# Gevo, Inc. (GEVO) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Gevo, Inc.'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1392380/000143774922004346/gevo20211231_10k.htm
Accession: 0001437749-22-004346
Filing date: 2022-02-24
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/GEVO/
All MD&A years: /company/GEVO/mda/
Next year: /company/GEVO/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K (this “Annual Report”). Some of the information contained in this discussion and analysis and set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Company Overview

We are a growth-oriented company with the mission of solving greenhouse gas emissions for those sectors of the transportation industry that are not amenable to electrification or hydrogen. We are focused on transforming renewable energy into energy-dense liquid hydrocarbons that can be used as renewable fuels, such as SAF, with the potential to achieve a "net-zero" GHG footprint. We believe that this addresses the global need of reducing GHG emissions with "drop in" sustainable alternatives to petroleum fuels. We use the Argonne National Laboratory’s GREET model to measure, predict and verify GHG emissions across the life-cycle of our products. The "net-zero" concept means that we expect to produce fuels that consume as much carbon dioxide in their manufacture as they produce when burned.

Our primary market focus, given current demand and growing customer interest, is SAF. We believe that we also have commercial opportunities for other renewable hydrocarbon products, such as hydrocarbons for gasoline blendstocks, and diesel fuel; ingredients for the chemical industry, such as ethylene and butenes; plastics and materials; and other chemicals. The global fuel consumption by commercial airlines was an all-time high of 95 billion gallons in 2019. However, due to the COVID-19, the fuel consumption dropped to only 52 billion gallons in 2020 and reached 57 billion gallons in 2021. The airline industry is looking for at least 10% of its fuel needs to be sustainable by 2030 (with the potential for up to 30% at the high end).

Our production processes use carbohydrates as a feedstock. Carbohydrates are plant matter that results from photosynthesis. Photosynthesis is the natural process by which carbon dioxide is captured from the air by plants. The carbon in carbohydrates is therefore renewable because it is already in the atmosphere. The carbohydrates are fermented to produce alcohol intermediate products (e.g., ethanol or isobutanol). The alcohol-based intermediates are then chemically processed to make renewable hydrocarbons.

We believe that we will be able to develop the marketplace, customers, and production capacity to achieve at least 1 billion gallons of sales by 2030. We believe that two approaches will be required. The first approach, the development of greenfield sites (i.e., the development of a project on an undeveloped site), allows us to optimize production and the integration of technology. We expect that utilizing greenfield sites will have the potential to achieve lower CI scores over the long run, compared to other approaches. The second approach, leveraging installed alcohol production capacity, has the advantage that the fermentation capacity already exists via existing ethanol plants. Those existing ethanol plants would need to be decarbonized and hydrocarbon production capacity would need to be installed.

In early 2021, we announced the concept of “Net-Zero Projects” as a series of planned facilities to produce energy dense liquid hydrocarbons using renewable energy and our proprietary technology. The concept of a Net-Zero Project is to convert renewable energy (photosynthetic, wind, renewable natural gas, biogas) from a variety of sources into energy dense liquid hydrocarbons that when burned in traditional engines, have the potential to achieve net-zero GHG emissions across the whole life-cycle of the liquid fuel as measured across the whole of the life-cycle based on the GREET Model, the pre-eminent science-based life-cycle analysis model. The GREET Model takes into account emissions and impacts "cradle to cradle" for renewable resource-based fuels including inputs and generation of raw materials, agriculture practices, chemicals used in production processes of both feedstocks and products, energy sources used in production and transportation and the end use of the products, which for fuel products is usually burning to release energy.

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Recent Developments

At-the-Market Offering Program. In September 2021, the at-the-market offering program was amended to provide available capacity under the at-the-market offering program of $500 million.

During the year ended December 31, 2021, we issued 24,420,579 shares of common stock under the at-the-market offering program for total proceeds of $135.8 million, net of commissions and other offering related expenses totaling $3.6 million.

COVID-19

COVID-19. The COVID-19 pandemic has had an adverse impact on global commercial activity, including the global transportation industry and its supply chain, and has contributed to significant volatility in financial markets. It resulted in travel restrictions and extended shutdowns of businesses in various industries including, among others, the airline industry, and significantly reduced overall economic output. It is possible that that the impact of the ongoing COVID-19 pandemic on general economic activity could continue to negatively impact the Company's revenue and operating results, particularly as new variants of COVID-19 are discovered. In light of the current and potential future disruption to its business operations and those of its customers, suppliers and other third parties with whom the Company does business, management considered the impact of the COVID-19 pandemic on the Company's business. The impact of the COVID-19 pandemic on the global transportation industry could continue to result in less demand for the Company's transportation fuel products, which could have a material adverse effect on the Company's business, financial condition and prospects for the foreseeable future.

During the first quarter of 2020, we suspended production at our Luverne Facility due to COVID-19 and an unfavorable commodity environment. The suspension of production and a corresponding reduction in the Company's workforce that occurred during the first quarter of 2020 had an adverse impact on the Company's financial results for the year ended December 31, 2021, reducing revenue by 87% compared to the year ended December 31, 2020. Revenue was reduced by 77% for the year December 31, 2020 compared to the year ended December 31, 2019 as a result of COVID-19. The Luverne Facility re-commenced operations during July 2021. There is a risk that COVID-19 could have a material adverse impact on the development of the Company's Net-Zero 1 Project, customer demand and cash flow, depending on the extent of our future production activities.

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 year ended December 31, 2021 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 receivables and the estimation of revenue and tangible assets. With regard to collectability, the Company believes it may face atypical delays in client payments going forward, but the Company has not experienced significant delays in collection as of December 31, 2021. In addition, management believes that the demand for certain discretionary lines of business may decrease, and that such decrease will impact its 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 could reduce demand for SAF, isooctane and isooctene. 

Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the notes to those Consolidated Financial Statements appearing in this Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Report, our actual results may differ materially from those anticipated in these forward-looking statements.

This section of this Report discusses year-to-year comparisons between 2021 and 2020, as well as other discussions of 2021 and 2020 items. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2020 and 2019 and other discussions of 2019 items can be found within Part II, Item 7, to our Annual Report on Form 10-K filed with the SEC on March 17, 2020, which is available free of charge on the SEC's website at www.sec.gov and our corporate website at www.gevo.com.

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Comparison of the Years Ended December 31, 2021 and 2020

(in thousands)

[[GREPCENT_TABLE]]
[["","","","Years Ended December 31,"],["","","2021","","","2020","","","Change"],["Revenue and cost of goods sold"],["Ethanol sales and related products, net","","$","50","","","$","3,809","","","$","(3,759",")"],["Hydrocarbon revenue","","","483","","","","1,501","","","","(1,018",")"],["Other revenue","","","178","","","","226","","","","(48",")"],["Total revenues","","","711","","","","5,536","","","","(4,825",")"],["Cost of goods sold","","","7,687","","","","9,313","","","","(1,626",")"],["Depreciation and amortization","","","4,478","","","","5,690","","","","(1,212",")"],["Gross loss","","","(11,454",")","","","(9,467",")","","","(1,987",")"],["Operating expenses"],["Research and development expense","","","6,775","","","","3,511","","","","3,264"],["Selling, general and administrative expense","","","25,493","","","","11,192","","","","14,301"],["Preliminary stage project costs","","","10,581","","","","1,698","","","","8,883"],["Loss on disposal of assets","","","5,137","","","","625","","","","4,512"],["Depreciation and amortization","","","650","","","","214","","","","436"],["Restructuring expense","","","\u2014","","","","254","","","","(254",")"],["Total operating expenses","","","48,636","","","","17,494","","","","31,142"],["Loss from operations","","","(60,090",")","","","(26,961",")","","","(33,129",")"],["Other income (expense)"],["Gain on forgiveness of SBA Loans","","","641","","","","\u2014","","","","641"],["Interest expense","","","(251",")","","","(2,094",")","","","1,843"],["Interest and dividend income","","","571","","","","102","","","","469"],["(Loss) from modification of 2020 Notes","","","\u2014","","","","(732",")","","","732"],["(Loss) on conversion of 2020/21 Notes to common stock","","","\u2014","","","","(1,916",")","","","1,916"],["(Loss) gain from change in fair value of 2020/21 Notes embedded derivative liability","","","\u2014","","","","(8,607",")","","","8,607"],["Other income (expense), net","","","(74",")","","","22","","","","(96",")"],["Total other income (expense)","","","887","","","","(13,225",")","","","14,112"],["Net loss","","$","(59,203",")","","$","(40,186",")","","$","(19,017",")"]]
[[/GREPCENT_TABLE]]

Revenue. As a result of COVID-19 and in response to an unfavorable commodity environment, we suspended ethanol and distiller's grains production in March 2020. Revenue from the sale of ethanol, isobutanol and related products during the year ended December 31, 2021 was $0.7 million, a decrease of $4.8 million from the year ended December 31, 2020.

Hydrocarbon revenues are comprised of SAF, isooctane and isooctene sales. Hydrocarbon revenue decreased $1.0 million during the year ended December 31, 2021 primarily as a result of fewer shipments of finished products from the South Hampton Facility. The South Hampton Facility was unable to produce significant amounts of jet fuel during the second half of 2021 due to a lack of availability of isobutanol to convert into SAF renewable jet fuel after halting production due to impacts from COVID-19. The South Hampton Facility began producing renewable premium gasoline or jet fuel with supply from the Luverne Facility during the fourth quarter of 2021.

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Cost of goods sold. Our cost of goods sold decreased $1.6 million during the year ended December 31, 2021 compared to the prior year primarily the result of suspending ethanol production in March 2020 as a result of COVID-19 and in response to an unfavorable commodity environment. We began producing isobutanol during the third quarter 2021 resulting in higher production costs. The cost of goods sold was significantly higher for isobutanol without the coproduction of ethanol as operated in previous years as we worked to improve and refine our production processes. Cost of goods sold included inventory write down to net realizable value of approximately $5.2 million and $1.2 million during the years ended December 31, 2021 and 2020, respectively. 

Prior to the Luverne Facility restarting production, cost of goods sold was primarily comprised of costs to process SAF, isooctane and isooctene at our South Hampton Facility, as well as costs to maintain the Luverne Facility.

Depreciation and amortization. Depreciation and amortization related to cost of goods sold decreased approximately $1.2 million during the year ended December 31, 2021 compared to the prior year as certain assets became fully depreciated during the year ended December 31, 2020. Depreciation and amortization related to cost of operating expenses increased approximately $0.4 million during the year ended December 31, 2021 compared to the prior year primarily due to $0.3 million of amortization for patents acquired in September 2021.

Research and development expense. Research and development expense increased by approximately $3.3 million during the year ended December 31, 2021 compared with to the prior year, due primarily to $2.2 million of personnel costs from increased headcount, recruiting and stock-based compensation and $0.9 million of consulting expenses as we work to improve our process for growing and fermenting yeast strains.

Selling, general and administrative expense. Selling, general and administrative expenses increased approximately $14.3 million during the year ended December 31, 2021 compared to the prior year, due primarily to $9.7 million increase in personnel costs related to increased headcount, recruiting costs and stock-based compensation, $1.7 million for increased consulting fees related to regulatory consulting and compliance with Section 404(b) of the Sarbanes-Oxley Act, $1.1 million attributable to professional fees related to new contracts and extensive shareholder outreach for the annual stockholder meeting and $1.0 million for higher costs for insurance.

Preliminary stage project costs. Preliminary stage project costs increased by approximately $8.9 million during the year ended December 31, 2021 compared with the prior year due primarily to increased consulting and research and development expenses related to our Gevo RNG and Net-Zero projects. During the year ended December 31, 2021, the preliminary stage project costs were primarily related to $5.7 million of front-end engineering costs and $2.7 million for personnel expenses to support the growth in business activity for our Gevo RNG and Net-Zero projects. During the year ended December 31, 2020, the preliminary stage project costs were primarily related to consulting for front-end engineering costs and for personnel expenses to support the growth in business activity at our Gevo RNG project. During the second quarter 2021, we began capitalizing the Gevo RNG project costs after completing certain front-end engineering studies and determining it was probable that we would build the Gevo RNG project. During the third quarter 2021, we began capitalizing our Net-Zero 1 project costs after completing certain front-end engineering studies and determining it was probable that we would build Net-Zero 1.

Loss on disposal of assets. As a result of suspending the production of ethanol at the Luverne Facility, we wrote-off $5.1 million of costs related to the installation of the fractionation equipment returned to the manufacturer during the year ended December 31, 2021. The returned equipment and related installation costs had been planned to be used in ethanol production.

Restructuring expenses. During the year ended December 31, 2020, we incurred $0.3 million of restructuring charges related to the restructuring of Agri-Energy in response to COVID-19, termination of employees at Agri-Energy and Gevo and renegotiating contracts.

Gain on forgiveness of SBA Loans. During the year ended December 31, 2021, the Small Business Administration forgave $0.6 million of the Company's SBA Loans and accrued interest.

Interest expense. Interest expense during the year ended December 31, 2021 decreased by $1.8 million compared to the prior year, due to the conversion of our 12% convertible senior secured notes due 2020/2021 (the “2020/21 Notes”) to common stock during 2020. During the year ended December 31, 2021, we capitalized $2.1 million of interest associated with the Gevo RNG project.

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Interest and dividend income. Interest and dividend income increased approximately $0.5 million during the year ended December 31, 2021 compared to the prior year due to interest earned from investments in marketable securities.

(Loss) from modification of 2020 Notes. During the year ended December 31, 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. During the year ended December 31, 2020, we incurred a $1.9 million loss related to the conversion of $2.0 million of 2020/21 Notes into common stock during July 2020 and $12.7 million of 2020/21 Notes into common stock during December 2020, which reflects the cost of the make-whole payments. 

(Loss) gain from change in fair value of the 2020/21 Notes and 2020 Notes embedded derivative liability. We incurred no gain (loss) from the change in fair value of the 2020/21 Notes during the year ended December 31, 2021 since the 2020/21 Notes and the 2020 Notes were converted to common stock in 2020.

Sources of Our Revenues

Our current and historic revenues are primarily derived from: (i) the sale of isobutanol and related products; (ii) hydrocarbon sales consisting primarily of the sale of SAF and isooctane derived from our isobutanol; and (iii) government grants and research and development programs.

Principal Components of Our Cost Structure.

Cost of Goods Sold. Our cost of goods sold consists primarily of costs directly associated with the production of isobutanol, SAF and isooctane. Such costs include direct materials, direct labor, other operating costs and certain plant overhead costs. Direct materials include corn feedstock, denaturant and process chemicals. Direct labor includes compensation (including stock-based compensation) of personnel directly involved in production operations. Other operating costs include utilities and natural gas and wind power usage.

Depreciation and Amortization. Depreciation and amortization associated with costs of goods sold relates to property, plant and equipment directly associated with the production of isobutanol, SAF and isooctane. Depreciation and amortization associated with operating expenses relates to property, plant and equipment used in product development and unrelated to cost of goods sold.

Research and Development. Our research and development expense consists of costs incurred to identify, develop and test our technologies for the production of isobutanol and the development of downstream applications thereof. Research and development expense include personnel costs (including stock-based compensation), consultants and related contract research, facility costs, supplies, 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 expense consist of personnel costs (including stock-based compensation), consulting and service provider expenses (including patent counsel-related costs), legal fees, marketing costs, insurance costs, occupancy-related costs, travel and relocation expenses and hiring expenses.

Preliminary Stage Project Costs. Preliminary stage project costs consist of consulting, preliminary engineering costs, personnel expenses (including stock-based compensation) and research and development expenses to support the business activities of our Gevo RNG and Net-Zero projects.

Loss on Disposal of Assets. Loss on disposal of assets consists of costs related to the installation of the fractionation equipment returned to the manufacturer as a result of suspending the production of ethanol at the Luverne Facility. The returned equipment and related installation costs had been planned to be used in ethanol production.

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Liquidity and Capital Resources

As of December 31, 2021, we had cash and cash equivalents totaling $40.8 million, short and long-term restricted cash totaling $95.2 million and short and long-term marketable securities totaling $339.7 million. The marketable securities are highly liquid and can be converted to cash when it is needed for operations.

Since our inception in 2005, we have devoted most of our cash resources to research and development, manufacturing ethanol, isobutanol and related products and selling, general and administrative activities related to the commercialization of isobutanol and related products from renewable feedstocks. We have incurred losses since inception and expect to incur losses at least until our expected large-scale hydrocarbon production capacity is fully operational. We have financed our operations primarily with proceeds from multiple sales of equity and debt securities, borrowings under debt facilities and product sales. During 2021, we invested most of those proceeds for the upgrade, development and construction of our existing facilities and new projects associated with the Luverne Facility, Gevo RNG and Net-Zero 1.

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. Successful attainment of profitable operations is dependent upon future events, including our ability to raise sufficient capital to expand our commercial hydrocarbon production capabilities, completion of our development activities, continued advancement of our hydrocarbon sales agreements, continued advancement of our technologies and knowhow and attracting and retaining qualified personnel.

Our transition to profitability is dependent upon, among other things, the successful development and commercialization of our product candidates, the development, acquisition and construction of additional production facilities to support our offtake agreements, the achievement of a level of revenues adequate to support our cost structure and the ability to raise capital to finance the development, acquisition and construction of additional productions facilities.

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. 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 on acceptable terms, or at all.

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2021","","","2020"],["Net cash used in operating activities","","$","(43,536",")","","$","(19,338",")"],["Net cash used in investing activities","","","(411,620",")","","","(5,905",")"],["Net cash provided by financing activities","","","512,851","","","","87,279"]]
[[/GREPCENT_TABLE]]

Operating Activities

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

During the year ended December 31, 2021, net cash used for operating activities was $43.5 million compared to $19.3 million for the year ended December 31, 2020. The $24.2 million decrease in operating cash flows was primarily due to increased costs associated with beginning production of isobutanol during the third quarter 2021 and maintenance of the Luverne Facility, increased engineering and development fees on our Gevo RNG and Net-Zero 1 projects, increases in personnel expenses to support the growth in business activity, professional fees related to new contracts and extensive shareholder outreach for the annual stockholder meeting and consulting to support compliance with Section 404(b) of the Sarbanes-Oxley Act.

During 2022, we expect to produce isobutanol to supply the South Hampton Facility so that renewable premium gasoline and jet fuel can be produced.

In January 2022, Gevo RNG began to start-up operations. The start-up process is expected to take a few months and reach a steady state operation in the second quarter of 2022 which will allow time for Gevo to apply for credits under the federal RFS and the LCFS in California, including verification of carbon intensity levels and other requirements. Depending on the timing of the qualification and approval processes for obtaining credits under RFS and LCFS,  Gevo expects to generate biogas revenue starting in the second quarter of 2022 and sales of credits under RFS and LCFS in late second quarter of 2022 and the fourth quarter of 2022, respectively.

During the first quarter 2022, Gevo RNG will move from preliminary stage project to production when it begins producing RNG. Net-Zero 1 will continue to be reported as a preliminary stage project cost until it is placed into production.

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During the year ended December 31, 2020, net cash used for operating activities was $19.3 million compared to $20.8 million for the year ended December 31, 2019. The $1.5 million decrease in operating cash flows was primarily due to reduced production at the Luverne Facility offset by increased engineering and development costs for our Gevo RNG project. During the first quarter of 2020, we terminated our ethanol production at the Luverne Facility due to COVID-19 and an unfavorable commodity environment.

Investing Activities

During the year ended December 31, 2021, we used $411.6 million in cash for investing activities, of which $422.4 million related to purchasing marketable securities and $59.7 million primarily related to construction in process attributable to the Gevo RNG project, and to a lesser extent, the purchase of a Hydrocarbon-Process Pilot Unit for our Luverne Facility and Net-Zero 1 project and $9.2 million for the purchase of patents, which was partially offset by proceeds of $79.6 million from the sale of marketable securities.

During the year ended December 31, 2020, we used $5.9 million in cash for investing activities, including $1.0 million related to capital expenditures at our Luverne Facility related to dry fractionation and hydrocarbon skid equipment and $4.5 million related to our RNG project.

We have substantially completed constructing the Gevo RNG project and expect to invest an additional $8 million in the aggregate to complete the Gevo RNG project in the first quarter of 2022. Gevo RNG start-up commenced during the first quarter 2022 and we expect to generate biogas revenue starting in the second quarter of 2022 and sales of credits under RFS and LCFS in late second quarter of 2022 and the fourth quarter of 2022, respectively. . We estimate investing approximately $100 million in Net-Zero 1 engineering, development, long-lead equipment deposits, and legal and other costs associated with obtaining a non-recourse debt financing over the next 12 months. We also estimate spending of approximately $21 million for design-engineering of our Net-Zero 2 Project and $5 million for the development of our Verity project, including the Gevo Grower Program, in 2022.

Financing Activities

During the year ended December 31, 2021, we generated $512.9 million in cash from financing activities, which primarily consisted of $490.5 million from the sale of common stock and exercise of warrants and $69.0 million from the 2021 Bonds proceeds offset by $35.0 in debt and equity offering costs, $7.0 million net settlement of common stock for taxes under our stock plans and $4.6 million of payments on equipment loans and lease liabilities.

During the year ended December 31, 2020, we generated $87.3 million in cash from financing activities, which primarily consisted of $8.4 million of net proceeds under our "at-the-market" offering program, receiving $16.1 million from the sale of common stock and warrants in a public offering in July 2020, $45.8 million from the sale of common stock and pre-funded warrants in the August 2020 Offering, $17.1 million from the exercise of Series 2020-A warrants to purchase shares of the Company’s common stock (each, a “Series 2020-A Warrant”), Series 2020-B warrants to purchase shares of the Company’s common stock (all of which were exercised as of December 31, 2020) and Series 2020-C warrants to purchase shares of the Company’s common stock (all of which were exercised as of December 31, 2021), and $1.0 million from the Small Business Administration's Paycheck Protection Program discussed below, offset by $0.5 million paid on loans payable - other.

2021 Bonds. In April 2021, the Authority issued an aggregate principal amount of $68,155,000 of its 2021 Bonds in a public offering for the benefit of Gevo RNG, a subsidiary of Gevo, to finance the construction of the Gevo RNG project.

The 2021 Bonds are reported at their amortized cost, and were issued at a premium of $0.8 million. Debt issuance costs totaled $3.0 million for the year ended December 31, 2021. The Company will amortize the debt issuance costs and the premium as a component of interest expense over the life of the related debt instrument using the interest method. The 2021 Bonds have been recorded as a long-term liability and will become current on the earlier of (i) one year prior to the Initial Mandatory Tender Date or (ii) upon the Company’s exercise of its call option to tender or redeem the Bonds. See Note 14, Debt, for further information.

January 2021 Offering. In January 2021, 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 43,750,000 shares of our common stock at a price of $8.00 per share in a registered direct offering. The net proceeds to us from the January 2021 Offering totaled approximately $321.7 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 January 2021 Offering to fund development and investment in our RNG and Net-Zero 1 projects, working capital and for other general corporate purposes. During the year ended December 31, 2021, we used approximately $72.1 of the proceeds for investment in our RNG and Net-Zero 1 projects as well as the purchase of patent portfolio from Butamax and an exclusivity license from Axens.

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During the year ended December 31, 2020, we received notices of exercise from holders of our Series 2020-A Warrants to issue an aggregate of 28,042,834 shares of common stock for total gross proceeds of approximately $16.8 million. During the year ended December 31, 2021, we received notices of exercise from holders of our Series 2020-A Warrants to issue an aggregate of 1,866,558 shares of common stock for total gross proceeds of approximately $1.1 million. Following these exercises, Series 2020-A Warrants to purchase 90,608 shares of our common stock remain outstanding at an exercise price of $0.60 per share as of January 31, 2022.

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 September 2021, the at-the-market offering program was amended to provide available capacity under the at-the-market offering program of $500 million.

During the year ended December 31, 2021, we issued 24,420,579 shares of common stock under the at-the-market offering program for total proceeds of $135.8 million, net of commissions and other offering related expenses. During the year ended December 31, 2020,we issued 3,518,121 shares of common stock under the at-the-market offering program for total proceeds of $8.4 million, net of commissions and other offering related expenses.

2020/21 Notes. In January 2020, we entered into an Exchange and Purchase Agreement which exchanged all of the outstanding principal amount of the 2020 Notes, which totaled $14.1 million including unpaid accrued interest, for approximately $14.4 million in aggregate principal amount of our newly created 2020/21 Notes. During the year ended December 31, 2020, we recognized an approximately $0.7 million loss on the modification of the 2020 Notes within the Consolidated Statements of Operations.

In July 2020, certain holders of the 2020/21 Notes converted $2.0 million in the aggregate principal amount of 2020/21 Notes (including the conversion of an additional $0.3 million for make-whole payment) into 4,169,426 shares of common stock pursuant to the terms of the indenture. In December 2020, certain holders of the 2020/21 Notes converted the remaining $12.7 million in aggregate principal amount of 2020/21 Notes (including the conversion of an additional $1.2 million for make-whole payment) into an aggregate of 5,672,654 shares of common stock pursuant to the terms of the 2020/21 Notes related Indenture. As a result, as of December 31, 2020, all obligations under the 2020/2021 Notes had been fully paid and satisfied, and the 2020/2021 Notes related indenture had been terminated in accordance with its terms at maturity on December 31, 2020. During the year ended December 31, 2020, we recognized an approximately $1.9 million loss on the conversion as a result of the make-whole payments of the 2020/21 Notes into common stock within the Consolidated Statements of Operations.

See Note 14, 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. 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 through February 2025. The equipment loans are secured by the related equipment.

In April 2020, we entered into two loan agreements with Live Oak Banking Company, pursuant to which we obtained two unsecured loans from the Small Business Administration's Paycheck Protection Program (“SBA PPP”) totaling $1.0 million in the aggregate (the "SBA Loans"). During the year ended December 31, 2021, the Small Business Administration forgave the entire balance of $0.6 million of the Company's SBA Loans and accrued interest.

See Note 14, Debt, to our Consolidated Financial Statements included herein for further discussion.

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Critical Accounting Estimates

Our Consolidated Financial Statements are based on the application of U.S. GAAP, which requires us to make estimates and assumptions about future events that affect the amounts reported in our Consolidated Financial Statements and the accompanying notes. Future events and their effects cannot be determined with certainty; therefore, the determination of estimates requires the exercise of judgment. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded.

Leases, Right-of-Use Assets and Related Liabilities

Description: The Company enters into various arrangements which constitute a lease as defined by ASC 842, Leases, as part of its ongoing business activities and operations. Leases represent a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment (an identified asset) for a period of time in exchange for consideration. Such contracts result in both (a) right-of-use assets ("ROU"), which represent the Company’s right to use an underlying asset for the term of the contract; and (b) a corresponding lease liability which represents the Company’s obligation to make the lease payments arising from the contract. The Company has elected not to recognize a ROU asset and lease liability for any lease with an original lease term of 12 months or less. Lease expense for such leases is recognized on a straight-line basis over the lease term.

Judgments and Uncertainties: Certain judgements and uncertainties related to lease liabilities and ROU assets exist as these are initially measured at the lease commencement date. The lease liability is based on the present value of lease payments over the lease term, discounted using an estimate of the Company’s incremental borrowing rate for a collateralized loan with the same term and payment as the lease. The discount rate is a significant judgement. The ROU assets are measured based on the amount of the lease liability adjusted for any lease payments made to the lessor at or before the lease commencement date less any lease incentives received. There is uncertainty related to the lease payments as re-negotiated lease payment occur and as amendments are made to the agreements. From the beginning, renewal options are included in the calculation of our ROU assets and lease liabilities when we determine that the option is reasonably certain of exercise based on an analysis of the relevant facts and circumstances.

Sensitivity of Estimate to Change: The liability relating to these operating and finance lease agreements are based on the Company’s incremental borrowing rate for a collateralized loan with the same term and payment as the lease. A 1.0% increase or a 1.0% decrease in the annual implicit rate could cause an estimated $0 to $1.0 million fluctuation in the present value calculation of the lease liability for any of the finance leases based on the size of the lease liability.

Recent Accounting Pronouncements

See Note 2 in Item 8. "Financial Statements and Supplemental Data," of this Report, for a discussion of recent accounting pronouncements.

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