NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Summary of Significant Accounting Policies
Amyris, Inc. (Amyris or the Company) is a leading synthetic biotechnology company in Clean Health and Beauty markets through its consumer brands, and is a supplier of sustainable and natural ingredients. Amyris applies its technology platform to engineer, manufacture and sell high performance, natural, sustainably sourced products into the Clean Health & Beauty, and Flavor & Fragrance markets. The Company's technology platform enables the Company to rapidly engineer microbes and use them as catalysts to metabolize renewable, plant-sourced sugars into large volume ingredients. This platform, combined with our proprietary fermentation process, replaces existing complex and oftentimes expensive manufacturing processes, resulting in our successful development and production of many distinct molecules at commercial volumes.
The accompanying unaudited condensed consolidated financial statements of Amyris, Inc. should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (the 2019 Form 10-K), from which the condensed consolidated balance sheet as of December 31, 2019 is derived. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the accompanying interim condensed consolidated financial statements do not include all the information and notes required by U.S. GAAP for complete financial statements. The accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
Raizen Joint Venture Agreement
On May 10, 2019, the Company and Raizen Energia S.A. (Raizen) entered into a joint venture agreement for the formation and operation of a joint venture relating to the production, sale and commercialization of alternative sweetener products. In connection with the formation of the joint venture, among other things, (i) the joint venture will construct a manufacturing facility on land owned by Raizen and leased to the joint venture (the Sweetener Plant), (ii) the Company will grant to the joint venture an exclusive, royalty-free, worldwide license to certain technology owned by the Company relevant to the joint venture’s business, and (iii) the Company and Raizen will enter into a shareholders agreement setting forth the rights and obligations of the parties with respect to, and for the management of, the joint venture. The formation of the joint venture is subject to certain conditions, including certain regulatory approvals, and the achievement of certain technological and economic milestones relating to the Company’s existing production of its alternative sweetener product. Due to the COVID-19 pandemic, the parties have agreed to extend the previous July 2020 deadline to conduct the relevant analysis of the sweetener production data in order to determine potential next steps for the joint venture. In addition, notwithstanding the satisfaction of closing conditions, Raizen may elect not to consummate the formation and operation of the joint venture, in which event, the Company will retain the right to construct and operate the Sweetener Plant. The Company will conclude its evaluation of the accounting treatment for its future interest in the joint venture under ASC 810, Consolidations and ASC 323, Equity Method and Joint Ventures when the economic participation structure and related corporate governance is finalized and the formation of the joint venture is consummated.
Potential Impact of COVID-19 on the Company's Business
With the global spread of the COVID-19 pandemic beginning in the first quarter of 2020 and anticipated continuation throughout 2020, and the resulting shelter-in-place orders covering the Company’s corporate headquarters, primary research and development laboratories, and employees, the Company has implemented policies and procedures to conduct its operations in compliance with local county guidelines. The extent to which the COVID-19 pandemic impacts the Company’s business, financial condition or results of operations will depend on future developments, which are highly uncertain and cannot be accurately predicted. New information may emerge concerning the severity of the COVID-19 pandemic and the actions to contain the pandemic or treat COVID-19, such as the ultimate geographic spread of the disease, the duration of the pandemic, continued travel restrictions, social distancing, business closures or disruptions, and the effectiveness of actions taken to contain or treat COVID-19 in the United States and in other countries. As the COVID-19 pandemic continues to evolve, to the extent it adversely affects our business and financial results, it may also impact other risks to which the Company is subject as set forth in the “Risk Factors” section (Part I, Item 1A) of the 2019 Form 10-K.
Going Concern
The Company has incurred significant operating losses since its inception and expects to continue to incur losses and negative cash flows from operations over the course of at least the next 12 months following the issuance of these condensed consolidated financial statements. As of September 30, 2020, the Company had working capital of $27.7 million (compared to negative working capital of $87.5 million as of December 31, 2019), and an accumulated deficit of $2.0 billion.
As of September 30, 2020, the Company's outstanding debt principal (including related party debt) totaled $175.3 million, of which $36.2 million is classified as current. The Company's debt agreements contain various covenants, including certain restrictions on the Company's business that could cause the Company to be at risk of defaults, such as restrictions on additional indebtedness, material adverse effect and cross default provisions. A failure to comply with the covenants and other provisions of the Company’s debt instruments, including any failure to make a payment when required, would generally result in events of default under such instruments, which could permit acceleration of a substantial portion of such indebtedness. If such indebtedness is accelerated, it would generally also constitute an event of default under the Company’s other outstanding indebtedness, permitting acceleration of a substantial portion of such other outstanding indebtedness. At December 31, 2019, the Company failed to meet certain covenants under several credit arrangements, including those associated with cross-default provisions, minimum liquidity and minimum asset coverage requirements. Further, at March 31, 2020, the Company failed to meet certain covenants and provisions under several credit arrangements, including those associated with cross-default provisions. In March 2020 and again in May 2020, most of these lenders provided waivers to the Company for breaches of all past covenant violations and cross-default payment failures, under the respective credit agreements through the earlier of the closing of a significant equity offering or May 31, 2020. The Company cured these defaults with the closing of the $200 million equity offering described below and the repayment of these past due amounts. As of September 30, 2020, the Company failed to achieve the minimum revenue thresholds under the Foris LSA, Naxyris LSA and Senior Convertible Notes Due 2022, which are described in more detail in Note 4, “Debt”, and obtained a waiver from each of these lenders to cure the September 30, 2020 minimum revenue covenant violations. The minimum revenue threshold test is based on 4-quarters trailing revenue and has been significantly impacted by the elimination of a $37.5 million royalty from the measurement period that was recorded in April 2020 related to the DSM Value Sharing Agreement. See Note 9, “Revenue” for more information.
Beginning in May 2020 and continuing through June 2020, the Company executed a series of financial transactions to minimize cash outflows related to debt service payments and to increase operating cash. On May 1, 2020, the Company amended the Senior Convertible Notes Due 2022 to eliminate the monthly amortization payments and change the interest payment frequency from monthly to quarterly. On May 7, 2020, the Company received a $10 million Paycheck Protection Plan loan (PPP Loan). On June 1, 2020, the Company amended the Foris LSA to eliminate the quarterly principal payments and defer all interest payments until maturity on July 1, 2022, and to provide for the conversion of all outstanding indebtedness under the LSA at a $3.00 per share conversion price, which conversion was approved by the Company’s stockholders on August 14, 2020. Further, on June 1, 2020 and June 4, 2020, the Company entered into securities purchase agreements with investors for the private placement of an aggregate of $200 million of common and preferred stock, resulting in the Company receiving approximately $190 million of net proceeds. A portion of the proceeds from the offering was used to pay down approximately $37.1 million of debt principal (which included $10 million to repay the PPP Loan) and $6.1 million of accrued interest. Also, on June 2, 2020, Total Raffinage Chimie (Total) converted approximately $9.3 million of debt principal and accrued interest into common stock under the terms of the 2014 Rule 144A Convertible Note, further reducing the Company’s outstanding indebtedness. On August 10, 2020, the Company and Ginkgo Bioworks, Inc. (Ginkgo) entered into a Second Amendment to Promissory Note and Partnership Agreement to reduce the frequency of partnership payments from monthly to quarterly, in an aggregate amount of $2.1 million, and to defer an aggregate of $9.8 million in partnership payments to the end of the agreement in October 2022. See Note 4, “Debt.” for more information. As a result of closing the equity offering, making past due payments, converting the $9.1 million 2014 Rule 144A Convertible Note principal into equity, and executing amendments to the Foris LSA, the Senior Convertible Notes Due 2022, and the Ginkgo Note, the Company cured all payment defaults and other events of default, including cross-defaults under the Company’s various debt instruments as of June 30, 2020. Although the Company has been able to obtain waivers in the past for substantially all its prior defaults to date and was able to cure the existing minimum revenue covenant default, it may not be able to cure or obtain a waiver for any defaults in the future.
Further, the Company's cash and cash equivalents of $38.3 million as of September 30, 2020 will not be sufficient to fund expected cash flows requirements from operations and cash debt service obligations through November 2021. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date these condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's ability to continue as a going concern will depend, in large part, on its ability to eliminate or minimize the anticipated negative cash flows from operations during the 12 months from the date of this filing and to either raise additional cash proceeds through financings or refinance the debt maturities occurring in December 2020 and June 2021, all of which are uncertain and outside the control of the Company. Further, the Company's operating plan for the remainder of 2020 contemplates (i) revenue growth from sales of existing and
new products with positive gross margins, (ii) reduced production costs as a result of manufacturing and technical developments, (iii) reduced spending in general and administrative areas, (iv) continued cash inflows from collaborations and grants, and (v) the monetization of certain contractual assets. If the Company is unable to complete these actions, it may be unable to meet its operating cash flow needs and its obligations under its existing debt facilities over the next 12 months. This could result in an acceleration of its obligation to repay all amounts outstanding under those facilities, and the Company may be forced to obtain additional equity or debt financing, which may not occur timely or on reasonable terms, if at all, and/or liquidate its assets. In such a scenario, the value received for assets in liquidation or dissolution could be significantly lower than the value reflected in these condensed consolidated financial statements.
Significant Accounting Policies
Note 1, "Basis of Presentation and Summary of Significant Accounting Policies", to the audited consolidated financial statements in the 2019 Form 10-K includes a discussion of the significant accounting policies and estimates used in the preparation of the Company’s consolidated financial statements. There have been no material changes to the Company's significant accounting policies and estimates during the nine months ended September 30, 2020.
Accounting Standards or Updates Recently Adopted
In the nine months ended September 30, 2020, the Company adopted these accounting standards or updates:
Fair Value Measurement In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. ASU 2018-13 became effective in the first quarter of fiscal 2020, with removed and modified disclosures to be adopted on a retrospective basis, and new disclosures to be adopted on a prospective basis. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
Collaborative Revenue Arrangements In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606, that clarifies the interaction between the guidance for certain collaborative arrangements and Topic 606, the new revenue recognition standard. A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. ASU 2018-18 became effective in the first quarter of fiscal year 2020 retrospectively. The adoption of this standard did not have any impact on the Company’s condensed consolidated financial statements.
Accounting Standards or Updates Not Yet Adopted
Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. ASU 2016-13 is effective for the Company in the first quarter of 2023. The Company is currently evaluating the impact this standard will have on its condensed consolidated financial statements.
Accounting for Income Taxes In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The amendments in ASU 2019-12 simplify the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740, Income Taxes. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. ASU 2019-12 will be effective for the Company commencing in the first quarter of fiscal year 2021. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company is currently evaluating the amended guidance and the impact on its condensed consolidated financial statements and related disclosures.
Convertible Debt, and Derivatives and Hedging On August 5, 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. ASU 2020-06 is effective for the
Company in the first quarter of 2022. The Company is currently evaluating the amended guidance and the impact on its condensed consolidated financial statements and related disclosures.
Use of Estimates and Judgements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the condensed consolidated financial statements.
2. Balance Sheet Details
Allowance for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Balance at Beginning of Year
|
Provisions
|
Write-offs, Net
|
Balance at End of Period
|
|
Nine months ended September 30, 2020
|
$
|
45
|
|
$
|
57
|
|
$
|
—
|
|
$
|
102
|
|
|
Year ended December 31, 2019
|
$
|
642
|
|
$
|
110
|
|
$
|
(707)
|
|
$
|
45
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Raw materials
|
$
|
7,136
|
|
$
|
3,255
|
|
|
Work-in-process
|
12,083
|
|
7,204
|
|
|
Finished goods
|
17,993
|
|
17,311
|
|
|
Inventories
|
$
|
37,212
|
|
$
|
27,770
|
|
Deferred cost of products sold - related party
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Deferred cost of products sold - related party
|
$
|
9,454
|
|
$
|
3,677
|
|
|
Deferred cost of products sold, noncurrent - related party
|
11,858
|
|
12,815
|
|
|
Total
|
$
|
21,312
|
|
$
|
16,492
|
|
In November 2018, the Company amended the supply agreement with DSM to secure capacity at the Brotas 1 facility for sweetener production through December 2022. See Note 9, “Revenue Recognition” in Part II, Item 8 of the 2019 Form 10-K for information regarding the November 2018 Supply Agreement Amendment. As part of the amendment, the Company made a series of manufacturing capacity fee payments from November 2018 to March 31, 2020. Of these payments $17.4 million was recorded as deferred cost of products sold. In June 2020, the Company paid an additional $6.9 million manufacturing capacity fee, which represents the final payment under the amendment. The capitalized deferred cost of products sold asset is expensed to cost of products sold on a units of production basis as the Company's sweetener product is produced and sold over the five-year term of the supply agreement. Each quarter, the Company evaluates its estimated future production volumes through the end of the agreement and adjusts the unit cost to be expensed over the remaining estimated production volume. During the three and nine months ended September 30, 2020, the Company expensed $0.7 million and $2.0 million, respectively, of the deferred cost of products sold asset to cost of products sold. Inception-to-date amortization through September 30, 2020 totaled $3.0 million.
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Prepayments, advances and deposits
|
$
|
6,117
|
|
$
|
4,726
|
|
|
Non-inventory production supplies
|
3,746
|
|
5,376
|
|
|
Recoverable taxes from Brazilian government entities
|
1,978
|
|
—
|
|
|
Other
|
3,053
|
|
2,648
|
|
|
Total prepaid expenses and other current assets
|
$
|
14,894
|
|
$
|
12,750
|
|
Property, Plant and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Machinery and equipment
|
$
|
48,893
|
|
$
|
48,041
|
|
|
Leasehold improvements
|
43,198
|
|
41,478
|
|
|
Computers and software
|
10,589
|
|
9,822
|
|
|
Furniture and office equipment, vehicles and land
|
3,485
|
|
3,510
|
|
|
Construction in progress
|
7,369
|
|
9,752
|
|
|
|
113,534
|
|
112,603
|
|
|
Less: accumulated depreciation and amortization
|
(83,743)
|
|
(83,673)
|
|
|
Property, plant and equipment, net
|
$
|
29,791
|
|
$
|
28,930
|
|
During the three and nine months ended September 30, 2020 and 2019, depreciation and amortization expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
2020
|
2019
|
|
2020
|
2019
|
|
Depreciation and amortization expense
|
$
|
1,905
|
|
$
|
969
|
|
|
$
|
5,300
|
|
$
|
2,691
|
|
Leases
Operating Leases
The Company has operating leases primarily for administrative offices, laboratory equipment and other facilities. The operating leases have remaining terms that range from 1 to 5 years, and often include one or more options to renew. These renewal terms can extend the lease term from 1 to 5 years and are included in the lease term when it is reasonably certain that the Company will exercise the option. The operating leases are classified as ROU assets under operating leases on the Company's condensed consolidated balance sheets and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make operating lease payments is included in "Lease liabilities" and "Lease liabilities, net of current portion" on the Company's condensed consolidated balance sheets. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company had $10.9 million and $13.2 million of right-of-use assets as of September 30, 2020 and December 31, 2019, respectively. Operating lease liabilities were $16.2 million and $19.7 million as of September 30, 2020 and December 31, 2019, respectively. During the three and nine months ended September 30, 2020 and 2019, respectively, the Company recorded $1.5 million, $4.6 million, $5.9 million and $14.1 million of operating lease amortization that was charged to expense, of which $0, $0, $0.9 million and $5.2 million was recorded to cost of products sold.
Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate and marketing which may contain lease and non-lease components which it has elected to treat as a single lease component.
Information related to the Company's right-of-use assets and related lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2020
|
2019
|
|
Cash paid for operating lease liabilities, in thousands
|
$5,759
|
$15,908
|
|
Right-of-use assets obtained in exchange for new operating lease obligations(1)
|
$—
|
$32,074
|
|
Weighted-average remaining lease term
|
2.7
|
2.6
|
|
Weighted-average discount rate
|
18.0%
|
17.5%
|
(1) 2019 amount includes $29.7 million for operating leases existing on January 1, 2019 and $2.4 million for operating leases that commenced during the nine months ended September 30, 2019.
Financing Leases
The Company has financing leases primarily for laboratory and computer equipment. Assets purchased under financing leases are included in "Right-of-use assets under financing leases, net" on the condensed consolidated balance sheets. For financing leases, the associated assets are depreciated or amortized over the shorter of the relevant useful life of each asset or the lease term. Accumulated amortization of assets under financing leases totaled $3.9 million and $1.7 million as of September 30, 2020 and December 31, 2019, respectively.
Maturities of Financing and Operating Leases
Maturities of lease liabilities as of September 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ending December 31:
(In thousands)
|
Financing
Leases
|
Operating
Leases
|
Total Leases
|
|
2020 (remaining three months)
|
$
|
1,086
|
|
$
|
1,960
|
|
$
|
3,046
|
|
|
2021
|
4,568
|
|
7,480
|
|
12,048
|
|
|
2022
|
—
|
|
7,657
|
|
7,657
|
|
|
2023
|
—
|
|
3,322
|
|
3,322
|
|
|
2024
|
—
|
|
151
|
|
151
|
|
|
Total lease payments
|
5,654
|
|
20,570
|
|
26,224
|
|
|
Less: amount representing interest
|
(601)
|
|
(4,410)
|
|
(5,011)
|
|
|
Total lease liability
|
$
|
5,053
|
|
$
|
16,160
|
|
$
|
21,213
|
|
|
|
|
|
|
|
Current lease liability
|
$
|
3,882
|
|
$
|
5,051
|
|
$
|
8,933
|
|
|
Noncurrent lease liability
|
1,171
|
|
11,109
|
|
12,280
|
|
|
Total lease liability
|
$
|
5,053
|
|
$
|
16,160
|
|
$
|
21,213
|
|
Other Assets
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Equity-method investment
|
$
|
4,054
|
|
$
|
4,734
|
|
|
Deposits
|
126
|
|
295
|
|
|
Contingent consideration
|
—
|
|
3,303
|
|
|
Other
|
1,179
|
|
1,373
|
|
|
Total other assets
|
$
|
5,359
|
|
$
|
9,705
|
|
In connection with the December 2017 sale of its subsidiary Amyris Brasil Ltda. (Amyris Brasil), the Company recorded a long-term receivable related to certain contingent consideration to be received from DSM upon DSM’s realization of certain Brazilian value-added tax benefits it acquired with its purchase of Amyris Brasil. In the three months ended June 30, 2020, the Company received the $3.3 million remaining balance of contingent consideration due to the Company under the 2017 asset purchase agreement.
Accrued and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Accrued interest
|
$
|
8,116
|
|
$
|
8,209
|
|
|
Payroll and related expenses
|
7,063
|
|
7,296
|
|
|
Contract termination fees
|
4,315
|
|
5,347
|
|
|
Asset retirement obligation
|
2,603
|
|
3,184
|
|
|
Professional services
|
1,804
|
|
2,968
|
|
|
Ginkgo partnership payments
|
951
|
|
4,319
|
|
|
Tax-related liabilities
|
550
|
|
1,685
|
|
|
Other
|
3,028
|
|
3,647
|
|
|
Total accrued and other current liabilities
|
$
|
28,430
|
|
$
|
36,655
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Liability for unrecognized tax benefit
|
$
|
7,440
|
|
$
|
7,204
|
|
|
Liability in connection with acquisition of equity-method investment
|
6,354
|
|
5,249
|
|
|
Ginkgo partnership payments, net of current portion
|
7,098
|
|
4,492
|
|
|
Contract liabilities, net of current portion
|
111
|
|
1,449
|
|
|
Refund liability(1)
|
—
|
|
3,750
|
|
|
Other
|
993
|
|
880
|
|
|
Total other noncurrent liabilities
|
$
|
21,996
|
|
$
|
23,024
|
|
(1) In April 2019, the Company assigned the Value Sharing Agreement to DSM. See Note 9, "Revenue Recognition and Contract Assets and Liabilities" in Part II, Item 8 of the 2019 Form 10-K for further information. The assignment was accounted for as a contract modification under ASC 606 that resulted in $12.5 million of prepaid variable consideration to the Company. The $12.5 million was recorded as a refund liability. During the three months ended March 31, 2020, the Company concluded that it would not be required to return any portion of the remaining refund liability to DSM, and recorded $3.8 million of royalty revenue related to this change in estimate and reduction of the refund liability.
Ginkgo Partnership Payments Modification
On August 10, 2020, the Company and Ginkgo entered into a Second Amendment to Promissory Note and Partnership Agreement (Second Amendment) to reduce the partnership payments frequency from monthly to quarterly, in an aggregate amount of $2.1 million, and to defer an aggregate of $9.8 million in partnership payments to the end of the agreement in October 2022 (the “End of Term Payment”), provided that, if the Ginkgo Promissory Note is not fully repaid by April 19, 2022, the End of Term Payment shall be of $10.4 million. See Note 4, “Debt.” for more information.
As a result of changes to key provisions in the partnership payments, the Company analyzed the combined before and after cash flows under the Promissory Note and Partnership Agreement that resulted from (i) the reduced interest rate on the Promissory Note, (ii) reduced payment frequency under the Promissory Note and Partnership Agreement, and (iii) changes in the periodic and total payment amounts under the Partnership Agreement, to determine whether these changes resulted in a modification or extinguishment of the obligations under the Second Amendment. Based on the combined before and after cash flows of the Promissory Note and Partnership Agreement, the change was significantly different. Consequently, the modifications resulting from the Second Amendment were accounted for as a debt extinguishment and a new debt issuance. The Company recorded a $0.1 million loss upon extinguishment of the partnership payment obligation, related to the write-off of the unamortized debt discount. Further, since the partnership payment obligation does not contain an explicit interest rate, the Company recorded the $11.9 million of total payments at its net present value of $8.1 million in other liabilities, with the $3.8 million difference recorded as a discount that is accreted to interest expense over the repayment term using the effective interest method.
3. Fair Value Measurement
Liabilities Measured and Recorded at Fair Value on a Recurring Basis
The following tables summarize liabilities measured at fair value, and the respective fair value by input classification level within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
|
December 31, 2019
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Foris Convertible Note (LSA Amendment)
|
$
|
—
|
|
$
|
—
|
|
$
|
58,467
|
|
$
|
58,467
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Senior Convertible Notes
|
—
|
|
—
|
|
25,349
|
|
25,349
|
|
|
—
|
|
—
|
|
50,624
|
|
50,624
|
|
|
Embedded derivatives bifurcated from debt instruments
|
—
|
|
—
|
|
597
|
|
597
|
|
|
—
|
|
—
|
|
2,832
|
|
2,832
|
|
|
Freestanding derivative instruments issued in connection with other debt and equity instruments
|
—
|
|
—
|
|
3,237
|
|
3,237
|
|
|
—
|
|
—
|
|
6,971
|
|
6,971
|
|
|
Total liabilities measured and recorded at fair value
|
$
|
—
|
|
$
|
—
|
|
$
|
87,650
|
|
$
|
87,650
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
60,427
|
|
$
|
60,427
|
|
The Company did not hold any financial assets to be measured and recorded at fair value on a recurring basis as of September 30, 2020 and December 31, 2019. Also, there were no transfers between the levels during the three months ended September 30, 2020 or the year ended December 31, 2019.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgements and consider factors specific to the asset or liability. The method of determining the fair value of embedded derivative liabilities is described subsequently in this note. Market risk associated with embedded derivative liabilities relates to the potential reduction in fair value and negative impact to future earnings from a decrease in interest rates.
Changes in fair value of derivative liabilities are presented as gains or losses in the consolidated statements of operations in the line captioned "Gain (loss) from change in fair value of derivative instruments".
Changes in the fair value of debt that is accounted for at fair value are presented as gains or losses in the consolidated statements of operations in the line captioned "Gain (loss) from change in fair value of debt".
Fair Value of Debt — Foris Convertible Note (LSA Amendment)
On June 1, 2020, the Company and Foris Ventures, LLC (Foris), an entity affiliated with director John Doerr and which beneficially owns greater than 5% of the Company’s outstanding common stock, entered into an Amendment No. 1 to the Amended and Restated Foris LSA (LSA Amendment), pursuant to which, among other provisions, Foris has the option, in its sole discretion, to convert all or a portion of the secured indebtedness under the LSA Amendment, including accrued interest, into shares of Common Stock at a $3.00 conversion price (Conversion Option), which Conversion Option was approved by the Company’s stockholders on August, 14, 2020. See Note 4, “Debt” for further information regarding the LSA Amendment and related extinguishment accounting treatment. The Company elected to account for the new debt issuance under the fair value option and recorded a $22.0 million loss upon extinguishment of the Foris LSA, representing the difference between the carrying value of the Foris LSA prior to the modification and the $72.1 million reacquisition price of the Foris LSA (which is the fair value of the LSA Amendment with the conversion option). The LSA Amendment also contains certain change in control embedded derivatives and a contingent beneficial conversion feature and management believes the fair value option best reflects the underlying economics of new convertible note. Under the fair value election, changes in fair value will be reported in the consolidated statements of operations as "Gain (loss) from change in fair value of debt" in each reporting period subsequent to the issuance of the LSA Amendment.
At June 30, 2020, the contractual outstanding principal of the LSA Amendment was $50.0 million and the fair value was $81.6 million. The Company measured the initial fair value of the LSA Amendment using a binomial lattice model (which is discussed in further detail below) using the following inputs: (i) $4.27 stock price, (ii) 25% discount yield, (iii) 0.16% risk free interest rate (iv) 45% equity volatility and (v) 5% probability of change in control. At September 30, 2020, the contractual outstanding principal of the LSA Amendment was $50.0 million and the fair value was $58.5 million. The Company remeasured the fair value of the LSA Amendment using the following inputs: (i) $2.92 stock price, (ii) 21% discount yield, (iii) 0.13% risk free interest rate (iv) 45% equity volatility and (v) 5% probability of change in control. At both dates, the Company assumed that if a change of control event were to occur, it would occur at the end of the calendar year. The Company recorded
gains of $23.1 million and $13.6 million related to change in fair value of the LSA Amendment for the three and nine months ended September 30, 2020, respectively.
Fair Value of Debt — Senior Convertible Notes
On January 14, 2020, the Company exchanged the $66 million Senior Convertible Notes (or the Prior Notes) for (i) new senior convertible notes in an aggregate principal amount of $51 million (the New Notes or New Senior Convertible Notes), (ii) an aggregate of 2,742,160 shares of common stock (the Exchange Shares), (iii) rights (the Rights) to acquire up to an aggregate of 2,484,321 shares of common stock, (iv) warrants (the Warrants) to purchase up to an aggregate of 3,000,000 shares of common stock (the Warrant Shares) at an exercise price of $3.25 per share, with an exercise term of two years from issuance, (v) accrued and unpaid interest on the Senior Convertible Notes (payable on or prior to January 31, 2020) and (vi) cash fees in an aggregate amount of $1.0 million (payable on or prior to January 31, 2020). Due to the legal extinguishment and exchange of the Prior Notes and significantly different cash flows contained in the New Notes, the Company accounted for the exchange as a debt extinguishment of the Prior Notes and a new debt issuance of the New Notes. The Company recorded a $5.3 million loss upon extinguishment of debt, which was comprised of the $4.1 million fair value of the Warrants, the $1.0 million cash fee and $0.2 million excess fair value of the Exchange Shares and Rights over the $2.87 per share contractual value. See Note 4, "Debt” for further information regarding the transaction.
The Company elected to account for the New Notes at fair value, as of the January 14, 2020 issuance date. Management believes that the fair value option better reflects the underlying economics of the New Senior Convertible Notes, which contain multiple embedded derivatives. Under the fair value election, changes in fair value will be reported as "Gain (loss) from change in fair value of debt" in the consolidated statements of operations in each reporting period subsequent to the issuance of the New Notes. At January 14, 2020, the contractual outstanding principal of the New Senior Convertible Notes was $51.0 million and the fair value was $35.8 million. The Company measured the fair value at January 14, 2020 using a binomial lattice model (which is discussed in further detail below) using the following inputs: (i) $2.90 stock price, (ii) 226% discount yield, (iii) 1.59% risk free interest rate (iv) 45% equity volatility, (v) 25% / 75% probability of principal repayment in cash or stock, respectively and (vi) 5% probability of change in control. The Company assumed that if a change of control event were to occur, it would occur at the end of the calendar year.
At September 30, 2020, the contractual outstanding principal of the New Senior Convertible Notes was $30.0 million and the fair value was $25.3 million. The Company measured the fair value at September 30, 2020 using a binomial lattice model (which is discussed in further detail below) using the following inputs: (i) $2.92 stock price, (ii) 233% discount yield, (iii) 0.11% risk free interest rate (iv) 45% equity volatility, and (v) 5% probability of change in control. The Company assumed that if a change of control event were to occur, it would occur at the end of the calendar year.
For the three and nine months ended September 30, 2020, the Company recorded an $11.3 million gain and a $10.7 million loss from change in fair value of debt, respectively, in connection with the fair value remeasurement of the Prior Notes and the New Senior Convertible Notes, as follows:
|
|
|
|
|
|
|
|
In thousands
|
|
|
Fair value at December 31, 2019
|
$
|
50,624
|
|
|
Less: principal paid
|
(35,980)
|
|
|
Loss from change in fair value
|
10,705
|
|
|
Fair value at September 30, 2020
|
$
|
25,349
|
|
A binomial lattice model was used to determine whether the LSA Amendment and the Senior Convertible Notes (Debt Instruments) would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the convertible note will be converted early if the conversion value is greater than the holding value and (ii) the convertible note will be called if the holding value is greater than both (a) redemption price and (b) the conversion value at the time. If the convertible note is called, the holder will maximize their value by finding the optimal decision between (1) redeeming at the redemption price and (2) converting the convertible note. Using this lattice method, the Company valued the Debt Instruments using the "with-and-without method", where the fair value of the Debt Instruments including the embedded and freestanding features is defined as the "with," and the fair value of the Debt Instruments excluding the embedded and freestanding features is defined as the "without." This method estimates the fair value of the Debt Instruments by looking at the difference in the values of the Debt Instruments with the embedded and freestanding derivatives and the fair value of the Debt Instruments without the embedded and freestanding features. The lattice model uses the stock price, conversion price, maturity date, risk-free interest rate, estimated stock volatility, estimated credit spread and other instrument-specific assumptions. The
Company remeasures the fair value of the Debt Instruments and records the change as a gain or loss from change in fair value of debt in the statement of operations for each reporting period.
Derivative Liabilities Recognized in Connection with the Issuance of Debt Instruments
The following table provides a reconciliation of the beginning and ending balances for the Company's derivative liabilities recognized in connection with the issuance of debt instruments, either freestanding or embedded, measured at fair value using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
(In thousands)
|
Derivative Liability
|
|
Balance at December 31, 2019
|
$
|
9,803
|
|
|
Fair value of derivative liabilities issued during the period
|
8,751
|
|
|
Change in fair value of derivative instruments
|
6,498
|
|
|
Derecognition on settlement or extinguishment
|
(21,218)
|
|
|
Balance at September 30, 2020
|
$
|
3,834
|
|
Freestanding Derivative Instruments
In connection with the January 14, 2020 issuance of the New Senior Convertible Notes as discussed above and in Note 4, “Debt” (which was accounted for as an extinguishment of the original $66 million Senior Convertible Notes), the Company issued warrants (the Warrants) to purchase up to an aggregate of 3.0 million shares of common stock (the Warrant Shares). Due to stock exchange ownership limitations, which if exceeded would require stockholder approval and possibly require cash settlement for failure to deliver shares upon exercise, the Company concluded that a portion of the Warrant Shares met the derivative scope exception and equity classification criteria and were accounted for as additional paid in capital, and a portion of the Warrant Shares did not meet the derivative scope exception or equity classification criteria and were accounted for as a derivative liability. The Warrants had an initial fair value of $4.1 million, which was recorded as: (i) $4.1 million loss upon extinguishment of debt, (ii) $2.4 million additional paid in capital and (iii) $1.7 million derivative liability. The Warrant Shares derivative liability portion will be remeasured each reporting period until settled or extinguished with subsequent changes in fair value recorded through the statement of operations. The fair value of the Warrants was determined using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below. At March 31, 2020, the fair value of the Warrant Shares derivative liability portion was $1.5 million, and the Company recorded a $0.2 million gain on change in fair value of derivative instruments during the three months ended March 31, 2020. On May 29, 2020, the Company obtained stockholder approval to remove the stock ownership limitations. As a result, the Company is able to physically deliver shares under the Warrants without the potential for cash settlement. In the three months ended June 30, 2020, the Company recorded a $1.3 million final mark-to-market loss on change in derivative liability, using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below, and derecognized the $2.8 million derivative liability balance relate to this portion of the Warrant Shares into additional paid in capital.
In connection with the January 31, 2020 private placement transaction with Foris (an entity affiliated with director John Doerr and which beneficially owns greater than 5% of the Company’s outstanding common stock discussed in Note 6, “Stockholders’ Deficit”), the Company issued a right (the Right) to purchase up to an aggregate of 5.2 million shares of common stock (the Right Shares). Due to certain contractual provisions in the Right, the Company concluded that a portion of the Right Shares met the derivative scope exception and equity classification criteria and were accounted for as additional paid in capital, and a portion of the Right Shares did not meet the derivative scope exception or equity classification criteria and were accounted for as a derivative liability. The Right had an initial fair value of $5.3 million, of which $2.3 million was recorded as additional paid in capital and $3.0 million was recorded as a derivative liability. The Right Shares derivative liability portion will be remeasured each reporting period until settled or extinguished with subsequent changes in fair value recorded through the statement of operations. The fair value of the Right was determined using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below. At March 31, 2020, the fair value of the Right Shares derivative liability portion was $2.0 million, and the Company recorded a $1.0 million gain on change in fair value of derivative instruments during the three months ended March 31, 2020. On May 29, 2020, the Company obtained stockholder approval to increase its authorized common share count from 250 million to 350 million. As a result, the portion of the Right Shares initially accounting for as a derivative liability was no longer precluded from the derivative scope exception and met the criteria for equity classification. In the three months ended June 30, 2020, the Company recorded a $1.8 million final mark-to-market loss on change in fair value of derivative instruments using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below, and derecognized the $3.7 million derivative liability balance into additional paid in capital.
In connection with the January 31, 2020 Debt Equitization transaction with Foris, which was accounted for as a debt extinguishment as discussed in Note 4, “Debt” and Note 6, “Stockholders’ Deficit”, the Company issued rights (the Right) to purchase up to of 8.8 million shares of common stock at $2.87 per share for twelve months from the issuance date. The Company concluded that the Right met the derivative scope exception and criteria to be accounted for in equity. The Right had a fair value of $8.9 million which was recorded as additional paid in capital and a charge to loss upon extinguishment of debt. The fair value of the Right was determined using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below.
During the second half of 2019, the Company issued five freestanding liability warrants related to the September 2019 and November 2019 Schottenfeld Notes (the Schottenfeld Notes), which the Company recorded at fair value as a derivative liability and debt discount on the respective issuance dates (see Note 4, “Debt” for further information). These freestanding liability warrants had a collective fair value of $7.0 million at December 31, 2019. As a result of the Foris Debt Equitization transaction on January 31, 2020, the variability causing these instruments to be recorded as a derivative liability was eliminated and upon derecognition of this liability into equity, the Company recorded a $1.8 million gain on change in fair value of derivative instruments in the three months ended March 31, 2020, using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below, and reclassified the derivative liability balance of $5.2 million to additional paid in capital.
On February 28, 2020, the Company entered into forbearance agreements with certain affiliates of the Schottenfeld Group LLC (the Lenders) related to certain defaults under the Schottenfeld Notes. The transaction was accounted for as a debt extinguishment. See Note 4, “Debt” for further information. In connection with entering into the forbearance agreements, the Company committed to issuing new warrants (the New Warrants) to the Lenders under certain contingent events for 1.9 million shares of common stock at a $2.87 purchase price and a two-year term. The contingent obligation to issue the New Warrants did not meet the derivative scope exception or equity classification criteria and were accounted for as a derivative liability. The contingently issuable New Warrants derivative liability had an initial fair value of $3.2 million and was recorded as a derivative liability with a $3.2 million charge to loss upon extinguishment of debt. The New Warrants derivative liability will be remeasured each reporting period until settled or extinguished with subsequent changes in fair value recorded through the statement of operations. The fair value of the New Warrants derivative liability was determined using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below. At September 30, 2020, the fair value of the contingently issuable New Warrants derivative liability was $3.2 million, and for the three and nine months ended September 30, 2020, respectively, the Company recorded a $2.0 million gain and a $0.1 million loss on change in fair value of derivative instruments.
On April 6, 2020, the Company and Total entered into a Senior Convertible Note Maturity Extension Agreement to extend the maturity date of the 2014 Rule 144A Convertible Note to April 30, 2020 and reduce the conversion price from $56.16 to $2.87 per share. See Note 4, “Debt” for further information. Historically, the embedded conversion option was bifurcated and accounted for as a derivative liability, and at December 31, 2019 and March 31, 2020 had a $0 fair value due to the Note’s short maturity and the significant conversion price differential when compared to the Company’s current stock price. As a result of the conversion price reduction, the Company remeasured the fair value of the conversion option using a Black-Scholes-Merton option pricing model based on the input assumptions for liability classified warrants table in the valuation methodology section below, and recorded a $6.5 million loss on change in fair value of derivative instruments in the three months ended June 30, 2020. On June 2, 2020, Total elected to convert all the outstanding principal and interest under the 2014 Rule 144A Convertible Note totaling $9.3 million into 3,246,489 shares of common stock. Upon conversion, the $6.5 million liability was derecognized into additional paid in capital, along with the debt principal and interest balance.
Bifurcated Embedded Features in Debt Instruments
During the second half of 2019, the Company issued four debt instruments with embedded mandatory redemption features which were bifurcated from the debt host instruments and recorded at fair value as a derivative liability and debt discount. The collective fair value of the four bifurcated derivatives totaled $2.8 million at December 31, 2019. In January and February 2020, the Company again modified certain key terms in three of the four underlying debt instruments, resulting in a debt extinguishment of the three modified debt instruments. Consequently, in the three months ended March 31, 2020, the collective fair value of the three extinguished bifurcated derivatives totaling $2.3 million was recorded as a loss upon extinguishment of debt and the $0.9 million collective fair value of the new bifurcated embedded mandatory redemption features was recorded as a derivative liability and new debt discount at the modification date. The fair value of the bifurcated derivative liability was determined using a probability weighted discounted cash flow analysis which is discussed in the valuation methodology and approach section below. At September 30, 2020, the fair value of the bifurcated embedded mandatory redemption features totaled $0.6 million, and the Company recorded a $0.1 million gain on change in fair value derivative instruments during the nine months ended September 30, 2020. Also, one of the bifurcated features was embedded in the Foris LSA, which was modified and accounted for as an extinguishment in the three months ended June 30, 2020. As a result, the $0.7 million
derivative liability balance was derecognized and recorded into the initial fair value of the new Foris Convertible Note (see “Fair Value of Debt – Foris Convertible Note (LSA Amendment)” above).
Valuation Methodology and Approach to Measuring the Derivative Liabilities
The liabilities associated with the Company’s freestanding and embedded derivatives outstanding at September 30, 2020 and December 31, 2019 represent the fair value of freestanding equity instruments and mandatory redemption features embedded in certain debt instruments. See Note 4, "Debt", and Note 6, "Stockholders' Deficit" for further information regarding these host instruments. There is no current observable market for these types of derivatives and, as such, the Company determined the fair value of the freestanding instruments or embedded derivatives using the Black-Scholes-Merton option pricing model or a probability weighted discounted cash flow analysis measuring the fair value of the debt instrument both with and without the embedded feature, both of which are discussed in more detail below.
The Company used the Black-Scholes-Merton option pricing model to determine the fair value of its liability classified warrants as of September 30, 2020 and December 31, 2019. Input assumptions for these freestanding instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Range for the Period
|
|
Input assumptions for liability classified warrants:
|
September 30, 2020
|
December 31, 2019
|
|
Fair value of common stock on issue date
|
$2.56 – $4.27
|
$3.09 – $4.76
|
|
Exercise price of warrants
|
$2.87 – $2.87
|
$3.87 – $3.90
|
|
Expected volatility
|
117% – 117%
|
94% – 105%
|
|
Risk-free interest rate
|
0.13% – 0.17%
|
1.58% – 1.67%
|
|
Expected term in years
|
1.75 – 2.26
|
1.51 – 2.00
|
|
Dividend yield
|
0.0
|
%
|
0.0 %
|
The Company uses a probability weighted discounted cash flow model to measure the fair value of the mandatory redemption features embedded in the debt instruments. The model is designed to measure and determine if the debt instruments would be called or held at each decision point. Within the model, the following assumption is made: the underlying debt instrument will be called early if the change in control redemption value is greater than the holding value. If the underlying debt instrument is called, the holder will maximize their value by finding the optimal decision between (i) redeeming at the redemption price and (ii) holding the instrument until maturity. Using this assumption, the Company valued the embedded derivatives on a "with-and-without method", where the fair value of each underlying debt instrument including the embedded derivative is defined as the "with," and the fair value of each underlying debt instrument excluding the embedded derivatives is defined as the "without." This method estimates the fair value of the embedded derivatives by comparing the fair value differential between the with and without mandatory redemption feature. The model incorporates the mandatory redemption price, time to maturity, risk-free interest rate, estimated credit spread and estimated probability of a change in control default event.
The market-based assumptions and estimates used in valuing the embedded derivative liabilities include amounts in the following ranges/amounts:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
December 31, 2019
|
|
Risk-free interest rate
|
0.09% - 0.17%
|
1.6% - 1.7%
|
|
Risk-adjusted discount yield
|
25.0% - 26.0%
|
20.0% - 27.0%
|
|
Probability of change in control
|
5.0%
|
5.0%
|
|
Credit spread
|
24.7% - 36.8%
|
18.4% - 25.4%
|
|
Estimated conversion dates
|
Not applicable
|
2022 - 2023
|
Changes in valuation assumptions can have a significant impact on the valuation of the embedded and freestanding derivative liabilities and debt that the Company elects to account for at fair value. For example, all other things being equal, generally, an increase in the Company’s stock price, change of control probability, risk-adjusted yields term to maturity/conversion or stock price volatility increases the value of the derivative liability.
Assets and Liabilities Recorded at Carrying Value
Financial Assets and Liabilities
The carrying amounts of certain financial instruments, such as cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and other current accrued liabilities, approximate fair value due to their relatively short maturities and low market interest rates, if applicable. Loans payable and credit facilities are recorded at carrying value, which is representative of fair value at the date of acquisition. The Company estimates the fair value of these instruments using observable market-based inputs (Level 2). The carrying amount (the total amount of net debt presented on the balance sheet) of the Company's debt at September 30, 2020 and at December 31, 2019, excluding the debt instruments recorded at fair value, was $90.6 million and $195.8 million, respectively. The fair value of such debt at September 30, 2020 and at December 31, 2019 was $76.1 million and $194.8 million, respectively, and was determined by (i) discounting expected cash flows using current market discount rates estimated for certain of the debt instruments and (ii) using third-party fair value estimates for the remaining debt instruments.
4. Debt
Net carrying amounts of debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
(In thousands)
|
Principal
|
Unaccreted Debt Discount
|
Change in Fair Value
|
Net
|
|
Principal
|
Unaccreted Debt Discount
|
Change in Fair Value
|
Net
|
|
Convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
Senior convertible notes
|
$
|
30,020
|
|
$
|
—
|
|
$
|
(4,671)
|
|
$
|
25,349
|
|
|
$
|
66,000
|
|
$
|
—
|
|
$
|
(15,376)
|
|
$
|
50,624
|
|
|
|
30,020
|
|
—
|
|
(4,671)
|
|
25,349
|
|
|
66,000
|
|
—
|
|
(15,376)
|
|
50,624
|
|
|
Related party convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
Foris convertible note
|
50,041
|
|
—
|
|
8,426
|
|
58,467
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
2014 Rule 144A convertible notes
|
—
|
|
—
|
|
—
|
|
—
|
|
|
10,178
|
|
—
|
|
—
|
|
10,178
|
|
|
|
50,041
|
|
—
|
|
8,426
|
|
58,467
|
|
|
10,178
|
|
—
|
|
—
|
|
10,178
|
|
|
Loans payable and credit facilities
|
|
|
|
|
|
|
|
|
|
|
Schottenfeld notes
|
12,500
|
|
(269)
|
|
—
|
|
12,231
|
|
|
20,350
|
|
(1,315)
|
|
—
|
|
19,035
|
|
|
Nikko notes
|
7,868
|
|
(794)
|
|
—
|
|
7,074
|
|
|
14,318
|
|
(901)
|
|
—
|
|
13,417
|
|
|
Ginkgo note
|
12,000
|
|
—
|
|
—
|
|
12,000
|
|
|
12,000
|
|
(3,139)
|
|
—
|
|
8,861
|
|
|
Other loans payable
|
953
|
|
—
|
|
—
|
|
953
|
|
|
1,828
|
|
—
|
|
—
|
|
1,828
|
|
|
|
33,321
|
|
(1,063)
|
|
—
|
|
32,258
|
|
|
48,496
|
|
(5,355)
|
|
—
|
|
43,141
|
|
|
Related party loans payable
|
|
|
|
|
|
|
|
|
|
|
Foris notes
|
5,000
|
|
—
|
|
—
|
|
5,000
|
|
|
115,351
|
|
(9,516)
|
|
—
|
|
105,835
|
|
|
DSM notes
|
33,000
|
|
(3,007)
|
|
—
|
|
29,993
|
|
|
33,000
|
|
(4,621)
|
|
—
|
|
28,379
|
|
|
Naxyris note
|
23,914
|
|
(575)
|
|
—
|
|
23,339
|
|
|
24,437
|
|
(822)
|
|
—
|
|
23,615
|
|
|
|
61,914
|
|
(3,582)
|
|
—
|
|
58,332
|
|
|
172,788
|
|
(14,959)
|
|
—
|
|
157,829
|
|
|
Total debt
|
$
|
175,296
|
|
$
|
(4,645)
|
|
$
|
3,755
|
|
174,406
|
|
|
$
|
297,462
|
|
$
|
(20,314)
|
|
$
|
(15,376)
|
|
261,772
|
|
|
Less: current portion
|
|
|
|
(31,431)
|
|
|
|
|
|
(63,805)
|
|
|
Long-term debt, net of current portion
|
|
|
|
$
|
142,975
|
|
|
|
|
|
$
|
197,967
|
|
Exchange of Senior Convertible Notes
On January 14, 2020, the Company completed the exchange of the Company’s $66 million Senior Convertible Notes (or the Prior Notes), pursuant to separate exchange agreements (the Exchange Agreements) with certain private investors (the Holders), for (i) new senior convertible notes in an aggregate principal amount of $51 million (the New Notes or New Senior Convertible Notes), (ii) an aggregate of 2,742,160 shares of common stock (the Exchange Shares), (iii) rights (the Rights) to acquire up to an aggregate of 2,484,321 shares of common stock (the Rights Shares), (iv) warrants (the Warrants) to purchase up to an aggregate of 3,000,000 shares of common stock (the Warrant Shares) at an exercise price of $3.25 per share, with an exercise term of two years from issuance, (v) accrued and unpaid interest on the Senior Convertible Notes (payable on or prior to January 31, 2020) and (vi) cash fees in an aggregate amount of $1.0 million (payable on or prior to January 31, 2020). The Exchange Shares and Warrants were issued on January 14, 2020. The unpaid interest and cash fees were paid in accordance with the Exchange Agreements. The Rights were exercised by the Holder and common stock shares issued by the Company according to the terms of the New Senior Convertible Notes on February 24, 2020.
The New Notes have substantially similar terms as the Prior Notes, except under the New Notes (i) the requirement to redeem an aggregate principal amount of $10 million on December 31, 2019 was eliminated, (ii) the Company would be required to redeem the New Notes in an aggregate amount of $10 million following the receipt by the Company of at least $80 million of aggregate net cash proceeds from one or more financing transactions, and at a price of 107% of the amount being
redeemed, (iii) the financing activity requirement was reduced such that the Company would be required to raise aggregate net cash proceeds of $50 million from one or more financing transactions by January 31, 2020, (iv) the Company would have until January 31, 2020 to comply with certain covenants related to the repayment, conversion or exchange into equity or amendment of certain outstanding indebtedness of the Company, and (v) the deadline for the Company to seek stockholder approval for the Holders to exceed a 19.99% stock exchange ownership limitation (the Stockholder Approval) would be extended from January 31, 2020 to March 15, 2020.
Due to multiple changes in key provisions of the Prior Notes, the Company analyzed the before and after cash flows between the (i) fair value of the New Notes and (ii) reacquisition price of the Prior Notes resulting from the (A) decreased principal from $66 million to $51 million, (B) fair value of the Exchange Shares, (C) fair value of the Rights, (D) fair value of the Warrants and (E) cash fees to be paid prior to January 31, 2020 to determine whether these changes resulted in a modification or extinguishment of the Prior Notes. Based on the before and after cash flows of each note, the change was significantly different. Consequently, the Exchange Agreements were accounted for as a debt extinguishment of the Prior Notes and a new debt issuance of the New Notes. The Company recorded a $5.3 million loss upon extinguishment of debt in the three months ended March 31, 2020, which was comprised of the $4.1 million fair value of the Warrants (considered a non-cash fee paid to the lender), the $1.0 million cash fee and $0.2 million excess fair value of the Exchange Shares and the Rights Shares over the contractual value. See Note 6, “Stockholders’ Deficit” for further information on the accounting treatment of the Exchange Shares and the Rights Shares upon issuance of the New Notes. Also, see Note 3, “Fair Value Measurement” for more information regarding the valuation methodology used to determine the fair value of the Warrants.
The Company elected to account for the New Notes at fair value, as of the January 14, 2020 issuance date. Management believes that the fair value option better reflects the underlying economics of the New Senior Convertible Notes, which contain multiple embedded derivatives. Under the fair value election, changes in fair value will be reported in the consolidated statements of operations as "Gain (loss) from change in fair value of debt" in each reporting period subsequent to the issuance of the New Notes. For the three months ended March 31, 2020, the Company recorded a loss of $1.1 million, which is shown as Fair Value Adjustment in the table at the beginning of this Note 4. See Note 3, "Fair Value Measurement" for information about the assumptions that the Company used to measure the fair value of the Senior Convertible Notes.
On February 18, 2020, the Company and the Holders entered into separate waiver and forbearance agreements, (the W&F Agreements), pursuant to which the Holders agreed to, for 60 days following the date of the W&F Agreement, except in case of early termination of the W&F Agreement or, solely with respect to the Stockholder Approval if the other defaults described below have been cured on or prior to the date that is 60 days following the date of the W&F Agreement, until May 31, 2020 (the W&F Period), and in each case subject to certain conditions to effectiveness contained in the W&F Agreement, (i) forbear from exercising certain of their rights and remedies with respect to certain defaults by the Company, including, but not limited to, the Company's failure, on or before January 31, 2020, (A) to receive aggregated net cash proceeds of not less than $50 million from one or more financing transactions, (B) to repay in full or convert into equity the $20.4 million of indebtedness outstanding under the Schottenfeld Credit Agreements (discussed under the Schottenfeld Forbearance Agreement below) or amend all such indebtedness outstanding to fit within the definition of permitted indebtedness of the New Notes, and certain other events of default, and (ii) waive any event of default for (A) violations of the minimum liquidity covenant since December 31, 2019 and (B) failure to obtain the Stockholder Approval prior to March 15, 2020.
In addition, pursuant to the W&F Agreements, the Company and the Holders agreed that (i) the New Note amortization payment due on March 1, 2020 would be in the aggregate amount of $10.0 million (the Amortization Payment), split proportionally among the Holders, and that the Company would elect to pay such amortization payment in shares of Common Stock in accordance with the terms of the New Notes, provided however, that: (A) the Amortization Stock Payment Price (as defined in the New Notes) would be $3.00, (B) the Amortization Share Payment Period (as defined in the New Notes) with respect to the Amortization Payment would end on April 30, 2020 rather than March 31, 2020; and (C) in the event that Holder did not elect to receive the full Amortization Share Amount (as defined in the New Notes) during such Amortization Share Payment Period, then the Amortization Payment would be automatically reduced by the portion of such Amortization Payment not received by the Holder, (ii) there would be no amortization payment due on April 1, 2020, and (iii) the amortization payment due on May 1, 2020 would be in the aggregate amount of $8.9 million split proportionally among the Holders. The W&F Agreements were accounted for as a debt modification, as the before and after cash flows were not significantly different.
Amendment to Senior Convertible Notes Due 2022
On May 1, 2020, the Company and the holders of the New Senior Convertible Notes Due 2022 entered into separate amendments to the New Notes and the W&F Agreements (Note Amendment), pursuant to which the Company and the Holders agreed: (i) to amend the maturity date of the New Notes from September 30, 2022 to June 1, 2021 (Maturity Date); (ii) to remove from the New Notes all equity triggering provisions that allowed the Holders to convert the notes at a reduced conversion price in certain circumstances other than events of default; (iii) that the Company would no longer be required to
redeem the New Notes in an aggregate amount of $10 million following the receipt by the Company of at least $80 million of aggregate net cash proceeds from one or more financing transactions; (iv) that interest payments would be due quarterly (as opposed to monthly), starting on August 1, 2020; (v) that an aggregate amortization payment of approximately $16.4 million (split proportionally among the Holders) would be due on or before the earlier of May 31, 2020 and the date on which the Company receives at least $50 million of aggregate net proceeds in an offering of securities (Amended May Amortization), an amortization payment of $5 million (to the largest Holder) would be due on December 1, 2020 unless the Company receives at least $50 million of aggregate net cash proceeds from one or more financing transactions after May 1, 2020, and no other amortization payment would be due prior to the Maturity Date; (vi) to reduce the conversion price of the New Notes from $5.00 to $3.50; (vii) to reduce the redemption price with respect to optional redemptions by the Company prior to October 1, 2020 to 100%, prior to December 31, 2020 to 105% and to 110% thereafter (as opposed to 115%), of the amount being redeemed; and (viii) that an aggregate of 2,836,364 shares of Common Stock held by the Holders would not be considered as Pre-Delivery Shares (issued in connection with the November 15, 2019 Senior Convertible Notes Due 2022 and as defined in the New Notes) and would be subject to certain selling restrictions until June 15, 2020, and that an aggregate of 1,363,636 Pre-Delivery Shares held by certain Holders would be promptly returned to the Company. These Pre-Delivery Shares were returned to the Company on May 5, 2020 and May 6, 2020. The Company paid $16.4 million on June 1, 2020 to satisfy the required amortization payment and is no longer required to make the $5.0 million amortization payment on December 1, 2020. On June 4, 2020, the Company released an additional 700,000 Pre-Delivery Shares to the largest Holder in connection with the Second Amendment to New Notes and the W&F Agreements. The Company recorded $10.5 million of additional interest expense, representing the fair value of the 3,536,364 Pre-Delivery Shares released to the Holders.
Further, in connection with the Note Amendment, the Company and the Holders entered into certain warrant amendment agreements pursuant to which (i) the exercise price of the warrants issued on January 14, 2020 in connection with the Exchange of the Senior Convertible Notes due 2022 was reduced to $2.87 per share, from $3.25, with respect to an aggregate of 2,000,000 warrant shares; (ii) the exercise price of a warrant to purchase 960,225 shares of the Company’s Common Stock issued to one of the Holders on May 10, 2019 was reduced to $2.87 per share, from $5.02, and the exercise term of such warrant was extended to January 31, 2022, from May 10, 2021; and (iii) the exercise term of a right to purchase 431,378 shares of the Company’s Common Stock issued to one of the Holders on January 31, 2020 was extended to January 31, 2022, from January 31, 2021. See Note 6, “Stockholders’ Deficit” for more information regarding the accounting treatment of these warrant modifications.
Debt Equitization – Foris, Related Party
As of December 31, 2019, the Company had two loans payable to Foris with a total principal balance of $110.0 million, excluding capitalized interest of $5.3 million. Foris is an entity affiliated with director John Doerr of Kleiner Perkins Caufield & Byers, a current stockholder, and an owner of greater than five percent of the Company’s outstanding common stock. The first loan (Foris $19 million Note) was a $19 million unsecured borrowing that accrued interest at 12% per annum and matures on January 1, 2023. The second loan (Foris LSA) is a $91.0 million secured borrowing that accrues interest at 12.5% per annum and matured on March 1, 2023. The Foris LSA required quarterly principal payments and monthly interest payments. See Amendment No. 1 to Amended and Restated LSA — Foris, Related Party below for more information on the maturity date and payment terms of the Foris LSA.
On January 31, 2020, the Company completed a series of equity transactions with Foris that resulted in the Company (i) reducing its aggregate debt principal with Foris by $60.0 million and accrued interest and fees due to Foris by $9.9 million (including $5.4 million of capitalized interest), (ii) issuing an aggregate of 19,287,780 shares of common stock as a result of the exercise of outstanding warrants at a weighted average exercise price of approximately $2.84 per share for an aggregate of $54.8 million, (iii) issuing an aggregate of 5,279,171 shares of common stock at $2.87 per share for an aggregate of $15.1 million in a private placement, and (iv) issuing rights (the Rights) to purchase an aggregate of 8,778,230 shares of common stock, at an exercise price of $2.87 per share, for an exercise term of 12 months. The exercise price of the outstanding warrants and the purchase price of the private placement common stock was paid through the cancellation of principal and accrued interest and fees totaling $69.9 million. See Note 6, “Stockholders’ Deficit” for information on the accounting treatment of the various equity related instruments.
As a result of the transaction described above, on January 31, 2020, the principal balance of the Foris $19 million Note and accrued but unpaid interest was fully settled through the exercise price of certain of outstanding warrants. Upon settlement of the Foris $19 million Note, the Company recorded a $5.7 million loss upon extinguishment debt, which was comprised of $6.1 million of unaccreted discount, less the $0.4 million fair value of the extinguished bifurcated derivative liability.
In addition, this series of equity transactions directly impacted the cash flows of the Foris LSA and, as a result, the Company analyzed the before and after cash flows resulting from the significant decrease in principal, the warrant exercise price modifications and the issuance rights to purchase additional shares of common stock at $2.87, to determine whether these changes result in a modification or extinguishment of the Foris LSA. Based on the before and after cash flows, the change was
significantly different. Consequently, the accelerated paydown of the Foris LSA loan balance through the exercise price of the remaining outstanding warrants and the purchase price of the private placement common stock was accounted for as a debt extinguishment and a new debt issuance. The Company recorded a $10.4 million loss upon extinguishment of debt, which was comprised of $8.9 million fair value of the Rights and $3.1 million of unaccreted discount, less the $1.6 million fair value of the extinguished bifurcated derivative liability. See Note 6, “Stockholders’ Deficit” for further information on the valuation methodology and related accounting treatment of the Rights. In recording the new debt issuance, the Company capitalized $0.7 million for the initial fair value of the embedded mandatory redemption feature as a debt discount to be amortized to interest expense under the effective interest method over the term of the remaining term of the new debt issuance.
Amendment No. 1 to Foris LSA — Foris, Related Party
On June 1, 2020, the Company and Foris entered into Amendment No. 1 to the Foris LSA (LSA Amendment), pursuant to which: (i) the interest rate applicable to the then outstanding secured indebtedness (Secured Indebtedness) was amended from and after June 1, 2020 to a per annum rate of interest equal to 6.00% (previously 12.5%), (ii) the Company shall not be required to make any interest payments outstanding as of May 31, 2020 or accruing thereafter prior to July 1, 2022 (previously due monthly), (iii) the quarterly principal amortization payments were eliminated and all outstanding principal under the LSA Amendment became due on July 1, 2022, and (iv) Foris shall have the option, in its sole discretion, to convert all or portion of the Secured Indebtedness, including accrued interest, into shares of common stock at a $3.00 conversion price (Conversion Option), subject to the Company’s stockholder approval to issue shares of common stock upon exercise of the Conversion Option in accordance with applicable rules and regulations of the Nasdaq Stock Market, including Nasdaq Listing Standard Rule 5635(d); for which stockholder approval was obtained on August 14, 2020.
The Company analyzed the before and after cash flows resulting from the LSA Amendment to determine whether these changes result in a modification or extinguishment of the Foris LSA. Based on the before and after cash flows, the change was significant. Consequently, the LSA Amendment was accounted for as a debt extinguishment and a new debt issuance. The Company elected to account for the new debt issuance under the fair value option and recorded a $22.0 million loss upon extinguishment of the Foris LSA, representing the difference between the carrying value of the Foris LSA prior to the modification and the $72.1 million reacquisition price of the Foris LSA (which is the fair value of the LSA Amendment with the conversion option). Management believes the fair value option best reflects the underlying economics of the LSA Amendment, which contains embedded derivatives, a conversion option requiring bifurcation and a beneficial conversion feature. Under the fair value election, changes in fair value will be reported in the consolidated statements of operations as "Gain (loss) from change in fair value of debt" in each reporting period subsequent to the issuance of the LSA Amendment. The Company also recorded gains of $23.1 million and $13.6 million for the three and nine months ended September 30, 2020 related to the change in fair value of the LSA Amendment after the June 1, 2020 issuance date, which is shown as Fair Value Adjustment in the table at the beginning of this Note 4. See Note 3, "Fair Value Measurement" for information about the assumptions that the Company used to measure the fair value of the LSA Amendment.
Schottenfeld Forbearance Agreement
The Company, Schottenfeld Group LLC (Schottenfeld) and certain of its affiliates (collectively, the Lenders) are parties (i) to certain Credit Agreements, each dated September 10, 2019 (collectively, the September Credit Agreements) and (ii) to a Credit and Security Agreement, dated November 14, 2019 (the CSA, and collectively with the September Credit Agreements, the Credit Agreements), pursuant to which the Company issued to the Lenders certain notes (the September Notes and the November Notes, respectively, and collectively, the Schottenfeld Notes) and warrants (the September Warrants and the November Warrants, respectively, and collectively, the Schottenfeld Warrants) to purchase shares (the Warrant Shares) of the Company’s common stock. See Note 6, “Stockholders’ Deficit” for further information. Indebtedness under the September Notes totals $12.5 million, accrues interest at 12% per annum and matures on January 1, 2023. Indebtedness under the November Notes total $7.9 million, accrued interest at 12% per annum and originally matured on January 15, 2020. The Company failed to repay the $7.9 million November Notes by January 15, 2020.
On February 28, 2020, the Company entered into a forbearance agreement with the Lenders (Forbearance Agreement), pursuant to which the Lenders would forbear, for 60 days from the date of the Forbearance Agreement, unless terminated earlier (the Forbearance Period), to exercise certain rights as a result of the Company’s defaults under the Credit Agreements and related Schottenfeld Notes, including the failure of the Company to (i) to pay all principal and accrued interest on the November Notes at the maturity date, (ii) the failure to pay on or before December 31, 2019, all accrued and unpaid interest through December 31, 2019 on the September Notes, and (iii) the failure, on or before December 15, 2019, to convert or exchange at least $60 million, but not less than 100%, of certain junior outstanding indebtedness into equity in the Company, and certain other events of default. Under the Forbearance Agreement, the Company agreed to (i) pay a late fee of 5% on any obligations under the November Notes not paid in full on or before the last day of the Forbearance Period; (ii) pay on or prior to the earliest to occur of April 19, 2020 or the last day of the Forbearance Period, (A) all interest due pursuant to the November
Notes and the September Notes, plus all interest accruing on such unpaid interest, plus all interest accrued on account of the November Notes and the September Notes from the date of the Forbearance Agreement through the date of such payment, and (B) a forbearance fee in the amount of $150,000; (iii) pay, upon signature of the Forbearance Agreement, $150,000 as a partial payment of the interest that has accrued pursuant to the November Notes and the September Notes as of the date of the Forbearance Agreement; (iv) issue new warrants upon the occurrence of certain contingent events and (v) amend the Schottenfeld Warrants to (A) reduce the exercise price of each Schottenfeld Warrant to $2.87 per share, and (B) with respect to the November Warrants, extend the deadline to register the Warrant Shares for resale by the Holders.
Due to multiple changes in key provisions of Schottenfeld Credit Agreements, the Company analyzed the before and after cash flows resulting from the warrant modification and forbearance fee to determine whether these changes result in a modification or extinguishment of the original Schottenfeld and Phase Five notes. Based on the combined before and after cash flows of each note, the change was significantly different. Consequently, the modifications resulting from the Forbearance Agreement were accounted for as a debt extinguishment and a new debt issuance. The Company recorded a $5.6 million loss upon extinguishment of debt, which was comprised of the $3.2 million fair value of contingent warrant issuance obligation, the $1.3 million incremental fair value of the modified warrants, $1.1 million of unaccreted discount and the forbearance fee, less the balance of the extinguished bifurcated derivative liability. In recording the new debt issuance, the Company capitalized $0.2 million of legal fees and $0.2 million for the initial fair value of the embedded mandatory redemption feature as a debt discount to be amortized to interest expense under the effective interest method over the term of the remaining term of the new debt issuance.
On April 19, 2020, the Company failed to pay the amounts due under the Forbearance Agreement, including the past due interest on the September Notes, and was unable to obtain a waiver or extension for the past due amounts. As a result, $20.4 million of principal outstanding under the Schottenfeld Notes was classified as a current liability on the condensed consolidated balance sheet as of March 31, 2020. On June 5, 2020, the Company repaid the past due November 2019 Notes totaling $7.9 million. Consequently, the September 2019 Notes due January 1, 2023 totaling $12.5 million were reclassified to a non-current liability as of September 30, 2020.
2014 Rule 144A Note Exchange and Extensions – Total, Related Party
On March 11, 2020, the Company and Total entered into a Senior Convertible Note Maturity Extension Agreement (the Extension Agreement) due to the Company’s failure to pay the $10.2 million principal amount due under the December 20, 2019 reissued 2014 Rule 144A Convertible Notes that matured on January 31, 2020. The Extension Agreement resulted in the reissuance and extension of the December 20, 2019 promissory note to March 31, 2020. Under the terms of the extension agreement, the Company paid Total $1.5 million to satisfy all accrued but unpaid interest and to reduce the principal balance of the reissued note by $1.1 million. The reissued note: (i) had a maturity date of March 31, 2020, (ii) had a $9.1 million principal amount due, (iii) accrued interest at a rate of 12.0% per annum, and (iv) had terms substantially identical to the December 20, 2019 promissory note. The Extension Agreement was accounted for as a debt modification, as the before and after cash flows were not significantly different.
On April 6, 2020, the Company and Total entered into a Senior Convertible Note Maturity Extension Agreement to extend the maturity date of the 2014 Rule 144A Convertible Note to April 30, 2020 and reduce the conversion price of the 2014 Rule 144A Convertible Note to $2.87 per share. Effective April 30, 2020, the Company and Total entered into a subsequent Senior Convertible Note Maturity Extension Agreement to extend the maturity date of the 2014 Rule 144A Convertible Note to the earlier of the day the Company receives cash proceeds from any private placement of its equity and/or equity-linked securities, and May 31, 2020. The 2014 Rule 144A Convertible Note was reissued as a result of such extensions with terms substantially identical to the previously issued promissory notes. On June 2, 2020, Total elected to convert all the outstanding principal and interest due under the 2014 Rule 144A Convertible Note totaling $9.3 million into 3,246,489 shares of common stock. Upon conversion, the $9.3 million debt principal and interest balance and the $6.5 million derivative liability balance related to the fair value of the conversion option was derecognized into additional paid in capital. See Note 3, “Fair Value Measurement” for more information regarding the accounting treatment of the embedded conversion option and subsequent conversion price reduction.
Ginkgo Waiver Agreement
On March 11, 2020, the Company and Ginkgo Bioworks, Inc. (Ginkgo) entered into a Waiver Agreement and Amendment to Partnership Agreement (the Ginkgo Waiver), pursuant to the terms of (i) the Ginkgo promissory note dated October 20, 2017, issued by the Company to Ginkgo (as amended, the Ginkgo Note), (ii) the Ginkgo Partnership Agreement, dated October 20, 2017, by and between the Company and Ginkgo, and (iii) the Waiver Agreement and Amendment to Ginkgo Note, dated September 29, 2019, by and between the Company and Ginkgo, pursuant to which Ginkgo agreed to (a) waive the Company’s failure to pay past due interest and partnership payments, including interest thereon of $6.7 million by December 15, 2019, and to comply with a reporting covenant prior to March 31, 2020, (b) to make a prior waiver fee payment of $0.5 million on
December 15, 2019, (c) waive any cross defaults due to events of default under other debt obligations by the Company, (d) amend payments on the Ginkgo Partnership Agreement beginning on March 31, 2020 to a monthly payment of $0.5 million through and including October 31, 2021, and (e) to defer all past due payments totaling $7.2 million until April 30, 2020. The Ginkgo Waiver was accounted for as a debt modification, as the before and after cash flows were not significantly different.
On May 6, 2020, the Company entered into a waiver agreement under which the maturity date for all past due amounts to Ginkgo was extended to the earlier of the day the Company receives cash proceeds from any private placement of its equity and/or equity-linked securities, and May 31, 2020. The Company paid all past-due amounts to Ginkgo.
On August 10, 2020, the Company and Ginkgo entered into a Second Amendment to Promissory Note and Partnership Agreement (Second Amendment) to, among other things, (i) with respect to the Promissory Note, amend the interest payment frequency from monthly to quarterly beginning September 30, 2020 and reduce the interest rate from 12% to 9% beginning January 1, 2021, conditioned to the timely payment of interest on September 30, 2020 and December 31, 2020; and (ii) with respect to the Partnership Agreement, reduce the partnership payments frequency from monthly to quarterly, in an aggregate amount of $2.1 million, and to defer an aggregate of $9.8 million in partnership payments to the end of the agreement in October 2022 (the “End of Term Payment”), provided that, if the Promissory Note is not fully repaid by April 19, 2022, the End of Term Payment shall be of $10.4 million.
As a result of changes to key provisions of both the Promissory Note and Partnership Agreement, the Company analyzed the before and after cash flows resulting from (i) a reduced interest rate of the Promissory Note, (ii) reduced payment frequency for the Promissory Note interest and Partnership Agreement payments and (iii) changes in the periodic and total payment amounts under the Partnership Agreement, in order to determine whether these changes result in a modification or extinguishment of the obligations under the Second Amendment. Based on the combined before and after cash flows of the Promissory Note and Partnership Agreement, the change was significantly different. Consequently, the modifications resulting from the Second Amendment were accounted for as a debt extinguishment and a new debt issuance. The Company recorded a $2.5 million loss upon extinguishment of the Promissory Note and a $0.1 million loss upon extinguishment of the partnership payments, which was primarily related to the unamortized debt discounts. The $12.0 million principal amount due under the Promissory Note was unchanged and reflects the present value of the obligation after the modifications. See Note 2, “Balance Sheet Details”, for more information on the payments due under the Partnership Agreement.
Nikko Secured Loan Agreement Amendment
On March 12, 2020, the Company and Nikko Chemicals Co. Ltd. (Nikko), entered into an amendment to the secured loan agreement (Loan Agreement) under which the Company paid Nikko $0.5 million to reduce the principal balance of the Loan Agreement to $4.0 million, extended the maturity date of the loan from January 31, 2020 to March 31, 2020 and increased the interest rate to 8.0% per annum. The loan (i) matured on March 31, 2020, (ii) accrued interest at a rate of 2.75% per annum, and (iii) was secured by a first-priority lien on 27.2% of the Aprinnova JV interests owned by the Company. The Loan Agreement was accounted for as a debt modification, as the before and after cash flows were not significantly different.
On April 3, 2020, the Company entered into a second amendment to the Loan Agreement under which the maturity date of the loan was extended to April 30, 2020. Subsequently, on May 7, 2020, the Company entered into a third amendment to the Loan Agreement under which the maturity date of the loan was extended to May 31, 2020. The Company fully repaid the $4.0 million loan on June 5, 2020.
Paycheck Protection Plan Loan
On April 7, 2020, the Company applied for a Paycheck Protection Plan loan (PPP Loan) established by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). On May 7, 2020, the Company received a $10 million loan pursuant to a promissory note issued by the Company. The PPP Loan accrued interest at an annual fixed rate of 1% and had a term of 2 years with no payments due in the first six months of such term; however, interest still accrued during this six-month period. Upon receipt of the PPP Loan, the Company applied the funds to payroll and building rent expenses. Following the completion of the private placement of its securities in early June 2020, the Company repaid the PPP Loan in full, including applicable interest, on June 12, 2020.
Foris $5 Million Note – Foris, Related Party
On April 29, 2020, the Company borrowed $5.0 million from Foris, an entity affiliated with director John Doerr and which beneficially owns greater than 5% of the Company’s outstanding common stock. The note is unsecured and accrues interest at 12% per annum. Principal and interest will be payable at maturity, on December 31, 2022.
Future Minimum Payments
Future minimum payments under the Company's debt agreements as of September 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Convertible Notes
|
Loans
Payable and Credit Facilities
|
Related Party Convertible Notes
|
Related Party Loans Payable and Credit Facilities
|
Total
|
|
2020 (remaining three months)
|
$
|
375
|
|
$
|
5,945
|
|
$
|
—
|
|
$
|
1,547
|
|
$
|
7,867
|
|
|
2021
|
33,898
|
|
3,902
|
|
—
|
|
31,823
|
|
69,623
|
|
|
2022
|
—
|
|
14,768
|
|
59,578
|
|
40,939
|
|
115,285
|
|
|
2023
|
—
|
|
12,899
|
|
—
|
|
—
|
|
12,899
|
|
|
2024
|
—
|
|
398
|
|
—
|
|
—
|
|
398
|
|
|
Thereafter
|
—
|
|
1,870
|
|
—
|
|
—
|
|
1,870
|
|
|
Total future minimum payments
|
34,273
|
|
39,782
|
|
59,578
|
|
74,309
|
|
207,942
|
|
|
Less: amount representing interest
|
(4,253)
|
|
(6,460)
|
|
(9,537)
|
|
(12,396)
|
|
(32,646)
|
|
|
Present value of minimum debt payments
|
30,020
|
|
33,322
|
|
50,041
|
|
61,913
|
|
175,296
|
|
|
Less: current portion of debt principal
|
(30,020)
|
|
(5,236)
|
|
—
|
|
—
|
|
(35,256)
|
|
|
Noncurrent portion of debt principal
|
$
|
—
|
|
$
|
28,086
|
|
$
|
50,041
|
|
$
|
61,913
|
|
$
|
140,040
|
|
5. Mezzanine Equity
Mezzanine equity at September 30, 2020 and December 31, 2019 is comprised of proceeds from shares of common stock sold on May 10, 2016 to the Bill & Melinda Gates Foundation (Gates Foundation). In connection with the stock sale, the Company and the Gates Foundation entered into an agreement under which the Company agreed to expend an aggregate amount not less than the proceeds from the stock sale to develop a yeast strain that produces artemisinic acid and/or amorphadiene at a low cost and to supply such artemisinic acid and amorphadiene to companies qualified to convert artemisinic acid and amorphadiene to artemisinin for inclusion in artemisinin combination therapies used to treat malaria. If the Company defaults in its obligation to use the proceeds from the stock sale as set forth above or defaults under certain other commitments in the agreement, the Gates Foundation will have the right to request that the Company redeem, or facilitate the purchase by a third party, the shares then held by the Gates Foundation at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the trading day prior to the redemption or purchase, as applicable, or (ii) an amount equal to $17.10 plus a compounded annual return of 10%.
As of September 30, 2020, the Company's remaining research and development obligation under this arrangement was $0.3 million.
6. Stockholders' Deficit
Foris Warrant Exercises for Cash
On January 13, 2020, Foris, an entity affiliated with director John Doerr and which beneficially owns greater than 5% of the Company’s outstanding common stock, delivered to the Company an irrevocable notice of cash exercise with respect to a warrant to purchase 4,877,386 shares of the Company’s common stock at an exercise price of $2.87 per share, pursuant to a warrant issued by the Company on August 17, 2018. The Company received approximately $14.0 million from Foris in connection with the warrant exercise representing 4,877,386 shares of common stock issued and recorded $14.0 million as additional paid-in capital.
On March 11, 2020, Foris provided to the Company a notice of cash exercise to purchase 5,226,481 shares of the Company’s common stock at an exercise price of $2.87 per share, pursuant to the PIPE Rights (discussed in the January 2020 Private Placement section below) issued by the Company on January 31, 2020. On March 12, 2020, the Company received approximately $15.0 million from Foris in connection with the PIPE Rights exercise. The Company and Foris agreed to defer the issuance of the shares until such time as stockholder approval has been obtained to increase the Company’s authorized share count. At March 31, 2020, the PIPE Rights exercise proceeds were recorded as additional paid-in capital as there is no contractual obligation to return the consideration if stockholder approval is not obtained. Stockholder approval was obtained on May 29, 2020 and the 5,226,481 shares of common stock were issued to Foris on June 2, 2020.
January 2020 Warrant Amendments and Exercises, Foris Debt Equitization and Private Placement
As described below in further detail, on January 31, 2020, the Company completed a series of equity transactions that resulted in the Company (i) receiving $28.3 million in cash, (ii) reducing its aggregate debt principal by $60.0 million and accrued interest by approximately $9.9 million, (iii) issuing an aggregate of (A) 25,326,095 shares of common stock as a result of the exercise of outstanding warrants, and (B) 13,989,973 new shares of common stock in private placements, and (iv) issuing rights to purchase an aggregate of 18,649,961 shares of common stock, at an exercise price of $2.87 per share, for an exercise term of 12 months. See Note 4, “Debt,” for more information regarding the accounting treatment of the $60.0 million debt reduction.
Warrant Amendments and Exercises by Certain Holders
On January 31, 2020, the Company entered into separate warrant amendment agreements (the Warrant Amendments) with certain holders (the Warrant Holders) of the Company’s outstanding warrants to purchase shares of common stock, pursuant to which the exercise price of certain warrants (the Amended Warrants) held by the Warrant Holders totaling 1.2 million shares was reduced to $2.87 per share. In connection with the entry into the Warrant Amendments, on January 31, 2020, the Warrant Holders exercised their Amended Warrants, representing an aggregate of 1,160,929 shares of common stock (the Warrant Amendment Shares), and the Company issued the Warrant Amendment Shares to the Holders along with a right to purchase an aggregate of 1,160,929 shares of Common Stock, at an exercise price of $2.87 per share, for an exercise term of twelve months from the January 31, 2020 issuance (the Rights). The Company received net proceeds of $3.3 million from the exercise of the Amended Warrants and recorded the $3.3 million as additional paid in capital. The Company also measured the before and after fair value of the Amended Warrants using the Black-Scholes-Merton option pricing model and determined there was no incremental value to record related to the purchase price reduction. Further, the Rights warrants met the derivative scope exception and equity classification criteria to be accounted for in equity.
Warrant Amendments and Exercises, Common Stock Purchase and Debt Equitization by Foris – Related Party
On January 31, 2020, the Company and Foris entered into certain warrant amendment agreements (the Foris Warrant Amendments) totaling 10.2 million shares of the Company’s outstanding warrants to purchase shares of common stock, pursuant to which the exercise price of these certain warrants (the Amended Foris Warrants) was reduced to $2.87 per share. In connection with the Foris Warrant Amendments, on January 31, 2020 (i) Foris exercised all its then-outstanding common stock purchase warrants, including the Amended Foris Warrants, totaling 19,287,780 shares of common stock, at a weighted average exercise price of approximately $2.84 per share for an aggregate exercise price of $54.8 million (the Exercise Price), and purchased 5,279,171 shares of common stock (the Foris Shares) at $2.87 per share for a total purchase price of $15.1 million (Purchase Price), (ii) Foris paid the Exercise Price and the Purchase Price through the cancellation of $60 million of principal and $9.9 million of accrued interest and fees owed by the Company to Foris under the Foris $19 million Note and the Foris LSA (which was treated as a debt extinguishment as discussed in Note 4, "Debt") and (iii) the Company issued to Foris the Foris Shares and an additional right (the Additional Right) to purchase 8,778,230 shares of Common Stock at a purchase price of $2.87 per share, for a period of 12 months from the execution of the warrant exercise agreement.
Upon exercise of the Amended Foris Warrants and issuance of the Foris Shares, the Company recorded a $69.9 million increase to additional paid-in capital. The Company also measured the before and after fair value of the Amended Foris Warrants using the Black-Scholes-Merton option pricing model and determined there was no incremental value to record related to the purchase price reduction. Further, the Company concluded the Additional Rights met the derivative scope exception and criteria to be accounted for in equity and recorded the $8.9 million fair value of the Additional Rights to additional paid-in capital and loss upon extinguishment of debt. The fair value was determined using a Black-Scholes-Merton option pricing model based on the following input assumptions: (i) $2.56 stock price, (ii) 112% volatility, (iii) 1.45% risk free rate and (iv) 0% dividend.
January 2020 Private Placement
On January 31, 2020, the Company entered into separate Security Purchase Agreements with certain accredited investors and Foris, for the issuance and sale of an aggregate of 8,710,802 shares of common stock and rights to purchase an aggregate of 8,710,802 shares of common stock (PIPE Rights) at a purchase price of $2.87 per share, for a period of 12 months, for an aggregate purchase price of $25 million. The $25 million in proceeds was recorded as additional paid-in capital. See Note 3, “Fair Value Measurement,” for information regarding the valuation methodology used to determine fair value and the related accounting treatment of the PIPE rights.
Principal Conversion into Common Stock and New Warrants Issued in Exchange of Senior Convertible Notes
On January 14, 2020, the Company completed the exchange of the Company’s $66 million Senior Convertible Notes (or the Prior Notes), pursuant to separate exchange agreements (the Exchange Agreements) with certain private investors (the Holders), for (i) new senior convertible notes in an aggregate principal amount of $51 million (the New Notes or New Senior
Convertible Notes), (ii) an aggregate of 2,742,160 shares of common stock (the Exchange Shares), (iii) rights (the Rights) to acquire up to an aggregate of 2,484,321 shares of common stock (the Rights Shares), and (iv) warrants (the Warrants) to purchase up to an aggregate of 3,000,000 shares of common stock (the Warrant Shares) at an exercise price of $3.25 per share, with an exercise term of two years from issuance, The New Notes, Exchange Shares, Rights and Warrants were issued on January 14, 2020. The Rights were exercised by the Holder and the Rights Shares were issued by the Company according to the terms of the New Senior Convertible Notes on February 24, 2020. The contractual value of the Exchange Shares and the Rights Shares was $2.87 per share. Upon issuance of the New Notes, Exchange Shares and Rights, the $15.0 million of debt principal was extinguished and the $15.2 million fair value of the Exchange Shares and the Rights Shares was recorded as additional paid in capital. See Note 3, “Fair Value Measurement,” for more information regarding the valuation methodology used to determine the fair value and the related accounting treatment of the Warrants, and see Note 4, “Debt,” for further information on the accounting treatment and the terms of the note exchange.
Release of Pre-Delivery Shares and Amendment to Warrants Issued to Holders of Senior Convertible Notes Due 2022
Under the terms of the November 15, 2019 Senior Convertible Notes Due 2022 and the January 14, 2020 New Senior Convertible Notes, the Company was required to pre-deliver 7.5 million shares of common stock (the Pre-Delivery Shares) to the Holders, which are freely tradeable, validly issued, fully paid, nonassessable and free from all preemptive or similar rights or liens, for the Holders to sell, trade or hold, subject to certain limitations, for as long as the Senior Convertible Notes Due 2022 are outstanding. However, the Company may elect or be required to apply the value of the pre-delivered shares to satisfy periodic principal and interest payments or other repayment events. Within ten business days following redemption or repayment of in full the Senior Convertible Notes Due 2022 and the satisfaction or discharge by the Company of all outstanding Company obligations under the Senior Convertible Notes Due 2022, the Holders shall deliver 7.5 million shares of the Company’s common stock to the Company, less any shares used to satisfy any accrued interest or principal amortization payments under such notes. The Company concluded the Pre-Delivery Shares provision meets the criteria of freestanding instrument that is legally detachable and separately exercisable from the Senior Convertible Notes Due 2022 and should be classified in equity as the common shares issued are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company accounted for the fair value of the Pre-Delivery Shares within equity.
On May 1, 2020, in connection with the amendment to the Senior Convertible Notes Due 2022 described in Note 4, “Debt”, the Company and the Holders of the New Senior Convertible Notes Due 2022 agreed, among other provisions described in Note 4, “Debt”: (i) to remove all equity triggering provisions that allowed the Holders to convert the notes at a reduced conversion price in certain circumstances; (ii) to reduce the conversion price of the New Notes from $5.00 to $3.50; (iii) to release to the Holders an aggregate of 2,836,364 shares of common stock originally required to be returned under the Pre-Delivery Share arrangement, and (iv) return an aggregate of 1,363,636 Pre-Delivery Shares held by certain Holders to the Company. Further, on June 4, 2020, the Company agreed to release an additional 700,000 Pre-Delivery Shares to one of the Holders, in connection with the second amendment to the Senior Convertible Notes Due 2022 described in Note 4, “Debt”. After the release and return of the Pre-Delivery Shares on May 1, 2020 and June 4, 2020, the total number of Pre-Delivery Shares subject to the arrangement is 2,600,000 and must be returned to the Company following full redemption or repayment of the New Senior Convertible Notes Due 2022. As a result of releasing the 3,536,364 Pre-Delivery Shares to the Holders, the Company recorded $10.5 million of additional interest expense, representing the fair value of the released share.
Further, in connection with the May 1, 2020 amendment to the Senior Convertible Notes Due 2022, the Company and the Holders entered into certain warrant amendment agreements pursuant to which (i) the exercise price of the warrants issued on January 14, 2020 in connection with the Exchange of the Senior Convertible Notes due 2022 was reduced to $2.87 per share (from $3.25) with respect to an aggregate of 2,000,000 warrant shares; (ii) the exercise price of a warrant to purchase 960,225 shares of the Company’s common stock issued to one of the Holders on May 10, 2019 was reduced to $2.87 per share (from $5.02), and the exercise term of such warrant was extended to January 31, 2022 (from May 10, 2021); and (iii) the exercise term of a right to purchase 431,378 shares of the Company’s common stock issued to one of the Holders on January 31, 2020 was extended to January 31, 2022 (from January 31, 2021). Each of these warrant instruments were previously accounted for in equity. As a result of the warrant amendments, the Company performed a before and after remeasurement of the warrants using the Black-Scholes-Merton option pricing model and recorded $1.1 million of incremental interest expense and a corresponding increase to additional paid in capital.
Increase in Authorized Common Stock
On May 29, 2020, through a proxy vote at the Company’s Annual Stockholder meeting, the Company’s stockholders approved an increase in the Company’s authorized common stock share count from 250 million to 350 million.
Total Conversion Price Reduction and Subsequent Conversion into Common Stock
On April 6, 2020, the Company and Total entered into a Senior Convertible Note Maturity Extension Agreement to extend the maturity date of the 2014 Rule 144A Convertible Note to April 30, 2020 and reduce the conversion price of the 2014 Rule 144A Convertible Note from $56.16 to $2.87 per share. See Note 4, “Debt” for further information related to this debt instrument. On June 2, 2020, Total elected to convert all the outstanding principal and interest totaling $9.3 million due under the 2014 Rule 144A Convertible Note into 3,246,489 shares of common stock. Upon conversion, the $9.3 million debt principal and interest balance and the $6.5 million derivative liability balance related to the conversion option was derecognized into additional paid-in capital. See Note 3, “Fair Value Measurement,” for more information regarding the accounting treatment of the embedded conversion option and subsequent conversion price reduction.
June 2020 PIPE
On June 1, 2020 and June 4, 2020, the Company entered into separate security purchase agreements (Purchase Agreements) with certain accredited investors (Investors), including Foris and Vivo Capital LLC, stockholders that beneficially own more than 5% of the Company’s outstanding common stock and are, respectively, owned by or affiliated with individuals serving on the Company’s Board of Directors, for the issuance and sale of an aggregate of 32,614,573 shares of the Company’s common stock, $0.0001 par value per share and 102,156 shares of the Company’s Series E Convertible Preferred Stock, $0.0001 par value per share, convertible into 34,052,070 shares of common stock, at a price of $3.00 per common share and $1,000 per preferred share, resulting in an aggregate purchase price of $200 million (Offering). The transaction closed on June 5, 2020, following the satisfaction of customary closing conditions. Upon closing, the Company received aggregate net proceeds of approximately $190 million after payment of the Offering expenses and placement agent fees. The Company used the proceeds from the Offering for the repayment of certain outstanding indebtedness and the remainder for general corporate purposes.
The Purchase Agreements included customary representations, warranties and covenants of the parties. In addition, the Company executed a letter agreement pursuant to which, subject to certain exceptions, the Company, the members of the Company’s Board of Directors, and the Company’s named executive officers agreed not to issue, enter into any agreement to issue or announce the issuance or proposed issuance of any shares of Common Stock or securities convertible into or exercisable or exchangeable for common stock until September 2, 2020. The securities issued pursuant to the Purchase Agreements were sold in private placements pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (Securities Act) and Rule 506(b) of Regulation D promulgated under the Securities Act, without general solicitation, made only to and with accredited investors as defined in Regulation D.
Series E Convertible Preferred Stock and Amendment to Articles of Incorporation or Bylaws
On June 5, 2020, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series E Convertible Preferred Stock (Preferred Stock) with the Secretary of State of Delaware. Each share of Series E Preferred Stock issued in the June 2020 PIPE had a stated value of $1,000 and was convertible into 333.33 shares of common stock. All preferred shares automatically converted into common stock without any action by the holders on the first trading day after the Company obtains stockholder approval (as described below). Unless and until converted into common stock in accordance with its terms, the Preferred Stock had no voting rights, other than as required by law or with respect to matters specifically affecting the Preferred Stock.
The Company agreed to obtain stockholder approval for the issuance of common stock upon conversion of the Preferred Stock as is required by the applicable rules and regulations of the Nasdaq Stock Market, including Nasdaq Listing Standard Rule 5635(d), and including the issuance of common stock upon conversion of the Preferred Shares in excess of 19.99% of the issued and outstanding common stock on the date of the Purchase Agreements. Pursuant to the Purchase Agreements, the Company was required to hold a special meeting of stockholders within 75 calendar days of the date of the Purchase Agreements for the purpose of obtaining stockholder approval. This special meeting of stockholders was held on August 14, 2020, at which the Company’s stockholders approved the conversion of the Series E Preferred Stock and as a result, 34,052,084 shares of common stock were issued on August 17, 2020 in exchange for the 102,156 shares of the Company’s Series E Convertible Preferred Stock.
The Company analyzed the automatic conversion provision related to the Series E Preferred Stock at the original commitment dates and determined the holders received a contingent beneficial conversion feature (BCF) equal to $67.2 million. This amount represents the difference between the Company’s closing stock price at the June 1, 2020 and June 4, 2020 commitment dates ($5.35 and $4.88, respectively) and the $3.00 conversion price. As the automatic conversion provision was contingent on stockholder approval on August 14, 2020, the BCF would be recognized when the contingency was resolved. Upon obtaining stockholder approval, the $67.2 million BCF was recognized in additional paid-in capital and reflected as a deemed dividend to the preferred stockholders in the September 30, 2020 condensed consolidated statement of operations, increasing the net loss attributable to common stockholders and increasing basic net loss per share.
Warrants and Rights Activity Summary
In connection with various debt and equity transactions (see Note 4, “Debt” above and Note 4, "Debt" and Note 6, “Stockholders’ Deficit” in Part II, Item 8 of the 2019 Form 10-K), the Company has issued warrants exercisable for shares of common stock. The following table summarizes warrants activity for the nine months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
Year Issued
|
Expiration Date
|
Number Outstanding as of December 31, 2019
|
Additional Warrants Issued
|
Exercises
|
Expired
|
Exercise Price per Share of Warrants Exercised
|
|
Number Outstanding as of September 30, 2020
|
Exercise Price per Share as of September 30, 2020
|
|
High Trail/Silverback warrants
|
2020
|
January 14, 2022
|
—
|
|
3,000,000
|
|
—
|
|
—
|
|
$
|
—
|
|
|
3,000,000
|
|
$2.87/$3.25
|
|
2020 PIPE right shares
|
2020
|
February 4, 2021
|
—
|
|
8,710,802
|
|
(5,226,481)
|
|
—
|
|
$
|
2.87
|
|
|
3,484,321
|
|
$
|
2.87
|
|
|
January 2020 warrant exercise right shares
|
2020
|
January 31, 2021 and January 31, 2022
|
—
|
|
9,939,159
|
|
—
|
|
—
|
|
$
|
—
|
|
|
9,939,159
|
|
$
|
2.87
|
|
|
Foris LSA warrants
|
2019
|
August 14, 2021
|
3,438,829
|
|
—
|
|
(3,438,829)
|
|
—
|
|
$
|
2.87
|
|
|
—
|
|
$
|
—
|
|
|
November 2019 Foris warrant
|
2019
|
November 27, 2021
|
1,000,000
|
|
—
|
|
(1,000,000)
|
|
—
|
|
$
|
2.87
|
|
|
—
|
|
$
|
—
|
|
|
August 2019 Foris warrant
|
2019
|
August 28, 2021
|
4,871,795
|
|
—
|
|
(4,871,795)
|
|
—
|
|
$
|
2.87
|
|
|
—
|
|
$
|
—
|
|
|
April 2019 PIPE warrants
|
2019
|
April 26, 2021, April 29, 2021 and May 3, 2021
|
8,084,770
|
|
—
|
|
(4,712,781)
|
|
—
|
|
$
|
2.87
|
|
|
3,371,989
|
|
$4.76/$5.02
|
|
April 2019 Foris warrant
|
2019
|
April 16, 2021
|
5,424,804
|
|
—
|
|
(5,424,804)
|
|
—
|
|
$
|
2.87
|
|
|
—
|
|
$
|
—
|
|
|
September and November 2019 Investor Credit Agreement warrants
|
2019
|
September 10, 2021 and November 14, 2021
|
5,233,551
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
5,233,551
|
|
$
|
2.87
|
|
|
Naxyris LSA warrants
|
2019
|
August 14, 2021
|
2,000,000
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
2,000,000
|
|
$
|
2.87
|
|
|
October 2019 Naxyris warrant
|
2019
|
October 28, 2021
|
2,000,000
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
2,000,000
|
|
$
|
3.87
|
|
|
May-June 2019 6% Note Exchange warrants
|
2019
|
May 15, 2021 and June 24, 2021
|
2,181,818
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
2,181,818
|
|
$2.87/$5.12
|
|
May 2019 6.50% Note Exchange warrants
|
2019
|
May 14, 2021 and January 31, 2022
|
1,744,241
|
|
—
|
|
(784,016)
|
|
—
|
|
$
|
2.87
|
|
|
960,225
|
|
$
|
2.87
|
|
|
July 2019 Wolverine warrant
|
2019
|
July 8, 2021
|
1,080,000
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
1,080,000
|
|
$
|
2.87
|
|
|
August 2018 warrant exercise agreements
|
2018
|
May 17, 2020 and May 20, 2020
|
12,097,164
|
|
—
|
|
(4,877,386)
|
|
(7,219,778)
|
|
$
|
2.87
|
|
|
—
|
|
$
|
—
|
|
|
May 2017 cash warrants
|
2017
|
July 10, 2022
|
6,078,156
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
6,078,156
|
|
$
|
2.87
|
|
|
August 2017 cash warrants
|
2017
|
August 7, 2022
|
3,968,116
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
3,968,116
|
|
$
|
2.87
|
|
|
May 2017 dilution warrants
|
2017
|
July 10, 2022
|
3,085,893
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
3,085,893
|
|
$
|
—
|
|
|
August 2017 dilution warrants
|
2017
|
May 23, 2023
|
3,028,983
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
3,028,983
|
|
$
|
—
|
|
|
February 2016 related party private placement
|
2016
|
February 12, 2021
|
171,429
|
|
—
|
|
(152,381)
|
|
—
|
|
$
|
0.15
|
|
|
19,048
|
|
$
|
0.15
|
|
|
July 2015 related party debt exchange
|
2015
|
July 29, 2020 and July 29, 2025
|
133,334
|
|
—
|
|
(133,334)
|
|
—
|
|
$
|
0.15
|
|
|
—
|
|
$
|
—
|
|
|
July 2015 private placement
|
2015
|
July 29, 2020
|
72,650
|
|
—
|
|
(72,650)
|
|
—
|
|
$
|
0.15
|
|
|
—
|
|
$
|
—
|
|
|
July 2015 related party debt exchange
|
2015
|
July 29, 2025
|
58,690
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
58,690
|
|
$
|
0.15
|
|
|
Other
|
2011
|
December 23, 2021
|
1,406
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
1,406
|
|
$
|
160.05
|
|
|
|
|
|
65,755,629
|
|
21,649,961
|
|
(30,694,457)
|
|
(7,219,778)
|
|
|
|
49,491,355
|
|
|
7. Loss per Share
For the three and nine months ended September 30, 2019, basic loss per share was the same as diluted loss per share, because the inclusion of all potentially dilutive securities outstanding was antidilutive.
The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The two-class method also requires losses for the period to be allocated between common stock and participating securities based on their respective rights if the participating security contractually participates in losses. The Company’s convertible preferred stock are participating securities as they contractually entitle the holders of such shares to participate in dividends and contractually require the holders of such shares to participate in the Company’s losses.
The following table presents the calculation of basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(In thousands, except shares and per share amounts)
|
2020
|
2019
|
|
2020
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to Amyris, Inc.
|
$
|
(23,156)
|
|
$
|
(59,562)
|
|
|
$
|
(221,422)
|
|
$
|
(163,893)
|
|
|
Less: deemed dividend to preferred stockholder on issuance and modification of common stock warrants
|
—
|
|
—
|
|
|
—
|
|
(34,964)
|
|
|
Less: deemed dividend to preferred stockholders upon conversion of Series E preferred stock
|
(67,151)
|
|
—
|
|
|
(67,151)
|
|
—
|
|
|
Add: losses allocated to participating securities
|
6,832
|
|
1,655
|
|
|
15,369
|
|
6,233
|
|
|
Net loss attributable to Amyris, Inc. common stockholders, basic
|
$
|
(83,475)
|
|
$
|
(57,907)
|
|
|
$
|
(273,204)
|
|
$
|
(192,624)
|
|
|
Adjustment to earnings allocated to participating securities
|
744
|
|
—
|
|
|
120
|
|
—
|
|
|
Interest on convertible debt
|
1,081
|
|
—
|
|
|
317
|
|
—
|
|
|
Gain from change in fair value of debt
|
(17,221)
|
|
—
|
|
|
(5,945)
|
|
—
|
|
|
Net loss attributable to Amyris, Inc. common stockholders, diluted
|
$
|
(98,871)
|
|
$
|
(57,907)
|
|
|
$
|
(278,712)
|
|
$
|
(192,624)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic
|
227,267,553
|
|
103,449,612
|
|
|
189,192,973
|
|
91,344,150
|
|
|
Basic loss per share
|
$
|
(0.37)
|
|
$
|
(0.56)
|
|
|
$
|
(1.44)
|
|
$
|
(2.11)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
227,267,553
|
|
103,449,612
|
|
|
189,192,973
|
|
91,344,150
|
|
|
Effect of dilutive convertible debt
|
15,464,681
|
|
—
|
|
|
2,313,526
|
|
—
|
|
|
Weighted-average shares of common stock equivalents used in computing loss per share of common stock, diluted
|
242,732,234
|
|
103,449,612
|
|
|
191,506,499
|
|
91,344,150
|
|
|
Diluted loss per share
|
$
|
(0.41)
|
|
$
|
(0.56)
|
|
|
$
|
(1.46)
|
|
$
|
(2.11)
|
|
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted loss per share of common stock because including them would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2020
|
2019
|
|
2020
|
2019
|
|
Period-end common stock warrants
|
43,298,741
|
|
52,612,330
|
|
|
43,298,741
|
|
52,612,330
|
|
|
Convertible promissory notes(1)
|
—
|
|
14,259,214
|
|
|
8,574,399
|
|
14,259,214
|
|
|
Period-end stock options to purchase common stock
|
6,571,703
|
|
5,398,834
|
|
|
6,571,703
|
|
5,398,834
|
|
|
Period-end restricted stock units
|
7,722,630
|
|
4,543,190
|
|
|
7,722,630
|
|
4,543,190
|
|
|
Period-end preferred stock
|
1,943,661
|
|
2,955,732
|
|
|
1,943,661
|
|
2,955,732
|
|
|
Total potentially dilutive securities excluded from computation of diluted loss per share
|
59,536,735
|
|
79,769,300
|
|
|
68,111,134
|
|
79,769,300
|
|
______________
(1) The potentially dilutive effect of convertible promissory notes was computed based on conversion ratios in effect as of the respective period end dates. A portion of the convertible promissory notes issued carries a provision for a reduction in conversion price under certain circumstances, which could potentially increase the dilutive shares outstanding. Another portion of the convertible promissory notes issued carries a provision for an increase in the conversion rate under certain circumstances, which could also potentially increase the dilutive shares outstanding.
8. Commitments and Contingencies
Contingencies
The Company has levied indirect taxes on sugarcane-based biodiesel sales that took place several years ago by Amyris Brasil Ltda. (see Note 12, “Divestiture” in Part II, Item 8 of the 2019 Form 10-K) to customers in Brazil, based on advice from external legal counsel. In the absence of definitive rulings from the Brazilian tax authorities on the appropriate indirect tax rate to be applied to such product sales, the actual indirect rate to be applied to such sales could differ from the rate the Company levied.
On April 3, 2019, a securities class action complaint was filed against Amyris and our CEO, John G. Melo, and former CFO (and current Chief Business Officer), Kathleen Valiasek, in the U.S. District Court for the Northern District of California. The complaint seeks unspecified damages on behalf of a purported class that would comprise all persons and entities that
purchased or otherwise acquired our securities between March 15, 2018 and March 19, 2019. The complaint, which was amended by the lead plaintiff on September 13, 2019, alleges securities law violations based on statements and omissions made by the Company during such period. On October 25, 2019, the defendants filed a motion to dismiss the securities class action complaint, which was denied by the court on October 5, 2020. The Company filed its answer to the securities class action complaint on October 26, 2020. Subsequent to the filing of the securities class action complaint described above, on June 21, 2019 and October 1, 2019, respectively, two separate purported shareholder derivative complaints were filed in the U.S. District Court for the Northern District of California (Bonner v. Doerr, et al., and Carlson v. Doerr, et al.) based on similar allegations to those made in the securities class action complaint described above and naming the Company, and certain of the Company’s current and former officers and directors, as defendants. The derivative lawsuits sought to recover, on the Company’s behalf, unspecified damages purportedly sustained by the Company in connection with allegedly misleading statements and omissions made in connection with the Company’s securities filings. The derivative lawsuits were dismissed on October 18, 2019 (Bonner) and December 10, 2019 (Carlson), without prejudice. We believe the securities class action complaint lacks merit, and intend to continue to defend ourselves vigorously. Given the early stage of these proceedings, it is not yet possible to reliably determine any potential liability that could result from these matters.
On July 24, 2020, a securities class action complaint was filed against Amyris and the members of our Board in the Court of Chancery of the State of Delaware (Flatischler v. Melo, et. al.). The complaint alleged a breach of fiduciary obligation to disclose material information to stockholders in the proxy statement filed with the Securities and Exchange Commission on July 6, 2020 (Proxy), with respect to the Company’s special stockholders’ meeting held on August 14, 2020 (Special Meeting), at which stockholders were to vote to approve the conversion of all outstanding indebtedness under the Foris Convertible Note and of our Series E Preferred Stock issued in the June 2020 PIPE into shares of common stock, in accordance with Nasdaq Listing Standard Rule 5635(d). See Note 4, “Debt,” “Amendment No. 1 to Foris LSA — Foris, Related Party,” and Note 6, “Stockholders’ Deficit,” “June 2020 PIPE,” and “Series E Convertible Preferred Stock and Amendment to Articles of Incorporation or Bylaws” in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information. The plaintiffs sought to enjoin the Special Meeting. On August 6, 2020, the plaintiffs withdrew their complaint as moot following the Company’s filing of a supplement to the Proxy on August 5, 2020. The Proxy supplement provided additional information regarding the approval process of the LSA Amendment and the June 2020 PIPE, and the relationships between the Company and its financial advisors to the June 2020 PIPE. The plaintiffs currently seek an amount for their attorney’s fees and certain legal expenses related to filing the complaint, which the parties are negotiating. Three substantially similar complaints were filed: one on July 28, 2020, in the United States District Court of Delaware (Sabatini v. Amyris, Inc.); one on July 31, 2020, in the Northern District of California (Nair v. Amyris); and another on August 4, 2020, in the Southern District of New York (Chamorro v. Amyris). Amyris answered the Chamorro case on October 19, 2020. The Sabatini and Nair cases were voluntarily dismissed by the plaintiffs on October 8 and October 22, 2020, respectively. For this matter, as of September 30, 2020, the Company has accrued a liability for the plaintiffs’ legal fees and expenses, which are not material.
On September 10, 2020, LAVVAN, Inc. (Lavvan) filed a suit against the Company in the United States District Court for the Southern District of New York alleging breach of contract, patent infringement, and trade secret misappropriation in connection with that certain Research, Collaboration and License Agreement between Lavvan and Amyris, dated March 18, 2019, as amended (Cannabinoid Agreement). Amyris filed motions to compel arbitration or to dismiss on October 2, 2020. On October 30, Lavvan filed its opposition to the Company’s motions. The Company believes that the suit lacks merit and intends to continue to defend itself vigorously. Given the early stage of these proceedings, it is not yet possible to reliably determine any potential liability that could result therefrom.
In addition, the Company is subject to disputes and claims that arise or have arisen in the ordinary course of business and that have not resulted in legal proceedings or have not been fully adjudicated. Such matters that may arise in the ordinary course of business are subject to many uncertainties and outcomes that are not predictable with reasonable assurance, and therefore, an estimate of all the reasonably possible losses cannot be determined at this time. If one or more of these legal disputes or claims resulted in settlements or legal proceedings that were resolved against the Company for amounts in excess of management's expectations, the Company's consolidated financial statements for the relevant reporting period could be materially adversely affected.
Other Matters
Certain conditions may exist as of the date the condensed consolidated financial statements are issued, which may result in a loss to the Company but will only be recorded when one or more future events occur or fail to occur. The Company's management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgement. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or unasserted claims that may result in such proceedings, the Company's management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be reasonably estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
9. Revenue Recognition and Contract Assets and Liabilities
Disaggregation of Revenue
The following table presents revenue by major product and service, as well as by primary geographical market, based on the location of the customer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
(In thousands)
|
2020
|
|
2019
|
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
United States
|
$
|
20,759
|
|
$
|
—
|
|
$
|
263
|
|
$
|
21,022
|
|
|
$
|
9,927
|
|
$
|
—
|
|
$
|
9,114
|
|
$
|
19,041
|
|
|
Europe
|
3,752
|
|
3,563
|
|
919
|
|
8,234
|
|
|
2,609
|
|
2,305
|
|
1,354
|
|
6,268
|
|
|
Asia
|
1,542
|
|
—
|
|
1,936
|
|
3,478
|
|
|
2,398
|
|
—
|
|
4,789
|
|
7,187
|
|
|
Brazil
|
1,298
|
|
—
|
|
—
|
|
1,298
|
|
|
2,272
|
|
—
|
|
28
|
|
2,300
|
|
|
Other
|
226
|
|
—
|
|
—
|
|
226
|
|
|
157
|
|
—
|
|
—
|
|
157
|
|
|
|
$
|
27,577
|
|
$
|
3,563
|
|
$
|
3,118
|
|
$
|
34,258
|
|
|
$
|
17,363
|
|
$
|
2,305
|
|
$
|
15,285
|
|
$
|
34,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
2020
|
|
2019
|
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
United States
|
$
|
49,568
|
|
$
|
—
|
|
$
|
263
|
|
$
|
49,831
|
|
|
$
|
22,806
|
|
$
|
—
|
|
$
|
16,015
|
|
$
|
38,821
|
|
|
Europe
|
10,100
|
|
9,714
|
|
6,073
|
|
25,887
|
|
|
7,565
|
|
43,387
|
|
6,180
|
|
57,132
|
|
|
Asia
|
7,901
|
|
—
|
|
6,724
|
|
14,625
|
|
|
8,015
|
|
—
|
|
5,038
|
|
13,053
|
|
|
Brazil
|
2,546
|
|
—
|
|
—
|
|
2,546
|
|
|
2,787
|
|
—
|
|
34
|
|
2,821
|
|
|
Other
|
504
|
|
—
|
|
—
|
|
504
|
|
|
194
|
|
—
|
|
—
|
|
194
|
|
|
|
$
|
70,619
|
|
$
|
9,714
|
|
$
|
13,060
|
|
$
|
93,393
|
|
|
$
|
41,367
|
|
$
|
43,387
|
|
$
|
27,267
|
|
$
|
112,021
|
|
Significant Revenue Agreements During the Nine Months Ended September 30, 2020
Cannabinoid Agreement
On March 18, 2019, the Company entered into a Research, Collaboration and License Agreement (as amended, the Cannabinoid Agreement) with LAVVAN, Inc., an investment-backed company (Lavvan), for up to $300 million to develop, manufacture and commercialize cannabinoids, subject to certain closing conditions. Under the Cannabinoid Agreement, the Company performs research and development activities, and Lavvan is responsible for manufacturing and commercialization, related to the cannabinoids developed in accordance with the Cannabinoid Agreement. The Cannabinoid Agreement principally funds milestones that include both technical R&D targets and completion of production campaigns, with the Company also entitled to receive certain supplementary research and development funding from Lavvan. Additionally, the Cannabinoid
Agreement provides for profit share to the Company on Lavvan's gross profit margin once the cannabinoid products are commercialized. On May 2, 2019, the parties formed a special purpose entity to hold certain intellectual property created during the collaboration (the Cannabinoid Collaboration IP), the licensing of certain Company intellectual property to Lavvan, the licensing of the Cannabinoid Collaboration IP to the Company and Lavvan, and the granting by the Company to Lavvan of a lien on the Company background intellectual property being licensed to Lavvan under the Cannabinoid Agreement, which lien would be subordinated to the lien on such intellectual property under the Foris Convertible Note (see Note 4, “Debt”). On March 11, 2020, the parties revised the agreement to reflect product specifications and cost assumptions.
The Cannabinoid Agreement is accounted for as a revenue contract under ASC 606, with the total transaction price estimated and updated on a quarterly basis, subject to the variable consideration constraint guidance in ASC 606 using the most likely outcome method to estimate the variable consideration associated with the identified performance obligation. The Company concluded the agreement contained a single performance obligation of research and development services. The Company also concluded that the performance obligation is continuously delivered over time and that revenue recognition is based on an input measure of progress of labor hours incurred compared to total estimated labor hours to be incurred (i.e., proportional performance). Estimates of variable consideration are updated quarterly, based on changes in estimated project plan hours, with proportional performance adjustments to quarterly revenue as necessary. Prior to September 30, 2020, the Company estimated the total unconstrained transaction price to be $145 million, based on a high probability of achieving certain underlying milestones, and had recognized $18.3 million of cumulative revenue to date. As of September 30, 2020, the Company has constrained $282 million of variable consideration which relate to milestones that do not meet the criteria necessary under ASC 606 to be included in the transaction price. The Company recognized no collaboration revenue for the three and nine months ended September 30, 2020, and during the three months ended September 30, 2020, the Company recorded a credit loss reserve against a previously recorded $8.3 million contract asset in connection with the Cannabinoid Agreement. See Contract Assets and Liabilities below for further information.
DSM Ingredients Collaboration
In September 2017, the Company entered into a collaboration agreement with DSM (DSM Collaboration Agreement) to jointly develop a new molecule in the Clean Health market using the Company’s technology (DSM Ingredient), which the Company would have the sole right to manufacture, and DSM would commercialize. Pursuant to the DSM Collaboration Agreement, DSM provides funding for the development of the DSM Ingredients in the form of milestone-based payments and, upon commercialization, the parties would enter into supply agreements whereby DSM would purchase the applicable DSM Ingredient from the Company at prices agreed by the parties. The development services are directed by a joint steering committee with equal representation by DSM and the Company and are governed by a milestone project plan. The timing of milestone achievements is subject to review and revision as agreed by the joint steering committee. In addition, the parties will share profit margin from DSM’s sales of products that incorporate the DSM Ingredient subject to the DSM Collaboration Agreement.
The DSM Collaboration Agreement is accounted for as a revenue contract under ASC 606, and has a total transaction price of $14.1 million, subject to the variable consideration constraint guidance in ASC 606 using the most likely outcome method to estimate the variable consideration associated with the identified performance obligations. The Company concluded the agreement contained three performance obligations of research and development services that are delivered over time and that revenue recognition is based on an input measure of progress as labor hours are expended in the achievement of each milestone. The Company recognized $0.8 million and $5.0 million of collaboration revenue for the three and nine months, respectively, ended September 30, 2020, and $9.9 million of cumulative-to-date collaboration revenues.
Yifan Collaborations
From September 2018 to December 2019, the Company entered into a series of license and collaboration agreements, culminating in a master services agreement for research and development services, with a subsidiary of Yifan Pharmaceutical Co., Ltd. (Yifan), a leading Chinese pharmaceutical company. Upon execution of the master services agreement in December 2019 (the Collaboration Agreement), the Company evaluated and concluded that the series of agreements should be combined and accounted for as a single revenue contract under ASC 606.
The Yifan Collaboration Agreement has a total transaction price of $21.0 million, subject to the variable consideration constraint guidance in ASC 606 using the most likely outcome method to estimate the variable consideration associated with the identified performance obligation. The Company concluded the Collaboration Agreement contained a single performance obligation of research and development services provided continuously over time. The Collaboration Agreement provides for upfront and periodic payments based on project milestones. The Company concluded the performance obligation is delivered
over time and that revenue recognition is based on an input measure of progress of hours incurred compared to total estimated hours to be incurred (i.e., proportional performance). Estimates of variable consideration are updated quarterly, with cumulative adjustments to revenue recorded as necessary. The Company recognized $1.9 million and $6.7 million of collaboration revenue in the three and nine months, respectively, ended September 30, 2020, and $12.8 million of cumulative-to-date collaboration revenue. At September 30, 2020, the Company also recorded a $1.8 million contract asset in connection with the Collaboration Agreement.
DSM Value Sharing Agreement
The original December 2017 DSM Value Sharing Agreement was accounted for as a single performance obligation in connection with a license with fixed and determinable consideration and variable consideration that was accounted for pursuant to the sales-based royalty scope exception. The April 16, 2019 assignment of the December 2017 DSM Value Sharing Agreement was accounted for as a contract modification under ASC 606, resulting in additional fixed and determinable consideration of $37.1 million and variable consideration of $12.5 million in the form of a stand-ready obligation to refund some or all the $12.5 million consideration if certain criteria outlined in the assignment agreement are not met by December 2021. The Company periodically updates its estimate of amounts to be refunded and reduces the refund liability by recording additional license and royalty revenue as the Company’s estimate of the refund obligation decreases. The Company recorded $8.8 million of license and royalty revenue in the fourth quarter of 2019 related to a change in the estimated refund liability and recorded the remaining $3.8 million in the three months ended March 31, 2020 related to a change in the Company’s estimate of the refund liability.
In connection with the significant revenue agreements discussed above and others previously disclosed (see Note 9, “Revenue Recognition” in Part II, Item 8 of the 2019 Form 10-K), the Company recognized the following revenues for the three and nine months ended September 30, 2020 and 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
(In thousands)
|
2020
|
|
2019
|
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
DSM - related party
|
$
|
88
|
|
$
|
—
|
|
$
|
750
|
|
$
|
838
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
844
|
|
$
|
844
|
|
|
Sephora
|
3,501
|
|
—
|
|
—
|
|
3,501
|
|
|
2,625
|
|
—
|
|
—
|
|
2,625
|
|
|
Firmenich
|
5,099
|
|
3,563
|
|
—
|
|
8,662
|
|
|
4,556
|
|
2,305
|
|
400
|
|
7,261
|
|
|
Givaudan
|
2,059
|
|
—
|
|
—
|
|
2,059
|
|
|
3,312
|
|
—
|
|
—
|
|
3,312
|
|
|
Subtotal revenue from significant revenue agreements
|
10,747
|
|
3,563
|
|
750
|
|
15,060
|
|
|
10,493
|
|
2,305
|
|
9,482
|
|
22,280
|
|
|
Revenue from all other customers
|
16,830
|
|
—
|
|
2,368
|
|
19,198
|
|
|
6,870
|
|
—
|
|
5,803
|
|
12,673
|
|
|
Total revenue from all customers
|
$
|
27,577
|
|
$
|
3,563
|
|
$
|
3,118
|
|
$
|
34,258
|
|
|
$
|
17,363
|
|
$
|
2,305
|
|
$
|
15,285
|
|
$
|
34,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
2020
|
|
2019
|
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
Total
|
|
DSM - related party
|
$
|
193
|
|
$
|
3,750
|
|
$
|
5,019
|
|
$
|
8,962
|
|
|
$
|
2
|
|
$
|
40,302
|
|
$
|
3,886
|
|
$
|
44,190
|
|
|
Sephora
|
10,389
|
|
—
|
|
—
|
|
10,389
|
|
|
6,369
|
|
—
|
|
—
|
|
6,369
|
|
|
Firmenich
|
7,308
|
|
5,964
|
|
454
|
|
13,726
|
|
|
6,439
|
|
3,085
|
|
1,413
|
|
10,937
|
|
|
Givaudan
|
5,328
|
|
—
|
|
—
|
|
5,328
|
|
|
6,127
|
|
—
|
|
—
|
|
6,127
|
|
|
Subtotal revenue from significant revenue agreements
|
23,218
|
|
9,714
|
|
5,473
|
|
38,405
|
|
|
18,937
|
|
43,387
|
|
17,041
|
|
79,365
|
|
|
Revenue from all other customers
|
47,401
|
|
—
|
|
7,587
|
|
54,988
|
|
|
22,430
|
|
—
|
|
10,226
|
|
32,656
|
|
|
Total revenue from all customers
|
$
|
70,619
|
|
$
|
9,714
|
|
$
|
13,060
|
|
$
|
93,393
|
|
|
$
|
41,367
|
|
$
|
43,387
|
|
$
|
27,267
|
|
$
|
112,021
|
|
Contract Assets and Liabilities
When a contract results in revenue being recognized in excess of the amount the Company has invoiced or has the right to invoice to the customer, a contract asset is recognized. Contract assets are transferred to accounts receivable, net when the rights to the consideration become unconditional.
Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services such that control has not passed to the customer.
Trade receivables related to revenue from contracts with customers are included in accounts receivable on the condensed consolidated balance sheets, net of the allowance for doubtful accounts. Trade receivables are recorded for the sale of goods or the performance of services at the point of renewable product sale or in accordance with the contractual payment terms for licenses and royalties, and grants and collaborative research and development services for the amount payable by the customer to the Company.
Contract Balances
The following table provides information about accounts receivable, contract liabilities and refund liability from contracts with customers:
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|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Accounts receivable, net
|
$
|
27,365
|
|
$
|
16,322
|
|
|
Accounts receivable - related party, net
|
$
|
419
|
|
$
|
3,868
|
|
|
Contract assets
|
$
|
2,082
|
|
$
|
8,485
|
|
|
Contract assets - related party
|
$
|
1,203
|
|
$
|
—
|
|
|
Contract assets, noncurrent - related party
|
$
|
—
|
|
$
|
1,203
|
|
|
Contract liabilities
|
$
|
4,430
|
|
$
|
1,353
|
|
|
Contract liabilities, noncurrent(1)
|
$
|
111
|
|
$
|
1,449
|
|
(1)As of September 30, 2020 and December 31, 2019, contract liabilities, noncurrent is presented in Other noncurrent liabilities in the condensed consolidated balance sheets.
During the three months ended September 30, 2020, the collaboration partner in the Cannabinoid Agreement filed certain litigation claims and, among other things, alleging breach of contract. As a result, the Company concluded that realization and recoverability of an $8.3 million contract asset recorded in connection with the Cannabinoid Agreement was no longer probable. The Company recorded an $8.3 million credit loss reserve against this contract asset during the three months ended September 30, 2020.
Remaining Performance Obligations
The following table provides information regarding the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) based on the Company's existing agreements with customers as of September 30, 2020.
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|
|
|
|
|
|
|
(In thousands)
|
As of September 30, 2020
|
|
Remaining 2020
|
$
|
1,928
|
|
|
2021
|
5,052
|
|
|
2022
|
1,630
|
|
|
2023 and thereafter
|
571
|
|
|
Total from all customers
|
$
|
9,181
|
|
In accordance with the disclosure provisions of ASC 606, the table above excludes estimated future revenues for performance obligations that are part of a contract that has an original expected duration of one year or less or a performance obligation with variable consideration that is recognized using the sales-based royalty exception for licenses of intellectual property. Additionally, approximately $302.1 million of estimated future revenue is excluded from the table above, as that amount represents constrained variable consideration.
10. Related Party Transactions
Related Party Debt
See Note 4, "Debt," for details of these related party debt transactions during the nine months ended September 30, 2020:
•Debt equitization – Foris
•$5 million unsecured loan - Foris
•2014 Rule 144A Note exchange, extensions and conversion – Total
•LSA Amendment - Foris
Related party debt was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
In thousands
|
Principal
|
Unaccreted Debt Discount
|
Change in Fair Value
|
Net
|
|
Principal
|
Unaccreted Debt Discount
|
Change in Fair Value
|
Net
|
|
Foris notes
|
$
|
55,041
|
|
$
|
—
|
|
$
|
8,426
|
|
$
|
63,467
|
|
|
$
|
115,351
|
|
$
|
(9,516)
|
|
$
|
—
|
|
$
|
105,835
|
|
|
DSM notes
|
33,000
|
|
(3,007)
|
|
—
|
|
29,993
|
|
|
33,000
|
|
(4,621)
|
|
—
|
|
28,379
|
|
|
Naxyris note
|
23,914
|
|
(575)
|
|
—
|
|
23,339
|
|
|
24,437
|
|
(822)
|
|
—
|
|
23,615
|
|
|
Total 2014 Rule 144A convertible note
|
—
|
|
—
|
|
—
|
|
—
|
|
|
10,178
|
|
—
|
|
—
|
|
10,178
|
|
|
|
$
|
111,955
|
|
$
|
(3,582)
|
|
$
|
8,426
|
|
$
|
116,799
|
|
|
$
|
182,966
|
|
$
|
(14,959)
|
|
$
|
—
|
|
$
|
168,007
|
|
Related Party Equity
See Note 6, "Stockholders' Deficit," for details of these related party equity transactions during the nine months ended September 30, 2020:
•Foris warrant exercises for cash
•Foris warrant exercise, common stock purchase and debt equitization
•January 2020 private placement, in which Foris purchased 5,226,481 shares of common stock
•June 2020 private placement, in which Foris and affiliated entities purchased 30,000 shares of Series E convertible preferred stock, which automatically converted into 9,999,999 shares of common stock in August 2020 after stockholders approved the conversion of the Series E convertible preferred stock and corresponding issuance of underlying common shares
•June 2020 private placement, in which Vivo Capital LLC and affiliated entities purchased 3,689,225 shares of common stock and 8,932.32 shares of Series E convertible preferred stock, which automatically converted into 2,977,442 shares of common stock in August 2020 after stockholders approved the conversion of the Series E convertible preferred stock and corresponding issuance of underlying common shares
Related Party Accounts Receivable, Unbilled Receivables and Accounts Payable
Related party accounts receivable, unbilled receivables and accounts payable were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
September 30, 2020
|
December 31, 2019
|
|
Accounts receivable - related party
|
$
|
419
|
|
$
|
3,868
|
|
|
Contract assets - related party
|
$
|
1,203
|
|
$
|
—
|
|
|
Contract assets, noncurrent - related party
|
$
|
—
|
|
$
|
1,203
|
|
|
Accounts payable
|
$
|
5,789
|
|
$
|
13,957
|
|
11. Stock-based Compensation
The Company’s stock option activity and related information for the nine months ended September 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity of Stock Options
|
Weighted-
average
Exercise
Price
|
Weighted-average
Remaining
Contractual
Life, in Years
|
Aggregate
Intrinsic
Value, in Thousands
|
|
Outstanding - December 31, 2019
|
5,620,419
|
|
$
|
10.27
|
|
7.8
|
$
|
24
|
|
|
Granted
|
1,258,298
|
|
$
|
3.76
|
|
|
|
|
Exercised
|
(5,227)
|
|
$
|
2.99
|
|
|
|
|
Forfeited or expired
|
(301,787)
|
|
$
|
39.38
|
|
|
|
|
Outstanding - September 30, 2020
|
6,571,703
|
|
$
|
7.69
|
|
7.8
|
$
|
50
|
|
|
Vested or expected to vest after September 30, 2020
|
6,024,158
|
|
$
|
7.96
|
|
7.8
|
$
|
46
|
|
|
Exercisable at September 30, 2020
|
1,440,934
|
|
$
|
18.26
|
|
6.3
|
$
|
4
|
|
The Company’s restricted stock units (RSUs) activity and related information for the nine months ended September 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantity of Restricted Stock Units
|
Weighted-average Grant-date Fair Value
|
Weighted-average Remaining Contractual Life, in Years
|
|
Outstanding - December 31, 2019
|
5,782,651
|
|
$
|
4.77
|
|
1.7
|
|
Awarded
|
4,333,999
|
|
$
|
3.74
|
|
|
|
Released
|
(1,830,077)
|
|
$
|
4.88
|
|
|
|
Forfeited
|
(563,943)
|
|
$
|
4.35
|
|
|
|
Outstanding - September 30, 2020
|
7,722,630
|
|
$
|
4.19
|
|
1.6
|
|
Vested or expected to vest after September 30, 2020
|
7,060,040
|
|
$
|
4.21
|
|
1.6
|
Stock-based compensation expense related to employee and non-employee options, RSUs and ESPP during the three and nine months ended September 30, 2020 and 2019 was allocated to research and development expense and sales, general and administrative expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
(In thousands)
|
2020
|
2019
|
|
2020
|
2019
|
|
Research and development
|
$
|
928
|
|
$
|
663
|
|
|
$
|
2,774
|
|
$
|
2,002
|
|
|
Sales, general and administrative
|
2,492
|
|
2,571
|
|
|
7,081
|
|
8,058
|
|
|
Total stock-based compensation expense
|
$
|
3,420
|
|
$
|
3,234
|
|
|
$
|
9,855
|
|
$
|
10,060
|
|
As of September 30, 2020, there was unrecognized compensation expense of $33.6 million related to stock options and RSUs. The Company expects to recognize this expense over a weighted-average period of 2.6 years.
Evergreen Shares for 2010 Equity Incentive Plan and 2010 Employee Stock Purchase Plan
In February 2020, the Board approved increases to the number of shares available for issuance under the Company's 2010 Equity Incentive Plan (the Equity Plan) and 2010 Employee Stock Purchase Plan (the Purchase Plan). These shares in connection with the Equity Plan represented an automatic annual increase in the number of shares available for grant and issuance under the Equity Plan of 5,887,133 shares (Evergreen Shares). This increase is equal to approximately 5.0% of the 117,742,677 total outstanding shares of the Company’s common stock as of December 31, 2019. This automatic increase was effective as of January 1, 2020. These shares in connection with the Purchase Plan represented an automatic annual increase in the number of shares reserved for issuance under the Purchase Plan of 588,713 shares. This increase is equal to approximately 0.5% of the 117,742,677 total outstanding shares of the Company’s common stock as of December 31, 2019. This automatic increase was effective as of January 1, 2020.
In May 2020, the Company’s stockholders approved the Company’s 2020 Equity Incentive Plan (the New Plan) to replace the Equity Plan that expired in June 2020. The shares available for grant and issuance under the New Plan represent 9,896,751 shares of common stock previously reserved but unissued under the Equity Plan, including the Evergreen Shares. No additional stock awards will be granted under the Equity Plan, and, (a) shares that are subject to stock options or other awards granted under the Equity Plan that cease to be subject to such stock options or other awards by forfeiture or otherwise, (b) shares issued under the Equity Plan pursuant to the exercise of stock options that are forfeited, (c) shares issued under the Equity Plan that are repurchased by the Company at the original issue price and (d) shares that are subject to stock options or other awards under the Equity Plan that are used to pay the exercise price of an option or withheld to satisfy the tax withholding obligations related to any award will be available for future grant and issuance under the New Plan.
12. Subsequent Events
The Company has evaluated subsequent events through the November 6, 2020 issuance of these condensed consolidated financial statements. No subsequent events have occurred that require disclosure.