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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2020

 

Or

 

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                       to

 

Commission File Number: 001-36030

 

 

Marrone Bio Innovations, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware   20-5137161

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1540 Drew Avenue, Davis, CA 95618

(Address of principal executive offices and zip code)

 

(530) 750-2800

(Registrant’s telephone number, including area code)

 

 

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

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, $0.00001 par value   MBII   Nasdaq Capital Market

 

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

 

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

 

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

 

Large accelerated filer ☐ Accelerated filer ☒
Non-accelerated filer ☐ Smaller reporting company ☒
Emerging growth Company ☐    

 

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

 

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

 

Class     Shares Outstanding at November 6, 2020  
  Common Stock, $0.00001 par value       152,477,013  
             

 

 

 

 
 

 

TABLE OF CONTENTS

 

  PAGE
PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited) 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk 39
Item 4. Controls and Procedures 39
PART II. OTHER INFORMATION  
Item 1. Legal Proceedings 40
Item 1A. Risk Factors 40
Item 6. Exhibits 42
SIGNATURES 43

 

2
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Balance Sheets

(In Thousands, Except Par Value)

(Unaudited)

 

    SEPTEMBER 30,     DECEMBER 31,  
    2020     2019  
Assets                
Current assets:                
Cash and cash equivalents   $ 8,971     $ 6,252  
Accounts receivable     6,827       5,925  
Inventories, net     6,193       8,149  
Prepaid expenses and other current assets     2,016       1,390  
Total current assets     24,007       21,716  
Property, plant and equipment, net     12,789       13,260  
Right of use assets, net     3,977       4,567  
Intangible assets, net     22,079       23,842  
Goodwill     6,740       6,764  
Restricted cash     1,560       1,560  
Other assets     911       1,008  
Total assets   $ 72,063     $ 72,717  
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 1,985     $ 3,379  
Accrued liabilities     13,101       12,467  
Deferred revenue, current portion     541       427  
Lease liability, current portion     981       913  
Debt, current portion, net     6,333       3,899  
Total current liabilities     22,941       21,085  
Deferred revenue, less current portion     1,688       1,986  
Lease liability, less current portion     3,303       3,970  
Debt, less current portion, net     11,367       11,847  
Debt due to related parties     7,300       7,300  
Other liabilities     2,359       2,971  
Total liabilities     48,958       49,159  
Commitments and contingencies     -       -  
Stockholders’ equity:                
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at September 30, 2020 and December 31, 2019     —       —  
Common stock: $0.00001 par value; 250,000 shares authorized, 152,475 and 139,526 shares issued and outstanding as of September 30, 2020 and December 31, 2019     1       1  
Additional paid in capital     359,710       344,206  
Accumulated deficit     (336,606 )     (320,649 )
Total stockholders’ equity     23,105       23,558  
Total liabilities and stockholders’ equity   $ 72,063     $ 72,717  

 

See accompanying notes.

 

3
 

 

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

     2020              2019  
    THREE MONTHS ENDED
SEPTEMBER 30, 		    NINE MONTHS ENDED
SEPTEMBER 30, 		 
    2020     2019     2020     2019  
Revenues:                        
Product   $ 8,697     $ 6,859     $ 30,295     $ 22,342  
License     131       107       361       337  
Total revenues     8,828       6,966       30,656       22,679  
Cost of product revenues     3,826       3,381       12,701       10,298  
Gross profit     5,002       3,585       17,955       12,381  
Operating Expenses:                                
Research, development and patent     3,112       3,760       8,658       10,336  
Selling, general and administrative     7,335       9,598       22,406       21,876  
Total operating expenses     10,447       13,358       31,064       32,212  
Loss from operations     (5,445 )     (9,773 )     (13,109 )     (19,831 )
Other income (expense):                                
Interest expense     (405 )     (355 )     (1,073 )     (1,014 )
Loss on modification of warrants     —       (1,564 )     —       (1,564 )
Loss on issuance of new warrants     —       (4,751 )     (1,391 )     (4,751 )
Change in fair value of contingent
consideration 		    (200 )     —       (563 )     —  
Other income (expense), net     24       77       296       126  
Total other income (expense), net     (581 )     (6,593 )     (2,731 )     (7,203 )
Loss before taxes     (6,026 )     (16,366 )     (15,840 )     (27,034 )
Income Taxes     (37 )     -       (117 )     -  
Net loss   $ (6,063 )   $ (16,366 )   $ (15,957 )   $ (27,034 )
Basic and diluted net loss per common share:   $ (0.04 )   $ (0.14 )   $ (0.11 )   $ (0.24 )
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:     150,233       116,186       146,840       112,553  

  

See accompanying notes.

 

4
 

 

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Stockholder’s Equity

For the Three and Nine Months Ended September 30, 2020

(In Thousands)

(Unaudited)

 

     SHARES          CAPITAL          EQUITY  
    COMMON STOCK    

ADDITIONAL

PAID IN

    ACCUMULATED     TOTAL STOCKHOLDERS’  
    SHARES     AMOUNT     CAPITAL     DEFICIT     EQUITY  
Balance at January 1, 2020     139,526     $ 1     $ 344,206     $ (320,649 )   $ 23,558  
Net loss     —       —       —       (7,024 )     (7,024 )
Net settlement of options     15       —       12       —       12  
Share-based compensation     —       —       907       —       907  
Employee stock purchase plan     —       —       84       —       84  
Financing costs     —       —       (64 )     —       (64 )
Issuance of common stock in connection with call to exercise warrants     6,000       —       6,000       —       6,000  
Issuance of new warrants in connection with call to exercise warrants     —              —       1,391                     —                     1,391  
Balance at March 31, 2020     145,541     $ 1     $ 352,536     $ (327,673 )   $ 24,864  
Net loss     —       —       —       (2,870 )     (2,870 )
Net settlement of options     2       —       2       —       2  
Settlement of restricted stock units     267       —       —       —       —  
Share-based compensation     —       —       884       —       884  
Employee stock purchase plan     159       —       45       —       45  
Exercise of warrants     3,393               2,544               2,544  
Issuance of restricted stock units in lieu of bonus payments     —       —       632       —       632  
Balance at June 30, 2020     149,362     $ 1     $ 356,643     $ (330,543 )   $ 26,101  
Net loss     —       —       —       (6,063 )     (6,063 )
Net settlement of options     19       —       17       —       17  
Settlement of restricted stock units     380       —       —       —       —  
Share-based compensation     —       —       964       —       964  
Employee stock purchase plan     —       —       50       —       50  
Issuance of common stock in connection with exercise of warrants     2,714       —       2,036       —       2,036  
Balance at September 30, 2020     152,475     $ 1     $ 359,710     $ (336,606 )   $ 23,105  

  

See accompanying notes

 

5
 

 

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Stockholder’s Equity

For the Three and Nine Months Ended September 30, 2019

(In Thousands)

(Unaudited)

 

     SHARES      AMOUNT      CAPITAL     DEFICIT      EQUITY   
    COMMON STOCK    

ADDITIONAL

PAID IN

    ACCUMULATED     TOTAL STOCKHOLDERS’  
    SHARES     AMOUNT     CAPITAL     DEFICIT     EQUITY  
Balance at January 1, 2019     110,691     $ 1     $ 296,409     $ (283,474 )   $ 12,936  
Net loss     —       —       —       (3,917 )     (3,917 )
Share-based compensation     —            —       558       —                     558  
Balance at March 31, 2019     110,691     $ 1     $ 296,967     $ (287,391 )   $ 9,577  
Net loss     —       —       —       (6,751 )     (6,751 )
Net settlement of options     34       —       42       —       42  
Share-based compensation     —       —       606       —       606  
Employee stock purchase plan     —       —       23       —       23  
Balance at June 30, 2019     110,725     $ 1     $ 297,638     $ (294,142 )   $ 3,497  
Net loss     —       —       —       (16,366 )     (16,366 )
Net settlement of options     13       —       13       —       13  
Share-based compensation     —       —       742       —       742  
Employee stock purchase plan     —       —       57       —       57  
Modification of existing warrants     —       —       1,564       —       1,564  
Issuance of common stock in connection with call to exercise warrants     10,000       —       10,000       —       10,000  
Issuance of new warrants in connection with call to exercise warrants     —       —       4,751       —       4,751  
Issuance of common stock in connection with Pro Farm acquisition.     12,666       —       20,299       —       20,299  
Balance at September 30, 2019     133,404     $ 1     $ 335,064     $ (310,508 )   $ 24,557  

 

See accompanying notes

 

6
 

 

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

  

     2020      
    NINE MONTHS ENDED
SEPTEMBER 30, 		 
    2020     2019  
Cash flows from operating activities                
Net loss   $ (15,957 )   $ (27,034 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     2,666       1,427  
Gain on disposal of equipment     (9 )     (9 )
Right of use assets amortization     590       602  
Share-based compensation     2,755       1,906  
Non-cash interest expense     175       213  
Loss on modification of warrants     —       1,564  
Loss on issuance of new warrants     1,391       4,751  
Change in fair value of contingent consideration     563     —  
Net changes in operating assets and liabilities:                
Accounts receivable     (902 )     (4,043 )
Inventories, Net     1,956       (84 )
Prepaid Expenses and other assets     (529 )     (904 )
Accounts payable     (1,337 )     (384 )
Accrued and other liabilities     981       6,571  
Lease Liability     (599 )     (471 )
Deferred revenue     (344 )     (500 )
Net cash used in operating activities     (8,600 )     (16,395 )
Cash flows from investing activities                
Payment of contingent consideration in
connection with previous asset purchase 		    (890 )     (544 )
Sale of property, plant, equipment     2       —  
Business combination, net of cash acquired     -       (5,849 )
Purchases of property, plant and equipment     (458 )     (218 )
Net cash used in investing activities     (1,346 )     (6,611 )
Cash flows from financing activities                
Proceeds from secured borrowings     32,837       24,005  
Reductions in secured borrowings     (30,461 )     (21,123 )
Net settlement of options     —       —  
Financing costs     (64 )     —  
Exercise of stock options     31       55  
Proceeds from employee stock purchase plan     179       80  
Exercise of warrants     10,580       10,000  
Repayment of debt     (437 )     (333 )
Net cash provided by financing activities     12,665       12,684  
Net increase (decrease) in cash and cash equivalents and restricted cash     2,719       (10,322 )
Cash and cash equivalents and restricted cash, beginning of period     7,812       19,781  
Cash and cash equivalents and restricted cash, end of period   $ 10,531     $ 9,459  
                 
Supplemental disclosure of cash flow information                
Cash paid for interest   $ 884     $ 794  
Supplemental disclosure of non-cash operating activities                
Reclass of restricted stock units in lieu of cash bonus   $ 632     $ —  
Supplemental disclosure of non-cash investing and financing activities                
Property, plant and equipment included in accounts payable and accrued liabilities   $ 35     $ 5  
Fair value of non-cash consideration issued in acquisition transactions     —       22,054  

 

See accompanying notes.

 

7
 

 

MARRONE BIO INNOVATIONS, INC.

 

Notes to Condensed Consolidated Financial Statements

September 30, 2020

(Unaudited)

 

1. Summary of Business, Basis of Presentation

 

Marrone Bio Innovations, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. In September 2019 the Company closed its acquisition of Pro Farm Technologies OY, a Finnish limited company, which consisted of Pro Farm Technologies OY and its five subsidiaries Pro Farm International Oy (Finland), Pro Farm OU (Estonia), Pro Farm Technogies Comercio de Insumos Agricolas do Brasil ltda. (Brazil – 99% controlling interest), Pro Farm Inc. (Delaware), and Glinatur SA (Uruguay) (collectively “Pro Farm”). As a result of the acquisition, Pro Farm became a wholly-owned subsidiary of the Company. In December 2019, the Company created its subsidiary Pro Farm Russia, LLC (Russia). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and substantially owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

 

The accompanying condensed consolidated financial information as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2019.

 

In the opinion of management, the condensed consolidated financial statements as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

The Company makes biological crop protection, plant health and plant nutrition products. The Company targets the major markets that use conventional chemical products, including certain agricultural markets where its biological products are used as alternatives for, or mixed with, conventional chemical products. The Company also targets new markets for which (i) there are no available conventional chemical products or (ii) the use of conventional chemical products may not be desirable or permissible to meet standards or regulations for organically produced crops or because the development of pest resistance has reduced the efficacy of conventional chemical products. The Company delivers EPA-approved and registered biological crop protection products and other biological products that address the global demand for effective, safe and environmentally responsible products.

 

8
 

 

Going Concern, Liquidity, and Management Plans

 

The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue to operate under the assumption that there is substantial doubt about its ability to continue as a going concern, for 12 months after the issuance of these condensed consolidated financial statements. This assessment contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from the Company’s substantial doubt about its ability to continue as a going concern.

 

The Company has a limited number of commercialized products and an operating history that includes periods of negative operating cash flows, which indicate substantial doubt exists related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these condensed consolidated financial statements. As of September 30, 2020, the Company had an accumulated deficit of $336,606,000, has incurred significant losses since inception, and expects to continue to incur losses for the foreseeable future. The Company funds operations primarily with the proceeds from the sale of its products, promissory notes and term loans, net proceeds from the private placements of convertible notes, as well as with the proceeds from equity instruments. The Company will need to generate significant revenue growth to achieve and maintain profitability. As of September 30, 2020, the Company had a working capital surplus of $1,066,000, including cash and cash equivalents of $8,971,000. In addition, as of September 30, 2020, the Company had debt and debt due to related parties of $17,700,000 and $7,300,000, respectively, for which the underlying debt agreements contain various financial and non-financial covenants, as well as certain material adverse change clauses. As of September 30, 2020, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements (Refer to Note 6).

 

The Company believes that its existing cash and cash equivalents of $5,574,000 at November 6, 2020, together with expected revenues, expected future debt or equity financings and cost management will be sufficient to fund operations as currently planned through one year from the date of the issuance of these condensed consolidated financial statements. The Company anticipates securing additional sources of cash through equity and/or debt financings, collaborative or other funding arrangements with partners, or through other sources of financing, consistent with historic results. However, the Company cannot predict, with certainty, the outcome of its actions to grow revenues, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. Further, the Company may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations and any potential negative economic impacts from the current COVID-19 pandemic on the Company’s operations.

 

In April 2020, the Company entered into a Warrant Exchange Agreement (the “Warrant Exchange Agreement”) with a group of historical investors (the “Investors”). Pursuant to the Warrant Exchange Agreement, the Investors have exchanged certain previously issued and outstanding warrants to purchase an aggregate of up to 45,977,809 shares of the Company’s common stock, for new warrants (the “New Warrants”) to purchase an aggregate of up to 29,881,855 shares of Common Stock (the “Warrant Shares”). All of the New Warrants were issued to the Investors upon execution of the Warrant Exchange Agreement.

 

The New Warrants all have an exercise price of $0.75 per share, and expire in five tranches. As of September 30, 2020, a total of 6,106,646 Warrant Shares were exercised prior to the first and second tranche expiration dates of May 1, 2020 and September 15, 2020. The next warrant expiration dates are December 15, 2020, with respect to 13,027,512 Warrant Shares, March 15, 2021, with respect to 5,862,380 Warrant Shares, and December 15, 2021 with respect to 4,885,317 Warrant Shares. The total aggregate exercise price of all future New Warrants is approximately $17.8 million. There can be no assurance that the Investors will exercise the New Warrants prior to their respective expiration dates. (Refer to Note 7).

 

9
 

 

If the Company breaches any of the covenants contained within any of its debt agreements or if the material adverse change clauses are triggered, the entire unpaid principal and interest balances would be due and payable upon demand. Without entering into a continuation of its current waiver, which expires November 30, 2021, entering into strategic agreements that include significant cash payments upfront, significantly increasing revenues from sales or raising additional capital through the issuance of equity, the Company expects it will exceed its maximum debt-to-worth requirement under the June 2014 Secured Promissory Note with Five Star Bank. Further, a violation of a covenant in one debt agreement will cause the Company to be in violation of certain covenants under each of its other debt agreements. Breach of covenants included in the Company’s debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances, will have a material adverse effect upon the Company and would likely require the Company to seek to renegotiate these debt arrangements with the lenders. If such negotiations are unsuccessful, the Company may be required to seek protection from creditors through bankruptcy proceedings. The Company’s inability to maintain compliance with its debt covenants could have a negative impact on the Company’s financial condition and ability to continue as a going concern.

 

The June 2014 Secured Promissory Note contains a material adverse change clause that could be invoked by the lender as a result of the uncertainty related to the Company’s ability to continue as a going concern. If the lender were to declare an event of default, the entire amount of borrowings related to all debt agreements at that time would have to be reclassified as current in the condensed consolidated financial statements. The lender has waived its right to deem recurring losses, liquidity, going concern, and financial condition a material adverse change through November 30, 2021. As a result of the waiver, none of the long-term portion of the Company’s outstanding debt has been reclassified to current in these condensed consolidated financial statements as of September 30, 2020.

 

The Company participates in a heavily regulated and highly competitive crop protection industry and believes that adverse changes in any of the following areas could have a material effect on the Company’s future financial position, results of operations or cash flows: inability to obtain regulatory approvals, increased competition in the biological agricultural product market, market acceptance of the Company’s products, weather and other seasonal factors beyond the Company’s control, litigation or claims against the Company related to intellectual property, patents, products or governmental regulation, and the Company’s ability to support increased growth. The current COVID-19 pandemic, including prolonged domestic and global shelter in place orders, may further increase the risk of adverse changes in the above areas and the Company’s operating results. If the Company becomes unable to continue as a going concern, it may have to liquidate its assets, and stockholders may lose all or part of their investment in the Company’s common stock.

 

Although the Company recognizes that it may need to raise additional funds in the future, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will not be unfavorable. Any future equity financing may result in dilution to existing stockholders and any debt financing may include additional restrictive covenants. Any failure to obtain additional financing or to achieve the revenue growth necessary to fund the Company with cash flows from operations will have a material adverse effect upon the Company and will likely result in a substantial reduction in the scope of the Company’s operations and impact the Company’s ability to achieve its planned business objectives. The actions discussed above cannot be considered to mitigate the substantial doubt raised by its historical operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these condensed consolidated financial statements.

 

2. Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company used significant estimates in accounting for assumptions and estimates associated with revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize for those transactions with variable considerations, reserves for inventory obsolescence, fair value of stock-based compensation, and forecasted estimates and assumptions related to impairment analysis for long lived assets, intangibles, and goodwill and contingent considerations related to Pro Farm, assumptions and estimates associated with the fair value of warrants and in its going concern analysis.

 

10
 

 

Concentrations of Credit Risks

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and debt. The Company deposits its cash and cash equivalents with high credit quality domestic financial institutions with locations in the U.S. and internationally. Such deposits may exceed federal or national deposit insurance limits. The Company believes the financial risks associated with these financial instruments are minimal.

 

The Company’s customer base is dispersed across many different geographic areas, and currently most customers are pest management distributors in the U.S. Generally, receivables are due up to 120 days from the invoice date and are considered past due after this date, although the Company may offer extended terms from time to time. The Company has provided extended payment terms on a case by case basis with a certain customer as a result of COVID-19.

 

The Company’s principal sources of revenues are its Regalia, Grandevo, Venerate and LumiBio Kelta product lines. These four product lines accounted for 78% and 85% of the Company’s total revenues for the three months ended September 30, 2020 and 2019, respectively. These four product lines accounted for 85% and 91% of the Company’s total revenues for the nine months ended September 30, 2020 and 2019, respectively.

 

Revenues generated from international customers were 26% and 11% for the three months ended September 30, 2020 and 2019, respectively. Revenues generated from international customers were 26% and 8% for the nine months ended September 30, 2020 and 2019, respectively. For both the three and nine months ended September 30, 2020, international customers were concentrated in the European Union.

 

Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended September 30, 2020 and 2019 consist of the following:

 

    CUSTOMER  
    A     B     C     D     E  
Three months ended September 30,                                        
2020     25%     14%     12%     10%     6%
2019     26%     10%     0%     0%     13%

 

 

Customers to which 10% or more of the Company’s total revenues are attributable for the nine months ended September 30, 2020 and 2019 consist of the following:

 

    CUSTOMER  
    A     B     C     D  
Nine months ended September 30,                                
2020     15%   15%     15%     8%
2019     26%       10%     0%     12%

 

 

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either September 30, 2020 or December 31, 2019, which may or may not correspond with any of the customers above, consist of the following:

 

    CUSTOMER  
    A     B     C     D  
                         
September 30, 2020     32%     13%     10%     10%
December 31, 2019     44%     0%     5%     4%

 

 

11
 

 

Concentrations of Supplier Dependence

 

The active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 months of knotweed extract on hand at any given time, but an unexpected disruption in supply including disruptions resulting from the COVID-19 pandemic, could have an effect on Regalia supply and revenues. Although the Company has identified additional sources of raw knotweed, there can be no assurance that the Company will continue to be able to obtain dried extract from China at a competitive price.

 

The Company continues to rely on third parties to formulate Grandevo into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, particularly for drying and for all of its production of Venerate, may adversely affect its ability to satisfy demand and meet delivery obligations, as well as to develop and commercialize new products, on a timely and competitive basis. The Company has not entered into any long-term manufacturing or supply agreements for any of its products, and it may need to enter into additional agreements for the commercial development, manufacturing and sale of its products. There can be no assurance that it can do so on favorable terms, if at all.

 

Products produced by the Company’s Pro Farm subsidiary, including UBP and Foramin, are partially sourced by suppliers from a manufacturing plant in Russia, in which the Company owns a 12% interest. The Company plans for enough inventory on hand to fill its revenue forecasts for 12 months at any given time, but an unexpected disruption in supply could have an adverse effect on the supply and revenues related to the subsidiary. Although the Company has identified additional manufacturers who are capable suppling the products, there can be no assurance that the Company will continue to be able to obtain products at a competitive price.

 

Cash and Cash Equivalents

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows (in thousands):

 

 

    SEPTEMBER 30,
2020 		    DECEMBER 31,
2019 		 
Cash and cash equivalents   $ 8,971     $ 6,252  
Restricted cash     1,560       1,560  
Total cash, cash equivalents and restricted cash   $ 10,531     $ 7,812  

 

Restricted Cash

 

The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its June 2014 Secured Promissory Note. See Note 6 for further discussion.

 

Intangible Assets

 

The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company’s intangible assets include customer relationships, patents, trademarks, and in process research and development acquired in 2019 in connection with its asset acquisition of the Jet-Ag and Jet-Oxide product lines and the Company’s acquisition of Pro Farm. The Company has assessed for impairment in contemplation of the COVID-19 pandemic and has not recorded an impairment of intangible assets as of September 30, 2020.

 

12
 

 

Long-Lived Assets

 

Impairment losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount by which the carrying value of the asset or asset group exceeds its estimated fair value. The Company has assessed for impairment in contemplation of the COVID-19 pandemic and has not recorded impairment of long-lived assets as of September 30, 2020.

 

Goodwill

 

Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The Company has assessed for impairment in contemplation of the COVID-19 pandemic and has not recorded impairment in goodwill as of September 30, 2020. The Company is currently in the process of completing its annual impairment assessment, which may or may not result in an impairment charge.

 

Fair Value

 

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

 

ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

 

● Level 1—Quoted prices in active markets for identical assets or liabilities.

 

● Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

● Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

 

Deferred Revenue

 

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows (in thousands):

 

   

SEPTEMBER 30,

2020

   

DECEMBER 31,

2019

 
Product revenues   $ 330     $ 299  
Financing costs     599       609  
License revenues     1,300       1,505  
Deferred revenue     2,229       2,413  
Less current portion     (541 )     (427 )
Deferred revenue, less current portion   $ 1,688     $ 1,986  

 

13
 

 

Research, Development and Patent Expenses

 

Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. For the three months ended September 30, 2020 and 2019, research and development expenses totaled $2,860,000 and $3,473,000, respectively, and patent expenses totaled $252,000 and $287,000, respectively. For the nine months ended September 30, 2020 and 2019, research and development expenses totaled $7,816,000 and $9,490,000, respectively, and patent expenses totaled $842,000 and $846,000, respectively. The Company’s receipt of PPP funds did not have any impact on research, development and patent expenses for the three months ended September 30, 2020. The Company’s receipt of PPP funds for nine months ended September 30, 2020, reduced expenses for research, development and patent expenses by $702,000.

 

Shipping and Handling Costs

 

Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three months ended September 30, 2020 and 2019 were $435,000 and $281,000, respectively. Shipping and handling costs for the nine months ended September 30, 2020 and 2019 were $1,153,000 and $998,000, respectively.

 

Advertising

 

The Company expenses advertising costs as incurred and has included these expenses as a component of selling, general and administrative costs. Advertising costs for the three months ended September 30, 2020 and 2019 were $186,000 and $173,000, respectively. Advertising costs for the nine months ended September 30, 2020 and 2019 were $476,000 and $548,000, respectively.

 

Depreciation and Amortization

 

The Company depreciates and amortizes its capitalized property, plant, and equipment and intangible assets over the useful life of each asset utilizing a straight-line method of expensing. All depreciation and amortization expenses are included in the “Selling, general, and administrative” caption in the condensed consolidated statement of operations.

 

For the three months ended September 30, 2020 and 2019, the total amount of depreciation expense was $298,000 and $359,000, respectively. For the nine months ended September 30, 2020 and 2019, the total amount of depreciation expense was $903,000 and $1,262,000, respectively.

 

For the three months ended September 30, 2020 and 2019, the total amount of amortization expense was $587,000 and $165,000, respectively. For the nine months ended September 30, 2020 and 2019, the total amount of amortization expense was $1,763,000 and $165,000, respectively.

 

Segment Information

 

The Company is organized as a single operating segment, whereby its chief operating decision maker assesses the performance of and allocates resources to the business as a whole.

 

Net Loss Per Share

 

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted net loss per share is the same for all periods presented as the effect of certain potential common stock equivalents, which consist of stock options and warrants to purchase common stock and restricted stock units, and contingent shares to be issued in the future are anti-dilutive due to the Company’s net loss position. Anti-dilutive common stock equivalents are excluded from diluted net loss per share. The following table sets forth the potential shares of common stock as of the end of each period presented that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands):

 

    SEPTEMBER 30,  
    2020     2019  
Stock options outstanding     13,709       12,056  
Warrants to purchase common stock     30,444       52,647  
Restricted stock units outstanding     4,475       1,918  
Common shares to be issued in lieu of agent fees     498       498  
Employee stock purchase plan     59       65  
Maximum contingent consideration shares to be issued     5,972       5,972  
      55,157       73,156  

 

 

14
 

 

3. Inventory, net

 

Inventories, net consist of the following (in thousands):

 

    SEPTEMBER 30,     DECEMBER 31,  
    2020     2019  
Raw materials   $ 2,162     $ 1,610  
Work in progress     896       783  
Finished goods     3,135       5,756  
Inventories, net   $ 6,193     $ 8,149  

 

As of September 30, 2020 and December 31, 2019, the Company had $353,000 and $248,000, respectively, in reserves against its inventories. Additionally as of September 30, 2020, the finished goods component of inventory, is net of $217,000 direct and indirect labor costs related to funds received from the PPP which was originally recorded as a variance from the Company’s standard costs to be amortized in future periods (See Note 10). For the three and nine months ended September 30, 2020 the Company has amortized $109,000, respectively to cost of product revenues. For the three months ended September 30, 2020 and 2019, the Company recorded an adjustment of $600,000 and $317,000, respectively, as a result of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity. For the nine months ended September 30, 2020 and 2019, the Company recorded an adjustment of $1,230,000 and $643,000, respectively, as a result of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity.

 

4. Right-Of-Use of Assets and Lease Liability

 

The components of lease expense were as follows for each of the comparative three and nine months ended September 30, 2020 and 2019 (in thousands):

 

   

THREE MONTHS

ENDED

   

THREE MONTHS

ENDED

 
   

SEPTEMBER 30,

2020

   

SEPTEMBER 30,

2019

 
             
Operating lease cost   $     290     $       287  
Short-term lease cost     38       20  
Sublease income     (7 )     (25 )
Total operating lease costs   $ 321     $ 282  

 

    NINE MONTHS ENDED     NINE MONTHS ENDED  
    SEPTEMBER 30, 2020     SEPTEMBER 30, 2019  
Operating lease cost   $      864     $      874  
Short-term lease cost     109       53  
Sublease income     (27 )     (73 )
Total operating lease costs   $ 946     $ 854  

 

15
 

 

Maturities of lease liabilities for each future calendar year as of September 30, 2020 are as follows (in thousands):

 

    OPERATING  
    LEASES  
2020, remaining 3 months   $ 301  
2021     1,231  
2022     1,267  
2023     1,293  
2024 and beyond     867  
Total lease payments     4,959  
Less: imputed interest     675  
Total lease obligation     4,284  
Less lease obligation, current portion     981  
Lease obligation, non-current portion   $ 3,303  

 

5. Accrued Liabilities

 

Accrued liabilities consist of the following (in thousands):

    SEPTEMBER 30,     DECEMBER 31,  
    2020     2019  
             
Accrued compensation   $ 3,406     $ 2,730  
Accrued warranty costs     487       327  
Accrued customer incentives     4,172       5,102  
Accrued liabilities, acquisition related     2,126       1,722  
Accrued liabilities, other     2,910       2,586  
Accrued liabilities, total   $ 13,101     $ 12,467  

 

Product Warranty

 

The Company warrants the specifications of its products through implied product warranties and has extended product warranties to qualifying customers on a contractual basis. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time product is shipped. The Company’s estimate is based on historical experience and estimates of future warranty costs as a result of increased usage of the Company’s products.

 

During the three months ended September 30, 2020 and 2019, the Company recognized $19,000 and $75,500, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $29,000 for the three months ended September 30, 2019 as a result of the historical usage of warrant reserves being lower than previously estimated and during the three months ended September 30, 2019 the Company recognized $29,000 in warranty claims. For the three months ended September 30, 2020, the Company there was no were no warranty claims. During the nine months ended September 30, 2020 and 2019, the Company recognized $241,000 and $245,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $81,000 and $173,000 for the nine months ended September 30, 2020 and 2019, respectively, for the reason set forth above. The Company did not settle any warranty claims for the nine months ended September 30, 2020.

 

The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount, as necessary. Changes in the Company’s accrued warranty costs during the period are as follows (in thousands):

 

Balance at December 31, 2019   $ 327  
Warranties issued (released) during the period     160  
Settlements made during the period     -  
Balance at September 30, 2020   $ 487  

 

16
 

 

Contingent Consideration

 

As of September 30, 2020, the contingent consideration in connection with the Company’s acquisition of Pro Farm was recorded at its fair value. The following table provides a reconciliation of the activity for the contingent consideration measured between the most recent reporting period and as of the balance sheet date based on the fair value using significant inputs including the unobservable inputs (Level 3) (in thousands):

 

    CONTINGENT CONSIDERATION
LIABILITY 		 
Fair value at December 31, 2019   $   1,737  
Change in estimated fair value recorded of contingent consideration     563  
Fair value at September 30, 2020   $ 2,300  

 

The change in fair value for the reporting period was driven by the result of the unobservable fair value model, a Monte Carlo simulation in a risk-neutral framework assuming Geometric Browning Motion. The most significant input to the model was the estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2020 – 2023. The following represents other inputs used in determining the fair value of the contingent consideration liability:

 

    SEPTEMBER 30,     DECEMBER 31,  
    2020     2019  
Discount rate     13.9%     15.2%
Volatility     49.6%     33.6%
Credit spread     12.2%     10.8%
Risk-free rate     0.19%     1.66%

 

 

Discount Rate. Discount rate is based on an adjusted weighted cost of capital contribution considering an estimated operational leverage ratio and a risk-free rate, each (other than the risk-free rate) determined by publicly traded peer group median.

 

Estimated Volatility Factor. Volatility factor is based on the adjusted weighted cost of capital, operating asset volatility, operating leverage ratio and risk-free interest rate, each (other than the risk-free rate) determined by publicly traded peer group median.

 

Credit Spread. Credit spread based on the Company’s financial ratio in comparison with those of publicly traded peer group.

 

Interest Rate. Interest rate based on US Constant Maturity Treasury rates for the same period as the period of performance of 2020 to 2023.

 

The change in the fair value estimate is recognized in the Company’s condensed consolidated statement of operations in Other Income (expense) under caption Change in fair value of contingent consideration. The contingent consideration will be determined at each reporting period and will be settled with the issuance of the Company’s common shares. As of September 30, 2020, the Company recorded $1,006,000 and $1,294,000, respectively, in accrued liabilities and other liabilities in the Company’s condensed consolidated balance sheets.

 

17
 

 

6. Debt

 

Debt, including debt due to related parties, consists of the following (in thousands):

 

    SEPTEMBER 30,     DECEMBER 31,  
    2020     2019  
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.   $ 3,425     $ 3,425  
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (5.25% as of September 30, 2020) per annum, payable monthly through June 2036, collateralized by certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles, net of unamortized debt discount as of September 30, 2020 and December 31, 2019 of $170 and $185.     8,187       8,404  
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.80% annually) payable through the lenders direct collection of certain accounts receivable through November 2020, collateralized by substantially all of the Company’s personal property.     6,004       3,629  
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.     7,300       7,300  
Research loan facility (“2018 Research Facility”) bearing interest at 1.00% per annum, interest payments are due annually on the anniversary date of the facility with principal payable in 25% increments on the anniversary date of the facility beginning on the fourth anniversary of the loan (September 2022), net of imputed interest as of September 30, 2020 of $9.     84       81  
Financial institution facility (“2018 Bank Facility”) bearing interest at Euribor plus 2.40% per annum, interest payable monthly and principal payable at maturity (May 1, 2020), 60% guaranteed by Export Credit Agency of Finland for a fee of 2.49%.     -       207  
Debt, including debt due to related parties     25,000       23,046  
Less debt due to related parties, non-current     (7,300 )     (7,300 )
Less current portion     (6,333 )     (3,899 )
                 
Debt, non-current   $ 11,367     $ 11,847  

 

As of September 30, 2020, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties for each calendar year, are due as follows (in thousands):

 

Period ended September 30, 2020   Debt     Debt to Related Party  
2020   $ 6,089     $ -  
2021     353       -  
2022     2,822       5,000  
2023     416       -  
2024     436       -  
Thereafter     6,788       -  
Total future principal payments     16,904       5,000  
Interest payments included in debt balance (1)     975       2,300  
    $ 17,879     $ 7,300  

 

  (1) Due to the debt extinguishment requirements, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt.

 

18
 

 

October 2012 and April 2013 Secured Promissory Notes

 

As of September 30, 2020, there have been no changes to the previously reported total principal amount outstanding under the October 2012 and April 2013 Secured Promissory Note, which continues to be $2,450,000. Due to the historical accounting for the promissory note the amount recorded on the condensed consolidated balance sheet of $3,425,000 includes $975,000 in accrued interest, of which as of September 30, 2020 and 2019, a total of $533,000 and $337,000, respectively, had been incurred.

 

The October 2012 and April 2013 Secured Promissory Notes contain representations and warranties by the Company and the lender, certain indemnification provisions in favor of the lenders, customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), events of default (including payment defaults, breaches of covenants, a material impairment in the lender’s security interest or in the collateral, and events relating to bankruptcy or insolvency), and also restrictive covenants. As of September 30, 2020, the Company is in compliance with all related covenants, or has received an appropriate waiver of these covenants.

 

June 2014 Secured Promissory Note

 

In June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory Note”) with Five Star Bank that bears an interest of 5.25% (per annum) as of September 30, 2020. The interest rate is subject to change and is based on the prime rate plus 2.00% per annum. The Company is required to maintain a deposit balance with the Five Star Bank of $1,560,000, which is recorded as restricted cash included in non-current assets.

 

Under this note the Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than 4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank. The Company is also required to comply with certain affirmative and negative covenants under the loan agreement discussed above. In the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As of September 30, 2020, the Company was in compliance with the “loan to value ratio” covenant, the “current ratio”, and the “debt to worth ratio”, however, the Company has obtained a waiver from the lender for any non-compliance through November 30, 2021.

 

The following table reflects the activity under this note (in thousands):

 

    2020     2019  
Principal balance, net at December 31, preceding year   $ 8,404     $ 8,639  
Principal payments     (624 )     (545 )
Interest     392       328  
Debt discount amortization     15       10  
Principal balance, net at September 30,   $ 8,187     $ 8,432  

 

LSQ Financing

 

In January 2020, the Company entered into a Second Amendment to the Company’s Invoice Purchase Agreement with LSQ. The amendment, among other things, (i) increased the amount of eligible customer invoices which LSQ may elect to purchase from the Company to up to $20,000,000 of eligible customer invoices from the Company from $7,000,000; (ii) increased the advance rate to 90% from 85% and 70% from 60%, respectively, of the face value of domestic and international receivables being sold; (iii) decreased the invoice purchase fee rate from 0.40% to 0.25%; (iv) increased the funds usage fee from 0.020% to 0.025%; (v) extended the 0% aging and collection fee percentage charged at the time when the purchased invoice is collected from 90 days to 120 days, and increased the fee percentage charged thereafter from 0.35% to 0.75%; and (vi) decreased the early termination fee from 0.75% to 0.50%.

 

19
 

 

In addition to the Amendment, the Company simultaneously entered into an Amended Inventory Financing Addendum (the “Addendum”) with LSQ. The Addendum allows the Company to request an advance up to the lesser of (i) 100% of the Company’s unpaid finished goods inventory; (ii) 65% of the appraised value of the Company’s inventory performed on or on behalf of LSQ; or (iii) $3,000,000. Funds advance under the Addendum are subject to a monthly inventory management fee of 0.5% on the average monthly inventory funds available and a daily interest rate of 0.025%.

 

The agreement contains representations and warranties by the Company and LSQ, certain indemnification provisions in favor of LSQ and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in LSQ’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The Company is in compliance with all terms of the agreement. For the three months ended September 30, 2020 and 2019, the Company recorded interest expense of approximately $188,000 and $121,000, respectively, in connection with the LSQ arrangement. For the nine months ended September 30, 2020 and 2019, the Company recorded interest expense of approximately $454,000 and $303,000, respectively, in connection with the LSQ arrangement. As of September 30, 2020, $6,004,000 was outstanding under the LSQ Financing.

 

7. Warrants

 

On August 6, 2019, the Company entered into a warrant amendment and plan of reorganization agreement (“Warrant Reorganization Agreement”) with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares were issuable pursuant to the August 2019 Warrants.

 

In August and through December 2019, the Company requested under the Warrant Reorganization Agreement, the exercise of 16,000,000 February 2018 Warrants. In February 2020, the Company requested an additional exercise of 6,000,000 February 2018 Warrants, resulting in the Company issuing an additional 6,000,000 common shares and 6,000,000 August 2019 Warrants (“Exercise 3”). The issuance of the August 2019 Warrants resulted in the Company incurring a non-cash charge of $1,391,000 in connection with the fair value of new warrants. The Company’s fair value of the new warrants issued was estimated utilizing a Black Scholes option pricing model. The following table outlines assumptions utilized for the warrant issuance:

 

     

WARRANTS
EXERCISED
DURING THE NINE
MONTHS ENDED
SEPTEMBER 30,

2020

 
Expected life (years)     3.01-3.04  
Estimated volatility factor     52.9-53.1 %
Risk-free interest rate     1.58-1.66 %
Expected dividend yield     —  

 

Expected Life. Expected life represents the period that the warrants are expected to be outstanding. The Company estimates the contractual period, the period between the date of the modification and the expiration date of the warrant, which is an appropriate estimate of the expected term.

 

20
 

 

Estimated Volatility Factor. Estimated volatility factor is based on the Company’s trading history, which is adjusted for certain periods of the Company’s trading history that are not indicative of normal trading.

 

Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.

 

Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.

 

On April 29, 2020, the Company entered into a warrant exchange agreement (“Warrant Exchange Agreement”) with certain holders of warrants under the August 2015 Senior Secured Promissory Notes, the Securities Purchase Agreement and the Amendment and Plan of Reorganization agreements. Pursuant to the Warrant Exchange Agreement, the Company agreed to exchange an aggregate of 45,977,809 warrants (“August 2015 Warrants”, “February 2018 Warrants 1 & 2”, and “August 2019 Warrants” collectively, “the exchanged warrants”) for 29,881,855 warrants (“April 2020 Warrants”).

 

The April 2020 Warrants have terms expiring (i) for a total of 3,392,581 Warrant Shares on May 1, 2020, (ii) for a total of 2,714,065 Warrant Shares on September 15, 2020 (iii) for a total of 13,027,512 Warrant Shares on December 15, 2020, (iv) for a total of 5,862,380 Warrant Shares on March 15, 2021 and (v) for a total of 4,885,317 Warrant Shares on December 15, 2021. All April 2020 Warrants have an exercise price of $0.75 per share. The April 2020 Warrants are exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the April 2020 Warrants effective as of March 31, 2021.

 

The Company has accounted for the Warrant Exchange Agreement as a modification under Accounting Standards Codification (“ASC”) 718, Compensation – Stock Based Compensation. The fair value of the April 2020 Warrants was not greater than the fair values of the exchanged warrants immediately prior to the modification date and therefore had no impact on the Company’s three and nine months ended results. The fair value of each exchanged warrants immediately prior to the modification were estimated utilizing either a Black Scholes Merton or Monte Carlo option pricing model. The fair value of each April 2020 Warrants immediately after the modification were estimated utilizing a Black Scholes Merton option pricing model. The following table outlines the range of assumptions utilized in the option pricing models:

 

      EXCHANGED WARRANTS      

APRIL 2020

WARRANTS

 
Expected life (years)     0.68-3.31       0.38-1.63  
Estimated volatility factor     43.0-52.2 %     38.1-46.3 %
Risk-free interest rate     0.14-0.26 %     0.10-0.19 %
Expected dividend yield     —       —  

 

Expected Life. Expected life represents the period that the warrants are expected to be outstanding. The Company estimates the contractual period, the period between the date of the modification and the expiration date of the warrant, which is an appropriate estimate of the expected term.

 

Estimated Volatility Factor. Estimated volatility factor is based on the Company’s trading history adjusted for certain periods of the Company’s trading history, not indicative of normal trading.

 

Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.

 

Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.

 

21
 

 

The following table summarizes information about the Company’s common stock warrants outstanding activity through September 30, 2020 (in thousands, except exercise price data):

 

                      NUMBER OF     NINE MONTHS     NINE MONTHS ENDED NUMBER     NINE MONTHS     NUMBER OF  
                      SHARES     ENDED     OF     ENDED     SHARES  
                     

SUBJECT

TO

   

NUMBER

OF

    WARRANTS OR    

NUMBER

OF

   

SUBJECT

TO

 
    ISSUE     EXPIRATION           WARRANTS     WARRANTS     SHARES     WARRANTS     WARRANTS  
    DATE     DATE     EXERCISE     ISSUED     EXERCISED     ISSUED     EXCHANGED     ISSUED  
DESCRIPTION   MM/YY     MM/YY     PRICE     12/31/2019     9/30/2020     9/30/2020     9/30/2020     9/30/2020  
June 2013 Warrants     06/13     06/23(1)   $           8.40       27       -       -       -       27  
August 2015 Warrants     08/15     08/23   $ 1.91       4,000       -       -       (4,000 )     -  
November 2016 Warrants     11/16     11/26   $ 2.38       125       -       -       -       125  
November 2017 Warrants     06/17     06/27   $ 1.10       80       -       -       -       80  
February 2018 Warrants 1     02/18     12/20   $ 1.00       6,750       -       -       (1,378 )     5,372  
February 2018 Warrants 2     02/18     12/20   $ 1.25       5,065       -       -       (4,000 )     1,065  
August 2019 Warrant     09/19     12/21   $ 1.00       20,600       (6,000 )     -       (14,600 )     -  
August 2019 Warrant (Call Option)     Various after 08/19       01/23   $ 1.75       16,000       -       6,000       (22,000 )     -  
April 2020 Warrants, Tranche 1     04/20     05/20   $ 0.75       -       (3,393 )     3,393       -       -  
April 2020 Warrants, Tranche 2     04/20     09/20   $ 0.75       -       (2,714 )     2,714       -       -  
April 2020 Warrants, Tranche 3     04/20     12/20   $ 0.75       -       -       13,028       -       13,028  
April 2020 Warrants, Tranche 4     04/20     03/21   $ 0.75       -       -       5,862       -       5,862  
April 2020 Warrants, Tranche 5     04/20     12/21   $ 0.75       -       -       4,885       -       4,885  
                              52,647       (12,107 )     35,882       (45,978 )     30,444  

 

The weighted average remaining contractual life and exercise price for these warrants is 0.47 years and $0.83, respectively.

 

(1) The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.

 

8. Share-Based Plans

 

Under the Company’s Employee Stock Purchase Plan (the “ESPP”), employees may purchase Company stock through payroll deductions over each six-month period beginning on each June 1 and December 1 (the “Offer Period”). The purchase price of the shares will be 85% of the lower of the fair market value of the shares at the beginning or at the end of the Offer Period. As of the three and nine months ended September 30, 2020, the Company recorded stock-based compensation expense of approximately $18,000 and $55,000, respectively. As of the three and nine months ended September 30, 2019, the Company recorded stock-based compensation expense of approximately $13,000 and $18,000, respectively.

 

22
 

 

As of September 30, 2020, there were options to purchase 13,709,000 shares of common stock outstanding, 4,475,000 restricted stock units outstanding and 288,000 share-based awards available for grant under the outstanding equity incentive plans.

 

For the three months ended September 30, 2020 and 2019, the Company recognized share-based compensation of $946,000 and $742,000, respectively. For the nine months ended September 30, 2020 and 2019, the Company recognized share-based compensation of $2,699,000 and $1,888,000, respectively.

 

In August 2020, in connection with the retirement of its chief executive officer, the Company granted 2,450,000 options to purchase common stock at an exercise price of $1.16 and with a fair value of $899,000 to its new chief executive officer. The Company’s fair value of these grants was estimated utilizing either a Black Scholes or Monte Carlo option pricing model based on the following range of assumptions which have determined consistent with the Company’s historical methodology for such assumptions:

 

   

AUGUST 3,

2020

 
Expected life (years)     2.14-6.08  
Estimated volatility factor     58.8 %
Risk-free interest rate     0.28 %
Expected dividend yield     —  

 

Expected Life. Expected life represents the period that share-based payment awards are expected to be outstanding. The Company uses the “simplified method” in accordance with Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB No. 107”), and SAB No. 110, Simplified Method for Plain Vanilla Share Options (“SAB No. 110”), to calculate the expected term of stock options determined to be “plain vanilla.” Under this approach, the expected term is presumed to be the midpoint between the vesting date and the contractual end of the stock option grant. For stock options granted with an exercise price not equal to the determined fair value, the Company estimates the expected life based on historical data and management’s expectations about exercises and post-vesting termination behavior. The Company will use the simplified method until it has sufficient historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107 and SAB No. 110.

 

Estimated Volatility Factor. As the Company’s common stock has limited period of normalized trading history, the Company calculated the estimated volatility factor based on the Company’s trading history adjusted for certain periods of the Company’s trading history, not indicative of normal trading.

 

Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.

 

Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.

 

During the three months ended September 30, 2020 and 2019, the Company granted options to purchase 2,612,000 and 5,363,000 shares of common stock, respectively, at a weighted average exercise price of $1.16 and $1.43, respectively. During the three months ended September 30, 2020 and 2019, 19,000 and 13,000 options, respectively were exercised at a weighted average exercise price of $0.90 and $1.16, respectively.

 

The following table summarizes the activity of stock options from December 31, 2019 to September 30, 2020 (in thousands, except weighted average exercise price):

 

          WEIGHTED-  
          AVERAGE  
          EXERCISE  
    OPTIONS     PRICE  
Balance at December 31, 2019     11,821     $ 2.53  
Options granted     2,612       1.16  
Options exercised     (36 )     0.87  
Options cancelled     (688 )     1.90  
Balance at September 30, 2020     13,709         2.30  

 

23
 

 

In May 2020, the Company granted to certain executives restricted stock units in lieu of ten percent of their annual base salaries for the fiscal year ending December 31, 2020. The total number of restricted stock units granted to these executives was 225,000 at an exercise price of $0.71.

 

In May 2020 the Company also the granted restricted stock units to certain executives and employees in lieu of cash bonuses for performance related to the fiscal year ended December 31, 2019. The total number of restricted stock units granted to these employees was 890,000 at an exercise price of $0.71. This grant resulted in the reclassification of the total fair value of $632,000 between Accrued liabilities and Additional paid in capital in the Company’s Condensed Consolidated Balance Sheet.

 

In August 2020, in connection with the Company’s separation and consulting arrangement with its former chief executive officer, the Company granted 1,250,000 restricted stock units. The restricted stock units will vest at each of the three future anniversary dates of the consulting arrangement.

 

The following table summarizes the activity of restricted stock units from December 31, 2019 to September 30, 2020 (in thousands, except weighted average grant date fair value):

 

          WEIGHTED-  
    RESTRICTED     AVERAGE  
    STOCK     EXERCISE  
    UNITS     PRICE  
Outstanding at December 31, 2019     2,405     $ 1.40  
Granted     2,742       0.96  
Exercised     (647 )     1.23  
Forfeited     (25 )     1.37  
Outstanding at September 30, 2020     4,475     $   1.14  

 

The following table summarizes the activity of non-vested restricted stock units from December 31, 2019 to September 30, 2020 (in thousands, except weighted average grant date fair value):

 

          WEIGHTED  
          AVERAGE  
          GRANT  
    SHARES     DATE FAIR  
    OUTSTANDING     VALUE  
Nonvested at December 31, 2019     711     $ 1.45  
Granted     2,742     $ 0.96  
Vested     (1,951 )   $ 1.00  
Forfeited     (25 )   $ 1.37  
Nonvested at September 30, 2020     1,477     $ 1.15  

 

9. Related Party Transactions

 

Warrant Exchange

 

Ospraie, Ivy Science & Technology Fund (“IS&T”), Ivy VIP Science & Technology (“Ivy VIP” and, together with IS&T, the “Waddell Investors”, and Ardsley, are beneficial owners of the Company’s securities, holding 41.7%, 17.9%, and 11.1%, respectively, of the Company’s total outstanding common stock as of September 30, 2020. In April 2020, in connection with the Company’s execution of the Warrant Exchange Agreement (See Note 7) various warrants held by Ospraie, the Waddell Investors, and Ardsley aggregating a total of 30,666,667, 8,000,000, and 5,222,333 shares, respectively, were exchanged for a total of 21,736,081, 3,397,157, and 3,780,185, April 2020 Warrants, respectively.

 

24
 

 

Warrant Exercises

 

In March 2020, 6,000,000 February 2018 Warrants were exercised upon the Company’s utilization of its call option under the Warrant Reorganization Agreement. As a result of this transaction, the Company issued 6,000,000 common shares and 6,000,000 August 2019 Warrants. The total number of warrants exercised at the request of the Company by Ospraie and Ardsley represented 5,027,325 and 874,314, shares of common stock, respectively. The August 2019 Warrants issued as a result of this transaction were subsequently forfeited in connection with the Warrant Exchange Agreement (See Note 7).

 

In May and September 2020, 3,392,581 and 2,714,065, April 2020 Warrants were exercised in accordance with the terms of the Warrant Exchange Agreement (See Note 7). As a result of these transactions, the Company issued common shares of 4,441,979, 694,242, and 722,517, to Ospraie, the Waddell Investors, and Ardsley, respectively.

 

August 2015 Senior Secured Promissory Notes

 

As of September 30, 2020, there have been no changes to the previously reported total principal amount outstanding under the August 2015 Senior Secured Promissory Notes, which continues to be $5,000,000. Due to the historical accounting for the promissory note the amount recorded on the condensed consolidated balance sheet of $7,300,000 includes $2,300,000 in accrued interest, of which as of September 30, 2020 and 2019, a total of $1,399,000 and $988,000, respectively, had been incurred.

 

The August 2015 Senior Secured Promissory Notes provide for various events of default, including, among others, default in payment of principal or interest, breach of any representation or warranty by the Company or any subsidiary under any agreement or document delivered in connection with the notes, a continued breach of any other condition or obligation under any loan document, certain bankruptcy, liquidation, reorganization or change of control events, the acquisition by any person or persons acting as group, other than the lenders, of beneficial ownership of 40% or more of the outstanding voting stock of the Company. Upon an event of default, the entire principal and interest may be declared immediately due and payable. As of September 30, 2020, the Company was in compliance with its covenants under the August 2015 Senior Secured Promissory Notes.

 

10. Other Matters

 

Paycheck Protection Program

 

In April 2020, the Company entered into an unsecured note (the “Note”) in the amount of $1,723,000 under the PPP. The Company has accounted for the transaction when it is considered that there is reasonable assurance that the grant amounts will be received and all necessary qualifying conditions, as stated in the loan agreement, are met, consistent with International Accounting Standards (“IAS”) 20, Accounting for Government Grants. In November 2020, the Company received correspondence from the lender of the PPP that the Company’s PPP loan amount had been forgiven.

 

25
 

 

For the nine months ended September 30, 2020, the Company recognized as reduction to the expense categories specified under the PPP $702,000 and $695,000, respectively, in Research, development and patents and Selling, general and administrative in the condensed consolidated statement of operations. No amounts were recognized as reduction to Research, development and patents and Selling, general and administrative in the condensed consolidated statement of operations for the three months ended September 30, 2020. The remaining amount of total PPP funds received of $326,000 was allocated to the related PPP-specified expenses associated with the Company’s manufacturing operations and was been capitalized into Inventories, net on the condensed consolidated balance sheet. For the three and nine months ended September 30, 2020 a total of $109,000 was amortized from Inventories, net, offsetting cost of product revenues in the consolidated statement of operations based on the Company’s normal recognition policy for similar items. A total of $217,000 will be recognized in future periods into cost of product revenues in the condensed consolidated statement of operations.

 

Chief Financial Officer Retirement

 

On September 21, 2020, James Boyd announced his intention to retire as the Company’s Chief Financial Officer (“CFO”) and President and an employee of the Company. In connection with his retirement, Mr. Boyd entered into the Separation Agreement on September 21, 2020 (the “Separation Agreement”). The Separation Agreement provides that Mr. Boyd’s retirement as an employee and officer of the Company will become effective immediately prior to the date on which a new CFO is retained. In addition to being entitled to any unpaid salary through his retirement date and continued COBRA coverage, in consideration of his execution of certain releases, Mr. Boyd will be entitled under the Separation Agreement to (i) salary continuation (payable at the annual rate of $330,000) for twelve months, (ii) a prorated portion of his 2020 annual bonus, paid in cash (or the full 2020 annual bonus and a prorated portion of the 2021 annual bonus if he remains employed through January 1, 2021), calculated based on achievement of individual goals that are to be agreed to by Mr. Boyd and the Company’s chief executive officer, and with all other terms determined in accordance with the Company’s annual bonus plan as applied to other active senior executives of the Company, and (iii) all of his outstanding unvested stock options will become fully vested.

 

In connection and in conjunction with Mr. Boyd’s retirement, he also entered into a consulting services agreement with the Company on September 21, 2020 (the “Consulting Agreement”). Pursuant to the Consulting Agreement, Mr. Boyd will serve as a consultant to the Company for a period of one year following the date of his retirement unless terminated earlier as discussed below or extended by mutual agreement of the Company and Mr. Boyd, to help the Company create and develop an entity dedicated to the eradication of invasive species with the terms of such services and related deliverables detailed in the Consulting Agreement. As consideration for his service as a consultant, Mr. Boyd will receive a one-time award of 200,000 RSUs as soon as practicable after his retirement date, which will vest in equal installments over twelve months, subject to his continuous service as a consultant through the applicable vesting dates. Under the terms of the Consulting Agreement, the Company may terminate Mr. Boyd’s service as a consultant by giving five (5) days prior written notice, in which case any unvested RSUs granted under the Consulting Agreement will vest immediately. The Company may also terminate the Consulting Agreement upon Mr. Boyd’s breach or default or for certain other grounds, in which case Mr. Boyd’s unvested RSUs will be forfeited.

 

11. Subsequent Events

 

The Company held its 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”) on October 29, 2020. The Company’s stockholders considered and voted on the following proposals at the 2020 Annual Meeting:

 

(i) The Company’s stockholders elected Pamela G. Marrone, Ph.D., Robert A. Woods, and Yogesh Mago to serve as a Class I directors for a three-year term, ending at the time of the 2023 Annual Meeting of Stockholders (or until a successor is duly elected and qualified) pursuant to the Company’s Bylaws and the applicable laws of the State of Delaware.

 

(ii) The Company’s stockholders ratified the appointment of Marcum LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020.

 

(iii) The Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to permit the Company’s board of directors to effect a reverse stock split of the Company’s outstanding common stock at a ratio of not less than one-for-five (1:5) and not more than one-for-fifteen (1:15), which exact ratio will be selected at the discretion of the board of directors, and provided that the board of directors may abandon the reverse stock split in its sole discretion.

 

(iv) The Company’s stockholders approved the anti-dilution provisions in certain warrants in accordance with Nasdaq Listing Rule 5635(d).

 

(v) The Company’s stockholders did not approve the stockholder proposal that the Company’s board of directors take each step necessary so that each voting requirement in the Company’s Certificate of Incorporation and Bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws, to take effect within four years.

 

The full results of the Company’s 2020 Annual Meeting of Stockholders are included in the Company’s Form 8-K filed with the Securities and Exchange Commission on November 2, 2020.

 

In addition, on November 2, 2020, following the 2020 Annual Meeting, the Company’s board of directors approved an increase in the size of the board of directors to eight people, with the one additional vacancy being in Class III, effective immediately. The board of directors appointed Lara L. Lee to fill the vacancy as a Class III director of the Company, with Ms. Lee’s term to expire as of the Company’s 2022 Annual Meeting of Stockholders. Ms. Lee will serve on the Audit Committee and Compensation Committee of the board of directors.

 

The Company has evaluated its subsequent events from September 30, 2020 through the date these condensed consolidated financial statements were issued, and has determined that there are no additional subsequent events required to be disclosed.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion of our financial condition and results of operations in connection with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (the “Annual Report”) on March 16, 2020. Additional information regarding the Company is also available in our other reports filed with the Securities and Exchange Commission, which are also available on our investor relations website, investors.marronebio.com, which we also use, together with our corporate Twitter account, @Marronebio, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. We encourage our investors to monitor and review the information we make public in these locations. The information contained in the foregoing locations are not incorporated by reference into this filing, and the Company’s references to website URLs are intended to be inactive textual references only.

 

In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements that reflect our plans, estimates and beliefs. Forward-looking statements are identified by words such as “would,” “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potential” “outlook,” “if,” “future,” “targets,” “seek,” or and similar words and phrases, including negatives of these terms or similar expressions, or other variations of these terms, that denote future events. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management for future operations, the progress, scope or duration of the development of product candidates or programs, clinical trial plans, timelines and potential results, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, our ability to protect intellectual property rights, the benefits of our recent acquisitions, our anticipated operations, financial position, revenues, costs or expenses, statements regarding future economic conditions or performance, the impact of COVID-19 on our operations, the potential exercise of Company warrants, statements of belief and any statement of assumptions underlying any of the foregoing. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere, including Part II, Item 1A— “ Risk Factors,” in this Quarterly Report on Form 10-Q, and in Part I—Item 1A—“Risk Factors” of our Annual Report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

 

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Overview

 

We strive to lead the sustainable agriculture movement through the discovery, development, production and promotion of effective, efficient and environmentally responsible biological products for pest management, plant nutrition and plant health. We target the major markets that use conventional chemical pesticides and fertilizers, where our biological products are used as alternatives for, or mixed with, conventional products. We also target new markets for which there are no available conventional chemical products or where the use of conventional chemical products may not be desirable (including for organically certified crops) or permissible either because of health and environmental concerns, or because the development of pest resistance has reduced the efficacy of conventional chemical pesticides.

 

Business Strategy

 

The agricultural industry is increasingly dependent on effective and sustainable crop protection practices to maximize yields and quality in a world of increased demand for agricultural products, rising consumer awareness of food production processes and finite land and water resources. In addition, external market research reported that the global market for biopesticides, plant health and bionutrition products is growing substantially faster than the overall markets for chemical products and fertilizers (plant nutrition). This demand is in part a result of conventional growers acknowledging that there are tangible benefits to adopting bio-based crop protection and plant health products into integrated pest management (“IPM”) programs, as well as increasing consumer demand for sustainably produced and organic food. We seek to capitalize on these global trends by providing both conventional and organic growers with solutions to a broad range of crop protection and plant health needs through strategies such as adding new products to our product portfolio, continuing to broaden the commercial applications of our existing product lines, leveraging growers’ positive experiences with existing product lines, educating growers with on farm product demonstrations and controlled product launches with key target customers and other early adopters.

 

We sell our products through distributors and other commercial partners to growers who use our bioprotection products to manage pests and plant diseases, our plant health products to reduce crop stress and both our plant health and bionutrition products to increase yields and quality. Out of our Davis, California facilities we have developed and commercialized several patent-protected product lines based on various active ingredients, which we refer to in this Quarterly Report as our Marrone products, including our Regalia product line (based on the active ingredient knotweed), for controlling plant disease and increasing plant health, our Grandevo and Venerate product lines (based on two new species of bacteria, Chromobacterium subtsugae and Burkholderia rinojensis), each for insect and mite control, our Majestene product line and its turf and ornamentals counterpart brand Zelto (based on the same active ingredient bacterium in Venerate), each for nematode control, and our Stargus product line (based on a new strain of Bacillus nakamurai), for downy mildew and white mold control and increased plant health. In addition, in 2019, we acquired the peroxyacetic acid-based plant health product lines Jet-Ag and Jet-Oxide from Jet Harvest Solutions, which we refer to in this Quarterly Report as our Jet products, and through our 2019 acquisition of Pro Farm Technologies OY (“Pro Farm”), we added to our portfolio bionutrition and plant health product lines, which we refer to in this Quarterly Report as our Pro Farm products, including UBP and Foramin.

 

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Our research and development efforts in recent periods have been focused on supporting existing commercial products, including Regalia, Grandevo, Venerate, Majestene/Zelto, Haven and Stargus with a focus on reducing cost of product revenues, further understanding the modes of action, manufacturing support and improving formulations. In addition, our internal efforts in development and commercialization are now focused on two promising product candidates, MBI-306 a next generation formulation of our current nematicide product, Majestene and two bioherbicides, MBI-014 and MBI-015 (formerly MBI-010), of which MBI-014 was submitted to the EPA in August 2018. Simultaneously, we are seeking collaborations with third parties to develop and commercialize more early stage candidates on which we have elected not to expend significant internal resources given our reduced budget. We believe this prioritization plan, together with our competitive strengths, including our leadership in the biologicals industry, commercially available products, robust pipeline of novel product candidates, proprietary discovery and development processes and industry experience, position us for growth.

 

We have also expanded our growth strategy through acquisitions of products and companies that broaden our plant health and bionutrition product offerings, both multibillion-dollar segments that are also rapidly growing. In September 2019, we completed the acquisition of Pro Farm, which expanded our portfolio of bio-based products for integrated crop protection and plant health to now include UBP, Foramin and LumiBio. Also in September 2019, we completed the purchase of substantially all rights and assets related to the Jet-Ag and Jet-Oxide (biofungicide and disinfectants) product lines from Austin Grant, Inc., a Florida corporation d/b/a Jet Harvest Solutions.

 

Third Quarter 2020 Highlights

 

During the third quarter of 2020, we, like all businesses domestically and globally, continued to be impacted by the COVID-19 pandemic. Our headquarters in Davis, California, our manufacturing facility in Bangor, Michigan and our international subsidiary headquarters in Helsinki, Finland, are located in geographic regions where at the state and/or local levels, governments continue to mandate social distancing measures which began in early- to mid-March 2020 along with shelter in place orders. However, as a supplier to the broader agriculture industry, we have continued to maintain scaled operations under the essential business definition under these orders. We are pleased to have continued to service the agricultural industry during this unprecedented environment through our product portfolio offerings. Further, in part as a result of the $1.7 million of low-interest support from the Payroll Protection Program (the “PPP”), we have not had to lay off employees, and thereby have been able to supply growers during the critical spring growing season without significant interruptions. At the same time, we are conserving cash through prudent expense control and restricting non-essential travel while serving customers and working to ensure the safety of our employees, customers and partners.

 

The following are the more significant financial results for the three months ended September 30, 2020:

 

  ● Revenues increased approximately 26.8% year over year to $8.8 million from $7.0 million for the same period in 2019;
     
  ● Gross profits increased approximately 39.5% year over year to $5.0 million from $3.6 million for the same period in 2019 and gross margins increased to 56.7% from 51.5% for the same period in the prior year;
     
  ●

Operating expenses were $10.4 million in the third quarter of 2020, compared with $13.4 million in the third quarter of 2019; and

 

  ● Net loss in the third quarter of 2020 was $6.1 million, as compared with a net loss of $16.4 million in third quarter of 2019.

 

The following are the more significant financial results for the nine months ended September 30, 2020:

 

  ● Revenues increased approximately 35.2% year over year to $30.7 million from $22.7 million for the same period in 2019;
     
  ● Gross profits increased approximately 45.0% year over year to $18.0 million from $12.4 million for the same period in 2019 and gross margins increased to 58.6% from 54.6% for the same period in the prior year;
     
  ●

Operating expenses were $31.1 million in the first three quarters of 2020, compared with $32.2 million in the first three quarters of 2019; and

 

  ● Net loss for the first three quarters of 2020 was $16.0 million, as compared with a net loss of $27.0 million in the first three quarters of 2019.

 

Other significant developments for our business during the three months ended September 30, 2020 include the announcement of the upcoming retirement of our Chief Financial Officer and President, Jim Boyd and execution of an exclusive distribution agreement with Rizobacter for a foliar fertilizer and plant health technology in South America.

 

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In addition, in April 2020, we entered into a warrant exchange agreement with certain warrant holders reducing the number of shares subject to the outstanding Company warrants from 52.6 million to 36.4 million. Pursuant to the warrant exchange agreement, warrants representing the right to purchase up to 46.0 million shares of common stock at varying exercise prices and expiration dates were exchanged for warrants representing the right to purchase up to 29.9 million shares of common stock with an exercise price of $0.75 per share. The new warrants have five different expirations dates, three in 2020 and two in 2021. The new warrants that were subject to the expiration dates of May 1, 2020 and September 15, 2020, were exercised to purchase 3.4 million and 2.7 million shares of common stock resulting in gross proceeds of $4.6 million.

 

As previously reported, in March 2020, prior to the warrant exchange agreement, we called for the exercise of 6.0 million shares of common stock pursuant to outstanding warrant agreements at $1.00 per share, which were included in the results above for the nine months ended September 30, 2020 in a non-cash charge of $1.4 million related to the fair value of new warrants to purchase up to 6.0 million shares of common stock at an exercise price of $1.75. The 6.0 million warrants issued as a result of this transaction were subsequently exchanged pursuant to the warrant exchange agreement.

 

Critical Accounting Policies and Estimates

 

Our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenue, costs and expenses, and any related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

 

We believe that the assumptions and estimates associated with estimating revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize, fair value of warrants, forecast estimated utilized in our impairment assessment of long-lived asset, intangibles and goodwill, contingent consideration liabilities and our going concern assessment, have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

 

Key Components of Our Results of Operations

 

Revenues

 

Our total revenues were $8.8 million and $7.0 million for the three months ended September 30, 2020 and 2019, respectively. Our total revenues were $30.7 million and $22.7 million for the nine months ended September 30, 2020 and 2019, respectively. We generate our revenues primarily from product sales, which are principally attributable to sales of our Regalia, Grandevo, Venerate, and LumniBio product lines, but also included sales of Majestene, Stargus, Foramin, UBP-110, Jet-Ag and Jet-Oxide. We believe our revenues may largely be impacted by weather, trade tariffs and other factors that affect commodity prices, natural disasters, infectious diseases and other factors affecting planting and growing seasons and incidence of pests and plant disease, and, accordingly, the decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. Despite the impact of COVID-19, we presently expect revenues to continue to increase year-over-year for 2020 in line with historic growth rates, in part due to our expanded seed treatment offerings.

 

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Product Revenues

 

Product revenues consist of revenues generated primarily from sales to customers, net of rebates and cash discounts. Product revenues constituted 99% and 98% of our total revenues for the three months ended September 30, 2020 and 2019, respectively and 99% of our total revenues for each of the nine months ended September 30, 2020 and 2019. Product revenues in the United States constituted 75% and 92% of our total revenues for the three months ended September 30, 2020 and 2019, respectively. Product revenues in the United States constituted 75% and 94% of our total revenues for each of the nine months ended September 30, 2020 and 2019, respectively.

 

We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenues since we sell to highly concentrated, traditional distributor-type customers. While we expect product sales to a limited number of customers to continue to be our primary source of revenues, as we continue to develop our pipeline and introduce new products to the marketplace, we anticipate that our revenue stream will be diversified over a broader product portfolio and customer base, including as a result of our Pro Farm product offerings.

 

License Revenues

 

License revenues generally consist of revenues recognized under our strategic collaboration and distribution agreements for exclusive distribution rights for our commercial product offerings, or for our broader pipeline of products, for certain geographic markets or for market segments that we do not address directly through our internal sales force. Our strategic collaboration and distribution agreements generally outline overall business plans and include payments we receive at signing and for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that we provide over the term of the strategic collaboration and distribution agreements, revenues related to the payments received are deferred and recognized as revenues over the term of the exclusive period of the respective agreements, which we estimate to be between 5 and 17 years based on the terms of the contract and the covered products and regions. For each of the three and nine months ended September 30, 2020 and 2019, license revenues constituted 2% and 1% of total revenues, respectively. As of September 30, 2020, we had received an aggregate of $4.1 million in payments under our strategic collaboration and distribution agreements. There will be an additional $0.8 million in payments under these agreements that we can potentially receive if the testing validation, regulatory progress and commercialization events occur.

 

Cost of Product Revenues and Gross Profit

 

Cost of product revenues consists principally of the cost of inventory, which includes raw materials, third-party services and allocation of operating expenses of our manufacturing plant related to procuring, processing, formulating, packaging and shipping of our products. Allocation of operating costs of our Bangor, Michigan manufacturing plant includes direct and indirect labor, productions supplies, repairs and maintenance, depreciation, utilities and property taxes. The amount of indirect labor and overhead allocated to finished goods is determined on a basis presuming normal capacity utilization. Operating costs incurred in excess of production allocations, considered idle capacity, are expensed to cost of product revenues in the period incurred rather than added to the cost of the finished goods produced. Cost of product revenues may also include charges due to inventory adjustments and reserves. We expect our cost of product revenues related to the cost of inventory to increase and cost of product revenues relating to write-downs of inventory and idle capacity of our manufacturing plant to decrease as we expand sales and increase production of our existing commercial products. Gross profit is the difference between total revenues and cost of product revenues. Gross margin is gross profit expressed as a percentage of total revenues.

 

We expect to see increases in gross profit over the life cycle of each of our products as gross margins are expected to increase over time as production processes improve and as we gain efficiencies and increase product yields. While we expect margins to improve on a product-by-product basis, and target annual gross margins in the mid-50% range, our overall gross margins may vary as we introduce new products. In particular, we may experience downward pressure on overall gross margins as we continue to expand sales of our more recent commercially available products including Haven, Stargus, our Jet and Pro Farm products. Gross margin has been and will continue to be affected by a variety of factors, including plant utilization, product manufacturing yields, changes in production processes, new product introductions, product sales mix, sales incentives such as discounts and rebates and average selling prices.

 

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In connection with the Company’s receipt of PPP funds, the Company allocated $0.3 million to qualified costs incurred at our manufacturing plant which was previously capitalized. For the three and nine months as of September 30, 2020 $0.1 million has been recognized as a reduction to cost of product revenues and the remaining $0.2 million will be recognized in future periods consistent with the amortization of similar items.

 

Research, Development and Patent Expenses

 

Research, development and patent expenses include personnel costs, including salaries, wages, benefits and share-based compensation, related to our research, development and patent and regulatory staff in support of product discovery, development, and support for manufacturing, quality, and regulatory activities. Research, development and patent expenses also include costs incurred for laboratory supplies, field trials and toxicology tests, quality control assessment, consultants and facility and related overhead costs. Our research, development and patent expenses have historically comprised a significant portion of our operating expenses, amounting to $3.1 million and $3.8 million for the three months ended September 30, 2020 and 2019, respectively and $8.7 million and $10.3 million for the nine months ended September 30, 2020 and 2019, respectively. We have utilized a significant portion of our research and development resources to improve margins on existing products and pipeline products to market including supporting manufacturing and quality. We are also seeking collaborations with third parties to develop and commercialize more early stage candidates, on which we have elected not to expend significant resources given our reduced budget. Since some of our key research, development and patent resource employees are working remotely as a result of COVID-19, and due to some reliance on external suppliers who are also impacted by COVID-19, our expenses may not be at the level they otherwise would be during this period. Additionally in connection with the Company’s receipt of PPP funds, for the three and nine months ended September 30, 2020, our operating expenses for research, development and patent expenses were reduced by none and $0.7 million, respectively.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consist primarily of personnel costs, including salaries, wages, benefits and share-based compensation, related to our executive, sales, marketing, finance and human resources personnel, as well as professional fees, including legal and accounting fees, and other selling costs incurred related to business development and to building product and brand awareness. We create brand awareness through programs such as speaking at industry events, trade show displays and hosting local-level grower and distributor meetings. In addition, we dedicate significant resources to technical marketing literature, targeted advertising in print and online media, webinars and radio advertising. Costs related to these activities, including travel, are included in selling expenses.

 

Outside of operating expenses resulting from our Pro Farm subsidiaries, we generally expect selling, general, and administrative expenses to remain approximately flat in most departments. We continue to build a sales and marketing organization that provides us with a better ability to educate and support customers and for our product development staff to undertake responsibility for technical sales support, field trials and demonstrations to promote sales growth. However, as a result of COVID-19, such efforts have slowed including due to travel restrictions put in place by the Company, current and potential customers, and governmental authorities, which has impacted our ability to engage in sales and marketing efforts physically or perform in person demonstrations. We expect to continue to increase our marketing communications campaigns and put more “boots on the ground”, which we believe should increase grower demand, or pull-through, and develop new customers, as well as expand business with existing customers.

 

For the three and nine months ended September 30, 2020, in connection with the Company’s receipt of PPP funds, our selling, general and administrative expenses were reduced by none and $0.7 million, respectively.

 

Interest Expense

 

Interest expenses are primarily driven by outstanding debt financing arrangements however not all of our current debt instruments are currently generating interest expenses. See Note 6 and 10 to our condensed consolidated financial statements.

 

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Income Tax Provision

 

As of the three and nine months ended September 30, 2020 the Company recognized $0.04 million and $0.1 million, respectively in income tax provisions for foreign tax purposes and no amounts for the comparative three and nine month periods ended September 30, 2019. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income) for the nine months ended September 30, 2020 was (0.77%). The effective tax rate for the first three quarters of 2020 reflects additional foreign income tax required by the acquisition of Pro Farm. The Company does not recognize benefits from tax losses in the United States or for certain Pro Farm subsidiaries.

 

Results of Operations

 

The following table sets forth certain statements of operations data as a percentage of total revenues:

 

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

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
Revenues:                        
Product     99 %     98 %     99 %     99 %
License     1 %     2 %     1 %     1 %
Total revenues     100 %     100 %     100 %     100 %
Cost of product revenues     43 %     49 %     41 %     45 %
Gross profit     57 %     51 %     59 %     55 %
Operating Expenses:                                
Research, development and patent     35 %     54 %     28 %     46 %
Selling, general and administrative     83 %     138 %     73 %     96 %
Total operating expenses     118 %     192 %     101 %     142 %
Loss from operations     -61 %     -140 %     -43 %     -87 %
Other income (expense):                                
Interest expense     -5 %     -5 %     -4 %     -4 %
Loss on modification of warrants     0 %     -22 %     0 %     -7 %
Loss on issuance of new warrants     0 %     -68 %     -5 %     -21 %
Change in fair value of contingent consideration     -2 %     0 %     -2 %     0 %
Other income (expense), net     0 %     1 %     1 %     1 %
Total other expense, net     -7 %     -95 %     -9 %     -32 %
Loss before taxes     -68 %     -235 %     -52 %     -119 %
Income tax expense     0 %     0 %     0 %     0 %
Net Loss     -68 %     -235 %     -52 %     -119 %

 

Product Revenues

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
    (Dollars in thousands)  
Product revenues   $ 8,697     $ 6,859     $ 30,295     $ 22,342  
% of total revenues     99 %     98 %     99 %     99 %

 

Product revenues during the three and nine months ended September 30, 2020 and 2019 increased by approximately $1.8 million, or 26.8% and by approximately $8.0 million, or 35.6% to the comparative periods in 2019, as a result of higher demand for and sales of our legacy product families, Regalia, Venerate, and Grandevo and as a result of product sales of our Pro Farm subsidiary product LumiBio Kelta. During the three months ended September 30, 2020, the Company continued to see great diversity in sales of product offerings and we expect to continue to see diversity in our sales mix as we continue to invest in our sales and marketing efforts, including during periods impacted by COVID-19.

 

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License Revenues

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
    (Dollars in thousands)  
License revenues   $ 131     $ 107     $ 361     $ 337  
% of total revenues     1 %     2 %     1 %     1 %

 

License revenues increased consistent for each of the three and nine months ended September 30, 2020 and 2019, in line with our expectations. Future periods may be impacted positively upon us entering into new or amended collaborative agreements or by up to $0.8 million upon the completion of milestones from previous agreements.

 

Cost of Product Revenues and Gross Profit

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
    (Dollars in thousands)  
Cost of product revenues   $ 3,826     $ 3,381     $ 12,701     $ 10,298  
% of total revenues     43 %     49 %     41 %     45 %
Gross profit     5,002       3,585       17,955       12,381  
% of total revenues     56.7 %     51.5 %     58.6 %     54.6 %

 

For the three months ended September 30, 2020, cost of product revenues increased by approximately $0.4 million or 13.2% and gross profit increased to 56.7% from 51.5% from the prior comparative period. For the nine months ended September 30, 2020, cost of product revenues increased by $2.4 million or 23.3% and gross profit increased to 58.6% from 54.6% from the prior comparative period. Increases in gross profit for each period was driven by more favorable and more diverse sales mix.

 

Research, Development and Patent Expenses

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
    (Dollars in thousands)  
Research, development and patent   $ 3,112     $ 3,760     $ 8,658     $ 10,336  
% of total revenues     35 %     54 %     28 %     46 %

 

Research, development and patent expenses for the three months ended September 30, 2020 decreased by $0.6 million, or 17.2%, and for the nine months ended September 30, 2020 decreased by $1.7 million, or 16.2%. For the three months ended September 30, 2020, costs associated with toxicology, regulatory field trials and field testing in the aggregate decreased by $0.7 million. For the nine months ended September 30, 2020 costs associated with toxicology, regulatory field trials and field testing in the aggregate decreased by $0.9 million and depreciation expense of $0.3 million. The nine month decrease includes $0.7 million in PPP funds for payroll related expenses and is the result of cost management efforts which began at the tail end of the prior interim period in light of COVID-19 whereby resources are allocated to high priority projects and pipeline products.

 

Selling, General and Administrative Expenses

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
    (Dollars in thousands)  
Selling, general administrative expenses   $ 7,335     $ 9,598     $ 22,406     $ 21,876  
% of total revenues     83 %     138 %     73 %     96 %

 

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Selling, general and administrative expenses for the three months ended September 30, 2020 decreased by $2.3 million, or 23.6%. The decrease in the results for the three months ended September 30, 2020 was primarily due to operating expenses related our acquisition activities in the prior year and the settlement of litigation, including as reduction of $2.0 million in legal related expenses, as well as reductions of $0.7 million in consulting and outside services, $0.5 million in accounting and tax professional services and $0.3 million in travel related expenses in connection with travel restrictions put into place as a result of COVID-19. These decreases were offset by increases of $0.4 million related to amortization of the acquired intangibles assets and $0.2 million related to stock-based compensation.

 

Selling, general and administrative expenses for the nine months ended September 30, 2020 increased by $0.5 million, or 2.4%. The increase for the nine months ended September 30, 2020 compared to the first three quarters of 2019 was due primarily to increases in our expenses related to the acquired Pro Farm business, an increase of $1.6 million related to amortization of the acquired intangibles assets both of which were not included in the comparative prior period, an increase of $0.7 million in stock based compensation. These increases were offset by operating expenses related our acquisition activities in the prior year and the settlement of litigation, including a reduction of $2.6 million in legal related expenses, as well as reductions of $0.6 million in consulting and outside services, $0.3 million in accounting and tax professional services and $0.6 million in travel related expenses in connection with travel restrictions put into place as a result of COVID-19. Additionally during the nine months ended September 30, 2020, these expenses were also offset by $0.7 million in PPP funds used primarily for payroll related expenses.

 

Other Expense, Net

 

    THREE MONTHS ENDED SEPTEMBER 30,     NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019     2020     2019  
    (Dollars in thousands)  
Interest expense   $ (405 )   $ (355 )   $ (1,073 )   $ (1,014 )
Loss on modification of warrants     -       (1,564 )     -       (1,564 )
Loss on issuance of new warrants     -       (4,751 )     (1,391 )     (4,751 )
Change in fair value of contingent consideration     (200 )     -       (563 )     -  
Other (expense) income, net     24       77       296       126  
Total other income (expense), net   $ (581 )   $ (6,593 )   $ (2,731 )   $ (7,203 )
% of total revenues     -7 %     -95 %     -9 %     -32 %

 

For the three months ended September 30, 2020 and 2019, respectively, other expense, net, decreased by $6.0 million as compared to the same period in 2019, respectively, primarily due to the prior period’s losses incurred as a result of our modification and call of outstanding warrants offset by the current period change in the fair value of our contingent consideration obligations.

 

For the nine months ended September 30, 2020 and 2019, respectively, other expense, net, decreased by $4.5 million as compared to the same period in 2019, respectively, primarily due to $3.4 million in loss recognized for the for the issuance of August 2019 warrants in connection with the Company’s call option of outstanding warrants and $1.5 million related to the loss on modification of outstanding warrants, and due to the change in the fair value of our contingent consideration obligations offset by $0.2 million primarily due to foreign currency translation included in Other expense (income), net.

 

Seasonality and Quarterly Results

 

The second half of the year is typically a shoulder period in the agricultural industry, with the harvest of crops completing in certain areas and planting beginning in others. Accordingly, we have increasingly had higher sales during the first half of the year than the second half, and believe this trend will continue. However, the level of seasonality in our business may change due to a number of factors, such as our expansion into new geographical territories (including as the result of the acquisition of Pro Farm), the introduction of new products, the timing of introductions of new products, and the impact of weather and climate change. Further, we expect substantial fluctuation in sales year over year and quarter over quarter as a result of the number of variables on which sales of our products are dependent. Weather conditions, new trade tariffs, natural disasters, outbreaks of infectious diseases (including the current COVID-19 pandemic) and other factors affect planting and growing seasons and incidence of pests and plant disease, may, accordingly affect decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. In addition, disruptions that cause delays by growers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results. Customers also may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year, and low commodity prices may discourage growers from purchasing our products in an effort to reduce their costs and increase their margins for a growing season.

 

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Our expense levels are based in part on our expectations regarding future sales. As a result, any shortfall in sales relative to our expectations could cause significant fluctuations in our operating results from quarter to quarter, which could result in uncertainty surrounding our level of earnings and possibly a decrease in our stock price.

 

Liquidity and Capital Resources

 

Our historical operating results indicate substantial doubt exists related to our ability to continue as a going concern.

 

In April 2020, the Company entered into a Warrant Exchange Agreement (the “Warrant Exchange Agreement”) with certain of our historical investors.

 

Pursuant to the Warrant Exchange Agreement, the Investors have exchanged certain previously issued and outstanding warrants (the “Prior Warrants”) to purchase an aggregate of up to 45,977,809 shares of the Company’s common stock, for new warrants (the “New Warrants”) to purchase an aggregate of up to 29,881,855 shares of Common Stock (the “Warrant Shares”). All of the New Warrants were issued to the Investors upon execution of the Warrant Exchange Agreement.

 

The New Warrants all have an exercise price of $0.75 per share, and expire in five tranches, as follows: (i) May 1, 2020, with respect to 3,392,581 Warrant Shares, (ii) September 15, 2020, with respect to 2,714,065 Warrant Shares, (iii) December 15, 2020, with respect to 13,027,512 Warrant Shares, (iv) March 15, 2021, with respect to 5,862,380 Warrant Shares, and (v) and December 15, 2021 with respect to 4,885,317 Warrant Shares. Prior to the May 1, 2020 and September 15, 2020 expiration dates, the Investors exercised all the New Warrants subject to the first and second tranche, for an aggregate of approximately $4.6 million. (Refer to Note 7 of the condensed consolidated financial statements)

 

We believe that our existing cash and cash equivalents of $9.0 million at September 30, 2020, expected revenues and tightly managed operating costs, the exercise of a portion of outstanding warrants, including those which were issued in April 2020, will be sufficient to fund operations as currently planned through at least one year from the date of the issuance of these financial statements. We cannot predict, with certainty, the outcome of our actions to grow revenues or manage or reduce costs, or that our outstanding warrants will be exercised by the warrant holders. We have based this belief on assumptions and estimates that may prove to be wrong, and we could spend our available financial resources less or more rapidly than currently expected, including adverse impacts of the current COVID-19 pandemic on our operations. We may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote our commercially available products, advance product candidates, expand our international presence and commercialization, general capital expenditures and satisfaction of debt obligations. We may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or to discontinue the promotion of currently available products, scale back or discontinue the advancement of product candidates, reduce headcount, file for bankruptcy, reorganize, merge with another entity, or cease operations. We incorporated additional information regarding risks related to our capital and liquidity described in Part II— Item 1A— “Risk Factors.”

 

Since our inception, we have incurred significant net losses, and we expect to incur additional losses related to the continued development and expansion of our business. Our liquidity may be negatively impacted as a result of slower than expected adoption of our products.

 

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We had the following debt arrangements in place as of September 30, 2020 (dollars in thousands):

 

          PRINCIPAL      
        BALANCE      
DESCRIPTION   STATED ANNUAL
INTEREST RATE 		    (INCLUDING
ACCRUED INTEREST) 		    PAYMENT/MATURITY
Promissory Notes (1)(5)     8.00 %   $ 2,983     Due December 31, 2022
Promissory Note (2)     5.25 %   $ 8,378     Monthly/June 2036
Promissory Notes (3)(5)     8.00 %   $ 6,399     Due December 31, 2022
Secured Borrowing (4)(6)     12.78 %   $ 6,038     Varies/November 2020
Loan Facility(A)     1.00 %   $ 84     Proportionately each September 2022, 2023, 2024, 2025

 

See Note 6 of the condensed consolidated financial statements for each of the following debt arrangements:

 

(1) “—October 2012 and April 2013 Secured Promissory Notes.”

(2) “—June 2014 Secured Promissory Note.”

(3) “—August 2015 Senior Secured Promissory Notes.”

(4) “—LSQ Financing.”

(5) In February 2018, the maturity date and all interest payments were extended to December 2022

(6) Payable through the lender’s direct collection of certain accounts receivable through November 2020.

 

(A) See the description of the “September 2018 Bank Facility” in Note 9 of the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2019.

 

We may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations. We may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. If we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or to discontinue the promotion of currently available products, scale back or discontinue the advancement of product candidates, reduce headcount, file for bankruptcy, reorganize, merge with another entity, or cease operations.

 

The following table sets forth a summary of our cash flows for the periods indicated (in thousands):

 

    NINE MONTHS ENDED SEPTEMBER 30,  
    2020     2019  
    (in Thousands)  
Net cash used in operating activities   $ (8,600 )   $ (16,395 )
Net cash used in investing activities   $ (1,346 )   $ (6,611 )
Net cash provided in financing activities   $ 12,665     $ 12,684  
Net increase (decrease) in cash, cash equivalents, and restricted cash   $ 2,719     $ (10,322 )

 

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Cash Flows from Operating Activities

 

Net cash used in operating activities of $8.6 million during the nine months ended September 30, 2020 primarily resulted from our net loss of $16.0 million and cash used in operating assets and liabilities of $0.8 million. This use was partially offset by non-cash charges of $8.1 million consisting of $1.4 million related to loss on issuance of new warrant in connection with our call of the exercise of 6,000,000 shares under outstanding warrants, $2.7 million of depreciation and amortization, $2.8 million of share-based compensation expense, and $0.6 million of amortization of right-of-use assets, and $0.6 million in changes to the Company’s contingent consideration in connection with the Pro Farm Acquisition.

 

Net cash used in operating activities of $16.4 million during the nine months ended September 30, 2019 primarily resulted from our net loss of $27.0 million and the operating assets and liabilities from our acquisitions of Pro Farm and Jet-Ag and Jet-Oxide including cash and contingent consideration to be paid in the future. These uses were partially offset by non-cash charges of $10.5 million consisting of $1.6 million related to loss on modification of previously outstanding warrants, $4.8 million related to loss on issuance of new warrant in connection with our call of the exercise of 10,000,000 shares under outstanding warrants, $1.4 million of depreciation and amortization, $1.9 million of share-based compensation expense, $0.6 million of amortization of right-of-use assets and $0.2 million of non-cash interest expense.

 

Cash Flows from Investing Activities

 

Net cash used in investing activities were $1.3 million during the nine months ended September 30, 2020. Cash flow from investing included $0.9 million contingent payments in connection with the purchase of the Jet-Ag and Jet-Oxide product lines with the remainder a result of purchases of property, plant and equipment to support our operations.

 

Net cash used in investing activities were $6.6 million during the nine months ended September 30, 2019. Cash flow from investing activities included $5.8 million, net related to the acquisition of Pro Farm and $0.5 million related to the acquisition of product lines Jet-Ag and Jet-Oxide with the remainder a result from purchases of property, plant and equipment to support our operations.

 

Cash Flows from Financing Activities

 

Net cash provided in financing activities of $12.7 million during the nine months ended September 30, 2020 consisted primarily of $1.9 million in net reductions and repayment of debt, $10.5 million related to the exercise of warrants including approximately 6.1 million warrants which were issued in connection with the Company’s Warrant Exchange Agreement (See Note 7 of the condensed consolidated financial statements), net of registration costs and $0.2 million in proceeds from employee equity related instruments.

 

Net cash provided in financing activities of $12.7 million during the nine months ended September 30, 2019, consisted primarily of $2.5 million in net reductions and repayment of debt offset by $10.0 million related to the exercise of previously outstanding warrants.

 

Inflation

 

We believe that inflation has not had a material impact on our results of operations for the three and nine months ended September 30, 2020 and 2019.

 

Off-Balance Sheet Arrangements

 

We have not been involved in any material off-balance sheet arrangements.

 

Recently Issued Accounting Pronouncements

 

See Note 2 of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q in Part I—Item 1— “Financial Information.”

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We currently have minimal exposure to the effect of interest rate changes, foreign currency fluctuations and changes in commodity prices. We are exposed to changes in the general economic conditions in the countries where we conduct business, which currently is substantially all in the United States. Our current investment strategy is to invest in financial instruments that are highly liquid, readily convertible into cash and which mature within nine months from the date of purchase. To date, we have not used derivative financial instruments to manage any of our market risks or entered into transactions using derivative financial instruments for trading purposes.

 

We do not believe our cash equivalents have significant risk of default or illiquidity. While we believe our cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value.

 

Interest Rate Risk

 

We had cash and cash equivalents of $9.0 million as of September 30, 2020, which was held for working capital purposes. We do not enter into investments for trading or speculative purposes. We entered into a promissory note in June 2014, which bears interest at the prime rate plus 2%. A change in market interest rates of 1% would have an impact of approximately $0.1 million on our future annual interest expense. All of our other debt is at fixed interest rates and thus a change in market interest rates would not have an impact on interest expense.

 

Foreign Currency Risk

 

Revenue and expenses have been primarily denominated in U.S. dollars and foreign currency fluctuations have not had a significant impact on our historical results of operations. In addition, our strategic collaboration and distribution agreements for current products provide for payments in U.S. dollars. With the acquisition of Pro Farm and as we market new products internationally, our product revenues and expenses may be in currencies other than U.S. dollars, and accordingly, foreign currency fluctuations may have a greater impact on our financial position and operating results, including the impact of COVID-19 on currencies globally.

 

Commodity Risk

 

Our exposure to market risk for changes in commodity prices currently is minimal. As our commercial operations grow, our exposure will relate mostly to the demand side as our end users are exposed to fluctuations in prices of agricultural commodities. Recent tariffs have contributed to depressed prices of some commodities.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures in ensuring that material information required to be disclosed in our reports filed or submitted under the Exchange Act has been made known to them in a timely fashion. Based on this evaluation, our CEO and CFO each concluded that our disclosure controls and procedures were effective as of September 30, 2020.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. Our management assessed, with the oversight of the board of directors, the effectiveness of our internal control over financial reporting as of September 30, 2020. In making this assessment, management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of September 30, 2020.

 

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Changes in Internal Control

 

For the three months ended September 30, 2020, the Company has designed and implemented internal controls over its significant acquired Pro Farm subsidiary locations, otherwise there have been no changes to our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Because of the inherent limitations in internal control over financial reporting, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

Except as set forth below, we have not identified any material changes to the risk factors previously disclosed in Part I—Item 1A—“Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2019. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. You should carefully consider the risks and uncertainties described in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2019, together with all of the other information in this Quarterly Report on Form 10-Q, including in “Part I—Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes.

 

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Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness.

 

The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a “public health emergency of international concern,” has spread across the globe and is impacting worldwide economic activity. A public health epidemic, including COVID-19, poses the risk that we or our employees, suppliers, distributors and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that have been mandated by governmental authorities in California and Michigan where the Company’s headquarters and manufacturing facilities, respectively, are located that may extend beyond November 2020. Under the shutdown orders the Company scaled down certain aspects of our business and although generally many geographic locations have reopened with limitations, we cannot determine when our operations will revert to levels that are similar to those immediately prior to the shelter in place orders in early- and mid- March 2020. Additionally, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain for, the manufacture or shipment of, and the demand for our products and adversely impact our business, financial condition or results of operations. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions, which could have an adverse effect on our business and financial condition, including by limiting our ability to obtain financing or to rely on our existing financing facilities. Although we presently expect continued revenue growth in 2020 despite the impact of COVID-19, the extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.

 

We will require additional financing in the future to meet our business requirements and to service our debt. Such capital raising may be costly, difficult or not possible to obtain and, if obtained, could significantly dilute current stockholders’ equity interests, and we may be unable to repay our secured indebtedness.

 

We expect to continue to incur significant losses until we are able to significantly increase our revenue. Accordingly, we will need significant additional financing, whether from exercise of outstanding warrants or, potentially, from additional sources, to maintain and expand our business, including, for example, working capital associated with increased sales, costs associated with increased headcount, potential capital expenditures to grow capacity at our Bangor manufacturing facility and potential acquisitions of complementary technologies, as well as to meet the financial covenants of and pay the principal and interest under our debt agreements, under which approximately $23.8 million of principal and deferred interest payments remained outstanding as of November 6, 2020.

 

As of November 6, 2020, we have outstanding warrants with certain of our shareholders to purchase approximately 23.8 million shares of our common stock at $0.75 per share, 5.4 million shares of our common stock at $1.00 per share, and 1.1 million shares of our common stock at $1.25 per share, which, if all exercised in cash, would result in an aggregate of $26.6 million in proceeds to us and would significantly reduce our need for additional financing. However, there can be no assurances that any of these warrants will be exercised when we require funds or at all, particularly if our common stock trades at prices below the applicable exercise price. Further, certain warrant holders are eligible to exercise via cashless “net” exercise if we do not have an effective resale registration statements in place by March 31, 2021 or if our existing resale registration statement is no longer available. Any exercise of our outstanding warrants will dilute the ownership of our other stockholders.

 

We may also seek additional funds from public or private equity offerings, debt financings, and strategic collaborations involving up-front cash payments or other means. However, additional capital may not be available on terms acceptable to us, or at all. As a result of the late filing of our Quarterly Report on Form 10-Q for the period ended September 30, 2019, until one year after we became current in our filings, or December 2020 at the earliest, we are not eligible to sell securities using our registration statements on Form S-3, including any shelf registration statement, which will limit our ability to raise financing in capital markets transactions (including, for example, at-the-market offerings). Further, we believe recent uncertainty in the economy due to worldwide COVID-19 public health emergency has and may continue to depress our stock price and severely reduce market liquidity overall. Any additional equity financing we do raise be significantly dilutive to stockholders or, in some cases, require us to seek stockholder approval for the financing or result in antidilution adjustments to the prices of our outstanding warrants, reducing potential proceeds from their exercise. Any debt financing, if available, may include restrictive covenants and bear high rates of interest. In addition, our existing loan agreements contain certain restrictive covenants that either limit our ability to or require a mandatory prepayment if we incur additional indebtedness and liens and enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of our lenders or prepay the outstanding amounts under the debt agreements, which could require us to pay additional prepayment penalties. In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We also may be required to recognize non-cash expenses in connection with certain securities we issue, such as warrants, which may adversely impact our financial results.

 

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Certain of our debt agreements also contain financial covenants, including maintaining minimum current, debt-to-worth and loan-to-value ratios and provisions providing for an event of default if there is a material adverse change in our financial condition or if we are in default under certain of our other agreements. We are not in compliance with certain of these covenants and have received waivers from our lenders, none who have previously declared an event of default on our indebtedness. Breach of covenants included in our debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances. If we fail to pay any principal or interest under our indebtedness when due, or are otherwise in violation of certain covenants under our debt agreements, this may result in the acceleration of our indebtedness, which would have a material adverse effect upon our business and would likely require us to seek to renegotiate these debt arrangements with the lenders, as we may not have sufficient funds to repay that indebtedness.

 

If our outstanding warrants are not exercised in cash, if we cannot raise more money when needed, or if we are unable to use our future working capital, borrowings or equity financing to repay or refinance the amounts outstanding under our debt agreements or to renegotiate our debt arrangements with lenders, we may have to reduce our capital expenditures, scale-back our development of new products, reduce our workforce or license to others products that we otherwise would seek to commercialize ourselves. Any of these eventualities would likely have a material adverse impact on our value and the value of our equity.

 

ITEM 6. EXHIBITS

 

The following documents are filed, or furnished, as applicable, as part of this report on Form 10-Q:

 

INDEX TO EXHIBITS

 

EXHIBIT

NUMBER

  EXHIBIT DESCRIPTION
     
10.1(a)#*   Offer letter, dated July 3, 2020, by and between Marrone Bio Innovations, Inc. and Kevin Helash (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 6, 2020).
     
10.1(b)#   Change in Control Agreement, dated as of July 3, 2020, by and between Marrone Bio Innovations, Inc. and Kevin Helash (incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on July 6, 2020).
     
10.2(a)#   Employment Separation Agreement, dated September 21, 2020 between Marrone Bio Innovations, Inc. and James B. Boyd (incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on September 23, 2020).
     
10.2(b)#*   Consulting Agreement, dated September 21, 2020, between Marrone Bio Innovations, Inc. and James B. Boyd (incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on September 23, 2020).
     
31.1   Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
     
31.2   Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
     
32.1   Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350.
     
101   Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2020 and 2019, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months ended September 30, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2020 and 2019 and (v) Notes to Condensed Consolidated Financial Statements
     
104   XBRL for cover page of the Company’s Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set

 

# Indicates management compensatory agreement.

* Confidential portions of this exhibit have been omitted as permitted by applicable regulations.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Davis, State of California, on November 9, 2020.

 

  MARRONE BIO INNOVATIONS, INC.
   
  /s/Kevin Helash
  Kevin Helash
  Chief Executive Officer

 

  43  

 

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