprised of ATJ, isooctane and isooctene sales.
Hydrocarbon sales decreased by $0.4 million during the three months ended
September 30, 2020 as a result of decreased shipments of finished products from
our demonstration plant located at the South Hampton Resources, Inc. facility
near Houston, Texas (the "South Hampton Facility").



Cost of goods sold. Cost of goods sold was $2.3 million during the three months
ended September 30, 2020, compared with $9.9 million during the three months
ended September 30, 2019, a decrease of approximately $7.6 million, primarily
the result of terminating ethanol production in March 2020 as a result of
COVID-19 and in response to an unfavorable commodity environment. Cost of goods
sold included approximately $0.9 million associated with the maintenance of the
Luverne Facility and approximately $1.4 million in depreciation expense during
the three months ended September 30, 2020.



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Until the Luverne Facility restarts production, cost of goods sold will
primarily be comprised of costs to process ATJ, isooctane and isooctene at our
South Hampton Facility as well as costs to maintain the Luverne Facility. In
late October of 2020, we began producing approximately 50,000 gallons of
isobutanol at the Luverne Facility which will be shipped to the South Hampton
Facility for use in production of renewable hydrocarbons during the first
quarter of 2021. We plan to produce an additional 50,000 gallons of isobutanol
during the second quarter of 2021 for use at the South Hampton Facility.



Research and development expense. Research and development expense decreased by
approximately $0.9 million during the three months ended September 30, 2020,
compared with the three months ended September 30, 2019, due primarily to a
decrease in personnel and consulting expenses.



Selling, general and administrative expense. Selling, general and administrative
expense increased by approximately $0.8 million during the three months ended
September 30, 2020, compared with the three months ended September 30, 2019, due
primarily to an increase in personnel, consulting and insurance expenses
and professional fees, offset by a decrease in investor relations expenses.



Interest expense. Interest expense during the three months ended September 30,
2020 was $0.5 million, a decrease of $0.1 million compared to the three months
ended September 30, 2019, due to lower amortization of original issue discounts
and debt issuance costs and conversion of $2.0 million of 2020/21 Notes to
common stock during July 2020.


(Loss) on conversion of 2020/21 Notes to common stock. During the three months ended September 30, 2020, we incurred a $0.5 million loss related to the conversion of $2.0 million of 2020/21 Notes into common stock during July 2020.




(Loss) gain from change in fair value of the 2020/21 Notes and 2020
Notes embedded derivative liability. During the three months ended September 30,
2020, the estimated fair value of the 2020/21 Notes embedded derivative
liability increased resulting in a non-cash gain of $0.2 million, primarily due
to the revaluation of the embedded derivative liability.



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Comparison of the Nine Months Ended September 30, 2020 and 2019



                                                   Nine Months Ended September 30,
(in thousands)                                       2020                   2019             Change
Revenue and cost of goods sold
Ethanol sales and related products, net        $          3,804       $         16,184     $   (12,380 )
Hydrocarbon revenue                                       1,085                  1,381            (296 )
Other revenue                                               116                     34              82
Total revenues                                            5,005                 17,599         (12,594 )

Cost of goods sold                                       13,043                 27,306         (14,263 )

Gross loss                                               (8,038 )               (9,707 )         1,669

Operating expenses
Research and development expense                          2,127                  3,712          (1,585 )
Selling, general and administrative expense               8,917                  6,705           2,212
Restructuring costs                                         254                      -             254

Total operating expenses                                 11,298                 10,417             881

Loss from operations                                    (19,336 )              (20,124 )           788

Other income (expense)
Interest expense                                         (1,559 )               (2,127 )           568
(Loss) on modification of 2020 Notes                       (726 )                    -            (726 )
(Loss) on conversion of 2020/21 Notes to                   (543 )                    -            (543 )
common stock
Gain from change in fair value of derivative
warrant liability                                             8                      1               7
(Loss) gain from change in fair value of
2020/21 Notes and 2020 Notes embedded
derivative liability                                        (29 )                  394            (423 )
Other income                                                 53                     11              42

Total other income (expense), net                        (2,796 )               (1,721 )        (1,075 )

Net loss                                       $        (22,132 )$        (21,845 )$      (287 )




Revenue. Revenue from the sale of ethanol, isobutanol and related products for
the nine months ended September 30, 2020 was $3.8 million, a decrease of
$12.4 million compared to the nine months ended September 30, 2019. This
decrease was primarily the result of terminating ethanol and distiller's grains
production at the Luverne Facility in March 2020 as a result of COVID-19 and in
response to an unfavorable commodity environment. During the nine months ended
September 30, 2020, we sold 2.4 million gallons of ethanol compared to
10.2 million gallons of ethanol sold in the nine months ended September 30,
2019.


Hydrocarbon sales decreased by $0.3 million during the nine months ended September 30, 2020 as a result of decreased shipments of finished products from our demonstration plant located at the South Hampton Facility.


Cost of goods sold. Cost of goods sold was $13.0 million during the nine months
ended September 30, 2020, compared with $27.3 million during the nine months
ended September 30, 2019, a decrease of approximately $14.3 million, primarily
the result of terminating ethanol production in March 2020 as a result of
COVID-19 and in response to an unfavorable commodity environment. Cost of goods
sold included approximately $8.4 million associated with the production of
ethanol and related products and maintenance of the Luverne Facility and
approximately $4.6 million in depreciation expense during the nine months ended
September 30, 2020.

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Until the Luverne Facility restarts production, cost of goods sold will
primarily be comprised of costs to process ATJ, isooctane and isooctene at
the South Hampton Facility as well as costs to maintain the Luverne Facility. In
late October of 2020, we began producing approximately 50,000 gallons of
isobutanol which will be shipped to the South Hampton Facility for use in
production of renewable hydrocarbons during the first quarter of 2021. We plan
to produce an additional 50,000 gallons of isobutanol during the second quarter
of 2021 for use at the South Hampton Facility.

Research and development expense. Research and development expense decreased by approximately $1.6 million during the nine months ended September 30, 2020, compared with the nine months ended September 30, 2019, due primarily to a decrease in personnel and consulting expenses.


Selling, general and administrative expense. Selling, general and administrative
expense increased by approximately $2.2 million during the nine months ended
September 30, 2020, compared with the nine months ended September 30, 2019, due
primarily to an increase in personnel, consulting and insurance expenses and
professional fees offset by a decrease in investor relations and travel
expenses.



Restructuring Costs. During the nine months ended September 30, 2020, we
incurred $0.3 million of restructuring charges related to the restructuring of
Agri-Energy, termination of employees at Agri-Energy and Gevo and renegotiating
contracts.



Interest expense. Interest expense during the nine months ended September 30,
2020 was $1.6 million, a decrease of $0.6 million compared to the nine months
ended September 30, 2019, due to lower amortization of original issue discounts
and debt issuance costs and conversion of $2.0 million of 2020/21 Notes to
common stock during July 2020.



(Loss) from modification of 2020 Notes. During the nine months ended September
30, 2020, we incurred $0.7 million of legal and professional fees to modify the
2020 Notes into the 2020/21 Notes.



(Loss) on conversion of 2020/21 Notes to common stock. During the nine months ended September 30, 2020, we incurred a $0.5 million loss related to the conversion of $2.0 million of 2020/21 Notes into common stock during July 2020.




(Loss) gain from change in fair value of the 2020/21 Notes and 2020
Notes embedded derivative liability. During the nine months ended September 30,
2020, the estimated fair value of the 2020/21 Notes embedded derivative
liability increased resulting in a non-cash loss of $0.03 million, primarily due
to the revaluation of the embedded derivative liability as a result of the
modification of the 2020 Notes.



Sources of Our Revenues



Our revenues are primarily derived from: (i) the sale of isobutanol, ethanol and
related products; (ii) hydrocarbon sales consisting primarily of the sale of
biojet fuel and isooctane derived from our isobutanol for purposes of
certification and testing; and (iii) government grants and research and
development programs. During the first quarter of 2020, we suspended our ethanol
production at the Luverne Facility due to the impact of the COVID-19 pandemic on
the economy and our industry as a whole. We do not anticipate earning revenue
from the sale of ethanol during the remainder of 2020.



Principal Components of Our Cost Structure




Cost of Goods Sold. Our cost of goods sold consists primarily of costs directly
associated with ethanol production and initial operations for the production of
isobutanol at the Luverne 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
and maintenance operations at the Luverne Facility. Other operating costs
include utilities and natural gas usage.



                                       43
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Research and Development. Our research and development costs consist of expenses
incurred to identify, develop and test our technologies for the production of
isobutanol and the development of downstream applications thereof. Research and
development expenses include personnel costs (including stock-based
compensation), consultants and related contract research, facility costs,
supplies, depreciation and amortization expense on property, plant and equipment
used in product development, license fees paid to third parties for use of their
intellectual property and patent rights and other overhead expenses incurred to
support our research and development programs.



Selling, General and Administrative. Selling, general and administrative
expenses consist of personnel costs (including stock-based compensation),
consulting and service provider expenses (including patent counsel-related
costs), legal fees, marketing costs, insurance costs, occupancy-related costs,
depreciation and amortization expenses on property, plant and equipment not used
in our product development programs or recorded in cost of goods sold, travel
and relocation expenses and hiring expenses.



Interest Expense. Our 2020/21 Notes have, and the 2020 Notes had, a fixed interest rate of 12%. As of September 30, 2020, the 2020/21 Notes had a principal balance of $12.7 million. As of December 31, 2019, the 2020 Notes had a principal balance of $14.1 million.

Liquidity and Capital Resources




Since our inception in 2005, we have devoted most of our cash resources to
manufacturing ethanol, isobutanol and related products, research and development
and selling, general and administrative activities related to the
commercialization of ethanol, isobutanol, as well as related products from
renewable feedstocks. We have incurred losses since inception and expect to
incur losses through at least 2021. We have financed our operations primarily
with proceeds from multiple sales of equity and debt securities, borrowings
under debt facilities and product sales.



The continued operation of our business is dependent upon raising additional
capital through future public and private equity offerings, debt financings or
through other alternative financing arrangements. In addition, successful
completion of our research and development programs and the attainment of
profitable operations are dependent upon future events, including our ability to
raise sufficient capital to expand our commercial production capabilities,
completion of our development activities resulting in sales of isobutanol or
isobutanol-derived products and/or technology, achieving market acceptance and
demand for our products and services and attracting and retaining qualified
personnel.



We expect to incur future net losses as we continue to fund the development and
commercialization of our products and product candidates. We have primarily
relied on raising capital to fund our operations and debt service obligations by
issuing common stock and warrants in underwritten public offerings. Those
issuances have caused significant dilution to our existing stockholders. While
we have sought, and will continue to seek, other, less dilutive forms of
financing to fund our operations and debt service obligations, there is no
assurance that we will be successful in doing so.



Our transition to profitability is dependent upon, among other things, the
successful development and commercialization of our products and product
candidates, the achievement of a level of revenues adequate to support our cost
structure and securing sufficient financing for the expansion of the Luverne
Facility or a Retrofit facility at other suitable locations. We may never
achieve profitability or generate positive cash flows, and unless and until we
do, we will continue to need to raise additional cash. We intend to fund future
operations through additional private and/or public offerings of debt or equity
securities. In addition, we may seek additional capital through arrangements
with strategic partners or from other sources and we will continue to address
our cost structure. Notwithstanding, there can be no assurance that we will be
able to raise additional funds or achieve or sustain profitability or positive
cash flows from operations.


The Company has incurred consolidated net losses since inception and has a significant accumulated deficit as of September 30, 2020. As of

September 30, 2020, we had cash and cash equivalents totaling $80.6 million.




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



                                                Nine Months Ended September 30,
                                                  2020                   2019

Net cash used in operating activities $ (14,581 )$ (14,798 ) Net cash used in investing activities $ (1,756 ) $

         (7,260 )
Net cash provided by financing activities   $         80,656       $          9,268




Operating Activities



Our primary uses of cash from operating activities are personnel related
expenses, research and development related expenses including costs incurred
under development agreements, costs of licensing of technology, legal-related
costs, expenses for maintenance of the Luverne Facility and for the operation of
our South Hampton Facility.



During the nine months ended September 30, 2020, net cash used for operating
activities was $14.6 million compared to $14.8 million for the nine months ended
September 30, 2019. The $0.2 million decrease in operating cash flows was
primarily due to reduced production at the Luverne Facility offset by increased
engineering and development fees on our RNG projects.



During the first quarter of 2020, we suspended our ethanol production at the
Luverne Facility due to COVID-19 and an unfavorable commodity environment,
largely the result of greater corn costs as compared to national markets than
the region has historically produced. We are currently maintaining the Luverne
Facility until we arrange financing of its expansion for the production of
hydrocarbons.



We currently plan to spend approximately $7 million - $10 million over the next
15 months for engineering and development costs related to the expansion of the
Luverne Facility and our RNG projects. We expect that additional expenditures
will be required during the next 15 months for engineering and development work
related to the expansion of the Luverne Facility, the RNG projects and other
business initiatives.



Investing Activities



During the nine months ended September 30, 2020, we used $1.8 million in cash
for investing activities, substantially all of which related to capital
expenditures at our Luverne Facility. We are installing equipment to fractionate
distillers grains at the Luverne Facility totaling approximately $2.0 million as
of September 30, 2020. The cost of the fractionation machine has been funded
with a financing lease. No amounts are payable on this financing lease until the
equipment is operational. The fractionation machine is expected to be
operational in the first half of 2023.



We are developing an RNG project comprised of anaerobic digesters to be located
at three dairy farms in northwest Iowa, plus associated gas upgrading equipment,
to supply our Luverne Facility with renewable thermal energy upon its startup in
2023. We expect to finance the RNG project, including finance-related costs and
initial working capital, with approximately $65 million of combined project
finance debt and third-party equity. Agri-Energy is expected to have a purchase
option on approximately 50% of the RNG project's estimated annual 350,000 MMBtu
of RNG production. The RNG project is expected to be operational in early 2022,
subject to securing adequate financing to complete the RNG project.



Financing Activities



During the nine months ended September 30, 2020, we generated $80.7 million in
cash from financing activities, which primarily consisted of $2.2 million of
net proceeds under our "at-the-market" offering program, receiving
$16.1 million from the sale of common stock and warrants in the July 2020
Offering, $45.8 million from the sale of common stock and pre-funded warrants in
the August 2020 Offering, $16.6 million from the exercise of Series 2020-A
Warrants, Series 2020-B Warrants and Series 2020-C Warrants, and $1.0 million
from the Small Business Administration's Paycheck Protection Program ("SBA PPP")
discussed below, offset by $0.5 million paid on loans payable - other.



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On July 6, 2020, we completed a public offering (the "July 2020 Offering") of
(i) 20,896,666 Series 1 units (the "Series 1 Units") at a price of $0.60 per
Series 1 Unit, and (ii) 9,103,334 Series 2 units (the "Series 2 Units") at a
price of $0.59 per Series 2 Unit. The net proceeds to us from the July 2020
Offering were approximately $16.1 million, after deducting placement agent fees
and other estimated offering expenses payable by the Company, and not including
any future proceeds from the exercise of the Warrants. The Company intends to
use the net proceeds from the July 2020 Offering to fund working capital and for
other general corporate purposes. See Note 1, Nature of Business, Financial
Condition and Basis of Presentation,  to our consolidated financial statements
included herein for additional information regarding the July 2020 Offering.  As
of September 30, 2020, all of the Series 2020-B warrants were exercised.



During the quarter ended September 30, 2020, we received notices of exercise
from holders of our Series 2020-A Warrants to issue an aggregate of
27,317,834 shares of common stock for total gross proceeds of approximately
$16.4 million. Following these exercises, Series 2020-A Warrants to purchase
2,682,166 shares of our common stock remain outstanding at an exercise price of
$0.60 per share.



On August 25, 2020, we completed a registered direct offering pursuant to a
securities purchase agreement with certain institutional and accredited
investors providing for the issuance and sale by us of an aggregate of (i)
21,929,313 shares of our common stock (the "Shares") at a price of $1.30 per
share, and (ii) 16,532,232 pre-funded Series 2020-C warrants to purchase one
share of our common stock (each, a "Series 2020-C Warrant") at a price of $1.29
per Series 2020-C Warrant, in a registered direct offering (the "August 2020
Offering"). The net proceeds from the August 202 Offering were approximately
$45.8 million, after deducting placement agent fees and other estimated offering
expenses. The Company intends to use the net proceeds from the August 2020
Offering to fund working capital and for other general corporate purposes. See
Note 1, Nature of Business, Financial Condition and Basis of Presentation,  to
our consolidated financial statements included herein for additional information
regarding the August 2020 Offering.  As of September 30, 2020, all of the Series
2020-C warrants were exercised.



At-the-Market Offering Program. In February 2018, we commenced an at-the-market
offering program, which allows us to sell and issue shares of our common stock
from time-to-time. In August 2019, the at-the-market offering program was
amended to provide available capacity under the at-the-market offering program
of $10.7 million.



During the nine months ended September 30, 2020, we issued 1,343,121 shares of
common stock under the at-the-market offering program for net proceeds of
$2.2 million, net of commissions and offering related expenses. No shares were
issued under the at-the-market offering program  in the three months ended
September 30, 2020. As of September 30, 2020, we had remaining capacity to issue
up to $6.5 million of common stock under the at-the-market offering program.



Under current SEC rules and regulations, if the aggregate market value of our
common stock held by non-affiliates, or public float, falls to less than $75
million (calculated as set forth in Form S-3 and SEC rules and regulations) at
the time of filing of our next Annual Report on Form 10- K, the amount we can
raise through primary public offerings of our securities in any twelve-month
period using a registration statement on Form S- 3 will be limited to one-third
of our public float.



2020/21 Notes. On January 10, 2020, the Company entered into an Exchange and
Purchase Agreement (as amended, the "2020/21 Purchase Agreement") with the
guarantors party thereto (the "Guarantors"), the holder of the 2020 Notes and
Whitebox Advisors LLC ("Whitebox"), in its capacity as representative of the
holder. Pursuant to the terms of the 2020/21 Purchase Agreement, the holder of
the 2020 Notes, subject to certain conditions, agreed to exchange all of the
outstanding principal amount of the 2020 Notes, which was approximately $14.1
million including unpaid accrued interest, for approximately $14.4 million in
aggregate principal amount of the Company's newly created 2020/21 Notes (the
"2020/21 Exchange"). Pursuant to the 2020/21 Purchase Agreement, the Company
also granted an option to purchase up to an additional aggregate principal
amount of approximately $7.1 million of 2020/21 Notes (the "2020/21 Option
Notes"), at a purchase price equal to the aggregate principal amount of such
2020/21 Option Notes purchased less an original issue discount of 2.0%, having
identical terms (other than with respect to the issue date and restrictions on
transfer relating to compliance with applicable securities law) to the 2020/21
Notes issued, at any time during the period beginning on the date of closing of
the 2020/21 Exchange and ending on the later of (a) 180 days thereafter, and (b)
30 days following June 3, 2020. In addition, on January 10, 2020, the Company
completed the 2020/21 Exchange and cancelled the 2020 Notes. In addition, the
Company entered into an Indenture by and among the Company, the guarantors named
therein (the "2020/21 Notes Guarantors") and FSB, as trustee and as collateral
trustee (the "Original Indenture"), as supplemented by that certain First
Supplemental Indenture, dated as of April 7, 2020 (the "First Supplemental
Indenture"), that certain Second Supplemental Indenture, dated as of July 2,
2020 (the "Second Supplemental Indenture"), and that certain Third Supplemental
Indenture, dated as of August 24, 2020 (the "Third Supplemental Indenture" and,
together with the Original Indenture, the First Supplemental Indenture and the
Second Supplemental Indenture, the "2020/21 Notes Indenture"), pursuant to which
the Company issued the 2020/21 Notes. During the nine months ended September 30,
2020, the Company recognized an approximately $0.7 million loss on the 2020/21
Exchange within the Consolidated Statements of Operations.



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The 2020/21 Notes will mature on December 31, 2020, provided that the maturity
date will automatically be extended to April 1, 2021 if the aggregate
outstanding principal balance of the 2020/21 Notes (including any 2020/21 Option
Notes) as of December 15, 2020 is less than $7 million. The 2020/21 Notes bear
interest at a rate equal to 12% per annum (with 4% potentially payable as PIK
Interest (as defined 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 2020/21 Notes by either
(a) increasing the principal amount of the 2020/21 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").



The 2020/21 Notes are convertible into shares of our common stock, subject to
certain terms and conditions. The initial conversion price of the 2020/21 Notes
is equal to $2.442 per share of common stock, or 0.4095 shares of common stock
per $1 principal amount of 2020 Notes.



On July 10, 2020, certain holders of the 2020/21 Notes converted $2.0 million in
the aggregate principal amount of 2020/21 Notes (including the conversion of an
additional $0.3 million for make-whole payment) into 4,169,428 shares of common
stock pursuant to the terms of the indenture. There was $12.5 million principal
outstanding for the 2020/21 Notes upon completion of the conversion of the
2020/21 Notes.



See Note 9, Debt, to our consolidated financial statements included herein for further discussion of the 2020/21 Notes.




Loans Payable - Other. During the first quarter of 2020, we purchased equipment
under a financing lease. During the fourth quarter of 2019, we financed part of
our insurance obligation. The equipment notes and financing lease pay interest
between 4% and 21%, have total monthly payments of $0.1 million and mature at
various date from August 2020 to February 2025. The equipment loans are secured
by the related equipment.



The rapidly evolving changes in financial markets could have a material impact
on our ability to obtain financing, which could impact our liquidity. In April
2020, we entered into two loan agreements with Live Oak Banking Company,
pursuant to which we obtained two loans from the Small Business Administration's
Paycheck Protection Program ("SBA PPP") totaling $1.0 million in the aggregate
(the "SBA Loans"). The SBA Loans will mature in April 2022 and bear interest at
a rate equal to 1% per annum, subject to the potential for partial or full loan
forgiveness as dictated by U.S. federal law. Principal and interest are deferred
until August 2021 and interest continues to accrue during the deferral period.
The SBA Loans are payable monthly beginning August 5, 2021, with aggregate
payments totaling $0.06 million per month, including interest and principal. The
SBA Loans must be used for payroll, rent payments, mortgage interest payments
and utilities payments as governed by the SBA PPP and are subject to partial or
full forgiveness for the initial 24-week period following the loan disbursement
if all proceeds are used for eligible purposes and within certain thresholds, we
maintain certain employment levels and the we maintain certain compensation
levels. No assurance can be given that we will obtain forgiveness of the loan in
whole or in part. The loan contains customary events of default relating to,
among other things, payment defaults, making materially false and misleading
representations to the lender or breaching the terms of the loan documents.



See Note 9, Debt, to our consolidated financial statements included herein for further discussion.




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Critical Accounting Policies and Estimates




There have been no significant changes to our critical accounting policies since
December 31, 2019. For a description of critical accounting policies that affect
our significant judgments and estimates used in the preparation of our
consolidated financial statements, refer to our Annual Report.





Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any material off-balance sheet arrangements.

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