Notes
to Condensed Consolidated Financial Statements
June
30, 2021
(Unaudited)
1.
Summary of Business, Basis of Presentation
Marrone
Bio Innovations, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on June 15, 2006, and is
located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM
LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. In September 2019 the Company closed
its acquisition of Pro Farm Technologies OY, a Finnish limited company, which consisted of Pro Farm Technologies OY and its five subsidiaries
Pro Farm International Oy (Finland), Pro Farm OU (Estonia), Pro Farm Technologies Comercio de Insumos Agricolas do Brasil ltda. (Brazil
– 99% controlling interest), Pro Farm Inc. (Delaware), and Glinatur SA (Uruguay) (collectively “Pro Farm”). As a result
of the acquisition, Pro Farm became a wholly-owned subsidiary of the Company. In December 2019, the Company created its subsidiary Pro
Farm Russia, LLC (Russia). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and
substantially owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The
accompanying condensed consolidated financial information as of June 30, 2021, and for the three and six months ended June 30, 2021 and
2020, has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States
(“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding
interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim
periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information
included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying
notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2020.
In
the opinion of management, the condensed consolidated financial statements as of June 30, 2021, and for the three and six months ended
June 30, 2021 and 2020, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial
position, results of operations and cash flows. The results of operations for the three and six months ended June 30, 2021 are not necessarily
indicative of the operating results for the full fiscal year or any future periods.
The
Company is a growth-oriented agricultural company that supports environmentally sustainable farming practices through the discovery,
development and sale of innovative biological products for crop protection, crop health and crop nutrition. The Company’s products
are sold through distributors and other commercial partners to growers around the world for use in integrated pest management systems
that improve efficacy and increase yields while protecting the environment. The Company’s products are often used in conjunction
with or as an alternative to other agricultural solutions to control pests and enhance plant nutrition and health.
The
Company’s portfolio of 15 products helps customers operate more sustainably while increasing their return on investment. The Company’s
products are used globally and can be applied as foliar treatments or as seed-and-soil treatments, either on their own or in combination
with other agricultural products. The Company targets the major markets that use conventional chemical pesticides and fertilizers where
the Company’s biological products are used as alternatives or mixed with, conventional chemical products. The Company also targets
new markets for which there are no available conventional chemical products or for which the use of conventional chemical products may
not be desirable (including for organically certified crops) or permissible, either because of health and environmental concerns or because
the development of pest resistance has reduced the efficacy of conventional chemical pesticides. The Company sell its products through
distributors and other commercial partners to growers who use the Company’s bioprotection products to manage pests and plant diseases,
the Company’s plant health products to reduce crop stress and both the Company’s plant health and bionutrition products to
increase yields and quality.
Liquidity
The
Company funds operations primarily with the proceeds from the sale of its products, promissory notes and term loans, and net proceeds
from issuance and exercise of equity instruments. The Company will need to generate significant revenue growth to achieve and maintain
profitability. As of June 30, 2021, the Company had a working capital surplus of $13,553,000, including cash and cash equivalents of
$17,465,000. In addition, as of June 30, 2021, the Company had debt and debt due to related parties of $23,524,000 and $7,300,000, respectively,
for which the underlying debt agreements contain various financial and non-financial covenants, as well as certain material adverse change
clauses. As of June 30, 2021, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements. (Refer to Note
6 of these condensed consolidated financial statements)
In
April 2020, the Company entered into a Warrant Exchange Agreement (the “Warrant Exchange Agreement”) with a group of historical
investors (the “Investors”) pursuant to which the Company issued new warrants to the Investors (“April 2020 Warrants”)
in exchange for cancellation of all of their outstanding warrants. The April 2020 Warrants all have an exercise price of $0.75 per share,
and expire in five tranches. As of June 30, 2021 approximately 24,995,000 shares under the April 2020 Warrants were exercised prior to
each of the four tranche expiration dates, leaving only the fifth tranche with an expiration date of December 15, 2021 with respect to
4,885,317 of the April 2020 Warrants remaining. (Refer to Note 7 of these condensed consolidated financial statements).
In
December 2020, the Company also entered into an amendment (the “Warrant Amendment” to a previously outstanding warrant (the
“Amended Warrant”) to purchase 5,333,333
shares of the Company’s common stock issued
to a historical warrant holder (the “Amended Warrant Holder”) on February 5, 2018. As of June 30, 2021, 3,555,556
shares under the Amended Warrant were exercised,
leaving warrants to purchase 1,777,777
shares of the Company’s common stock
under the Amended Warrants remaining with an expiration date of
December
15, 2021. (Refer to Note 7 of these condensed
consolidated financial statements).
There
can be no assurance that the Investors or the Amended Warrant Holder will exercise the remaining April 2020 Warrants and the Amended
Warrant prior to their respective expiration date. (Refer to Note 7 of these condensed consolidated financial statements).
As of June 30, 2021 the Company is in compliance
with its debt covenants. In previous periods, the Company exceeded its maximum debt-to-worth requirement and triggered the material
adverse change clause under the June 2014 Secured Promissory Note with Five Star Bank, however, the Company received a waiver
of the debt covenant from Five Star Bank, which currently expires on May 31, 2022. In the future, if the Company breaches covenants contained
within its debt agreements without entering into continuation of the current waiver, or if the material adverse change clauses are
triggered, the entire unpaid principal and interest balances would be due and payable upon demand. Further, a violation of a covenant
in one debt agreement will cause the Company to be in violation of certain covenants under each of its other debt agreements. Breach
of covenants included in the Company’s debt agreements, which could result in the lenders demanding payment of the unpaid principal
and interest balances, will have a material adverse effect upon the Company’s financial condition and ability to continue as a
going concern.
The
Company’s historical operating results, including prior periods of significant losses and negative use of operating cash flows,
may indicate that probable substantial doubt exists related to the Company’s ability to continue as a going concern for
the next 12 months from the date of issuance of these condensed consolidated financial statements. The Company believes that its existing
cash and cash equivalents at June 30, 2021, together with expected revenues and, cost management, will be sufficient to fund operations
as currently planned through one year from the date of the issuance of these condensed consolidated financial statements and therefore
has alleviated doubts related to the Company’s ability to continue as a going concern.
2.
Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The
Company used significant estimates in accounting for assumptions and estimates associated with revenue recognition, including assumptions
and estimates used in determining the timing and amount of revenue to recognize for those transactions with variable considerations,
reserves for inventory obsolescence, fair value of stock-based compensation, and forecasted estimates and assumptions related to impairment
analysis for long lived assets, intangibles, and goodwill and contingent considerations related to Pro Farm, assumptions and estimates
associated with the fair value of warrants and in its going concern analysis.
Concentrations
of Credit Risks
Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts
receivable and debt. The Company deposits its cash and cash equivalents with high credit quality domestic financial institutions with
locations in the U.S. and internationally. Such deposits may exceed federal or national deposit insurance limits. The Company believes
the financial risks associated with these financial instruments are minimal.
The
Company’s customer base is dispersed across many different geographic areas, and currently most customers are pest management distributors
in the U.S. Generally, receivables are due up to 120 days from the invoice date and are considered past due after this date, although
the Company may offer extended terms from time to time. The Company has provided extended payment terms on a case-by-case basis with
a certain customer as a result of COVID-19.
The
Company’s principal sources of revenues are its Regalia, Grandevo, Venerate and UPB-110 ST product lines. These four product lines
accounted for 88% and 84% of the Company’s total revenues for each of the three months ended June 30, 2021 and 2020. These four
product lines accounted for 89% and 87% of the Company’s total revenues for each of the six months ended June 30, 2021 and 2020.
Revenues
generated from international customers were 25% and 34% for the three months ended June 30, 2021 and 2020, respectively. Revenues generated
from international customers were 16% and 25% for the six months ended June 30, 2021 and 2020, respectively. For both the three and six
months ended June 30, 2021 and 2020, international customers were primarily concentrated in the European Union.
Customers
to which 10% or more of the Company’s total revenues are attributable for the three months ended June 30, 2021 and 2020 consist
of the following:
Schedule of Significant Customer's Revenues and Account Receivable Percentage
|
|
CUSTOMER
|
|
|
|
A
|
|
|
B
|
|
|
C
|
|
|
D
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
13
|
%
|
|
|
11
|
%
|
2020
|
|
|
30
|
%
|
|
|
1
|
%
|
|
|
15
|
%
|
|
|
7
|
%
|
Customers
to which 10% or more of the Company’s total revenues are attributable for the six months ended June 30, 2021 and 2020 consist of
the following:
|
|
CUSTOMER
|
|
|
|
A
|
|
|
B
|
|
|
C
|
|
|
D
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
21
|
%
|
|
|
16
|
%
|
|
|
9
|
%
|
|
|
8
|
%
|
2020
|
|
|
16
|
%
|
|
|
10
|
%
|
|
|
17
|
%
|
|
|
10
|
%
|
Customers
to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either June 30, 2021 or December 31,
2020, which may or may not correspond with any of the customers above, consist of the following:
|
|
CUSTOMER
|
|
|
|
A
|
|
|
B
|
|
|
C
|
|
|
D
|
|
|
E
|
|
|
F
|
|
June 30, 2021
|
|
|
22
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
|
|
0
|
%
|
December 31, 2020
|
|
|
2
|
%
|
|
|
49
|
%
|
|
|
4
|
%
|
|
|
14
|
%
|
|
|
0
|
%
|
|
|
14
|
%
|
Concentrations
of Supplier Dependence
The
active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from
China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional
sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing
plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship
with this supplier. The Company endeavors to keep 10 months of knotweed extract on hand at any given time, but an unexpected disruption
in supply including disruptions resulting from the COVID-19 pandemic, could have an effect on Regalia supply and revenues. Although the
Company has identified additional sources of raw knotweed, there can be no assurance that the Company will continue to be able to obtain
dried extract from China at a competitive price.
The
Company continues to rely on third parties to formulate Grandevo into spray-dried powders, for all of its production of Venerate, Majestene/Zelto,
Stargus and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand
and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand
and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion
of its products, or for a portion of the manufacturing process, particularly for drying and for all of its production of Venerate, may
adversely affect its ability to satisfy demand and meet delivery obligations, as well as to develop and commercialize new products, on
a timely and competitive basis. The Company has not entered into any long-term manufacturing or supply agreements for any of its products,
and it may need to enter into additional agreements for the commercial development, manufacturing and sale of its products. There can
be no assurance that it can do so on favorable terms, if at all.
Products
produced by the Company’s Pro Farm subsidiary, including UBP and Foramin, are partially sourced by suppliers from a manufacturing
plant in Russia, in which the Company owns a 12%
interest. The Company plans for enough inventory
on hand to fill its revenue forecasts for 12 months at any given time, but an unexpected disruption in supply could have an adverse effect
on the supply and revenues related to the subsidiary. Although the Company has identified additional manufacturers who are capable of
supplying the products, there can be no assurance that the Company will continue to be able to obtain products at a competitive price.
Cash
and Cash Equivalents
The
following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated
statements of cash flows (in thousands):
Schedule of Cash, Cash Equivalents and Restricted Cash
|
|
JUNE 30,
|
|
|
DECEMBER 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash and cash equivalents
|
|
$
|
17,465
|
|
|
$
|
15,841
|
|
Restricted cash, less current portion
|
|
|
1,560
|
|
|
|
1,560
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
19,025
|
|
|
$
|
17,401
|
|
Restricted
Cash
The
Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms
of its June 2014 Secured Promissory Note. (Refer to Note 6 of these condensed consolidated financial statements.)
Intangible
Assets
The
Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount
by which the carrying value exceeds the fair value. The Company’s intangible assets include customer relationships, patents, trademarks,
and in process research and development acquired in 2019 in connection with its asset acquisition of the Jet-Ag and Jet-Oxide product
lines and the Company’s acquisition of Pro Farm.
Long-Lived
Assets
Impairment
losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds
fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if
it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group).
If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount
by which the carrying value of the asset or asset group exceeds its estimated fair value.
Goodwill
Goodwill
represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on
an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances
indicate that the carrying amount of goodwill may be impaired. The Company’s goodwill was recognized in connection with its acquisition
of Pro Farm.
Fair
Value
Accounting
Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit
price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants
would use in pricing an asset or liability.
ASC
820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use
of unobservable inputs. ASC 820 establishes a three-tier value hierarchy, which prioritizes inputs that may be used to measure fair value
as follows:
●
Level 1—Quoted prices in active markets for identical assets or liabilities.
●
Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical
or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market
data for substantially the full term of the assets or liabilities.
●
Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants
would use in pricing the asset or liability.
Deferred
Revenue
When
the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods
or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability.
The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer
and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows (in thousands):
Schedule of Deferred Revenue
|
|
JUNE 30,
|
|
|
DECEMBER 31,
|
|
|
|
2021
|
|
|
2020
|
|
Product revenues
|
|
$
|
116
|
|
|
$
|
189
|
|
Financing costs
|
|
|
504
|
|
|
|
581
|
|
License revenues
|
|
|
1,096
|
|
|
|
1,232
|
|
Total deferred revenues
|
|
|
1,716
|
|
|
|
2,002
|
|
Less current portion
|
|
|
(388
|
)
|
|
|
(374
|
)
|
Long term portion
|
|
$
|
1,328
|
|
|
$
|
1,628
|
|
Research,
Development and Patent Expenses
Research
and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and
lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations
as incurred. For the three months ended June 30, 2021 and 2020, research and development expenses totaled $2,578,000
and $2,076,000,
respectively, and patent expenses totaled $258,000
and $236,000,
respectively. For the six months ended June 30, 2021 and 2020, research and development expenses totaled $4,873,000
and $4,956,000,
respectively, and patent expenses totaled $475,000
and $590,000,
respectively. In connection with the Company’s receipt of PPP funds, for each of the three and six months ended June 30, 2020,
expenses for research, development and patent expenses were reduced by $702,000.
Shipping
and Handling Costs
Amounts
billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included
as a component of cost of product revenues. Shipping and handling costs for the three months ended June 30, 2021 and 2020 were $733,000
and $416,000, respectively. Shipping and handling costs for the six months ended June 30, 2021 and 2020 were $1,078,000 and $718,000,
respectively.
Advertising
The
Company expenses advertising costs as incurred and has included these expenses as a component of selling, general and administrative
costs. Advertising costs for the three months ended June 30, 2021 and 2020 were $184,000 and $139,000, respectively. Advertising costs
for the six months ended June 30, 2021 and 2020 were $295,000 and $290,000, respectively.
Depreciation
and Amortization
The
Company depreciates and amortizes its capitalized property, plant, and equipment and intangible assets over the useful life of each asset
utilizing a straight-line method of expensing. All depreciation and amortization expenses are included in the “Selling, general,
and administrative” caption in the condensed consolidated statement of operations.
For
the three months ended June 30, 2021 and 2020, the total amount of depreciation expense was $298,000
and $301,000,
respectively. For the six months ended June 30, 2021 and 2020, the total amount of depreciation expense was $579,000
and $589,000,
respectively.
For
the three months ended June 30, 2021 and 2020, the total amount of amortization expense was $586,000
and $605,000,
respectively. For the six months ended June 30, 2021 and 2020, the
total amount of amortization expense was $1,172,000
and $1,176,000,
respectively.
Segment
Information
The
Company is organized as a single operating segment, whereby its chief operating decision maker assesses the performance of and allocates
resources to the business as a whole.
Net
Loss Per Share
Net
loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation
of basic and diluted net loss per share is the same for all periods presented as the effect of certain potential common stock equivalents,
which consist of stock options and warrants to purchase common stock and restricted stock units, and contingent shares to be issued in
the future are anti-dilutive due to the Company’s net loss position. Anti-dilutive common stock equivalents are excluded from diluted
net loss per share. The following table sets forth the potential shares of common stock as of the end of each period presented that are
not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands):
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
|
2021
|
|
|
2020
|
|
Stock options outstanding
|
|
|
13,551
|
|
|
|
11,181
|
|
Warrants to purchase common stock
|
|
|
6,814
|
|
|
|
33,158
|
|
Restricted stock units outstanding
|
|
|
4,918
|
|
|
|
3,429
|
|
Common shares to be issued in lieu of agent fees
|
|
|
498
|
|
|
|
498
|
|
Employee stock purchase plan
|
|
|
22
|
|
|
|
9
|
|
Maximum contingent consideration shares to be issued
|
|
|
5,414
|
|
|
|
5,972
|
|
Anti-dilutive securities
excluded from computation of earning per share
|
|
|
31,217
|
|
|
|
54,247
|
|
Recently
Issued Accounting Pronouncements
In
May 2021, the FASB issued Accounting Standards Update No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments
(Subtopic 470-50), Compensation – Stock Based Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s
Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written
Call Options” (“ASU No. 2021-04”), which clarified an issuer’s accounting for modification or exchanges of freestanding
equity-classified written call options that remain equity classified after modification or exchange. The provisions of ASU No. 2021-04
are effective for annual reporting periods beginning after December 15, 2021, and interim reporting periods within those annual periods,
with early adoption permitted, including adoption in any interim period for public business entities for periods for which consolidated
financial statements have not yet been issued or made available for issuance. This ASU shall be applied on a prospective basis. The Company
has not yet determined the impact of implementing this new standard on the condensed consolidated financial statements.
3.
Inventory
Inventories consist of the following (in thousands):
Schedule of Inventory
|
|
JUNE 30,
|
|
|
DECEMBER 31,
|
|
|
|
2021
|
|
|
2020
|
|
Raw materials
|
|
$
|
2,672
|
|
|
$
|
2,487
|
|
Work in progress
|
|
|
732
|
|
|
|
987
|
|
Finished goods
|
|
|
3,075
|
|
|
|
3,144
|
|
Inventories, net
|
|
$
|
6,479
|
|
|
$
|
6,618
|
|
As
of June 30, 2021 and December 31, 2020, the Company had $406,000 and $387,000, respectively, in reserves against its inventories. For
the three months ended June 30, 2021 and 2020, the Company recorded an adjustment of $158,000 and $386,000, respectively, as a result
of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity. For the six months
ended June 30, 2021 and 2020, the Company recorded an adjustment of $386,000 and $630,000, respectively, as a result of actual utilization
of the Company’s manufacturing plant being less than what is considered normal capacity.
4.
Right-Of-Use of Assets and Lease Liability
On
March 31, 2021 the Company entered into a lease agreement for approximately 415 square meters of office and laboratory space located
in Helsinki, Finland. The initial term of the lease is for a period of 24 months and requires a 6-month notice prior to termination.
The minimum monthly rent is €9,462 per month, subject to increase based on the consumer price index increase on January 1 of each
fiscal year if, applicable. The operating lease resulted in the Company recognizing both a right-of-use asset and lease liability utilizing
the Company’s incremental borrowing rate in the amounts of €220,000 and €227,000, respectively.
The
components of lease expense were as follows for each of the comparative three months ended June 30, 2021 and 2020 (in thousands):
Schedule of Components of Lease Expense
|
|
2021
|
|
|
2020
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
JUNE 30,
|
|
|
JUNE 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
326
|
|
|
$
|
289
|
|
Short-term lease cost
|
|
|
50
|
|
|
|
32
|
|
Sublease income
|
|
|
-
|
|
|
|
(10
|
)
|
Total operating lease costs:
|
|
$
|
376
|
|
|
$
|
311
|
|
The
components of lease expense were as follows for each of the comparative six months ended June 30, 2021 and 2020 (in thousands):
|
|
2021
|
|
|
2020
|
|
|
|
SIX MONTHS ENDED
|
|
|
|
JUNE 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
616
|
|
|
$
|
574
|
|
Short-term lease cost
|
|
|
91
|
|
|
|
71
|
|
Sublease income
|
|
|
-
|
|
|
|
(20
|
)
|
Total operating lease costs:
|
|
$
|
707
|
|
|
$
|
625
|
|
Maturities
of lease liabilities for each future calendar year as of June 30, 2021 are as follows (in thousands):
Schedule of Maturities of Lease Liabilities
|
|
OPERATING
|
|
|
|
LEASES
|
|
2021
|
|
$
|
691
|
|
2022
|
|
|
1,414
|
|
2023
|
|
|
1,339
|
|
2024
|
|
|
867
|
|
Total lease payments
|
|
|
4,311
|
|
Less: imputed interest
|
|
|
459
|
|
Total lease obligation
|
|
|
3,852
|
|
Less lease obligation, current portion
|
|
|
1,170
|
|
Lease obligation, non-current portion
|
|
$
|
2,682
|
|
5.
Accrued Liabilities
Accrued
liabilities consist of the following (in thousands):
Schedule of Accrued Liabilities
|
|
JUNE 30,
|
|
|
DECEMBER 31,
|
|
|
|
2021
|
|
|
2020
|
|
Accrued compensation
|
|
$
|
2,883
|
|
|
$
|
3,495
|
|
|
|
|
|
|
|
|
|
|
Accrued warranty costs
|
|
|
471
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
Accrued customer incentives
|
|
|
5,583
|
|
|
|
4,288
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities, acquisition related
|
|
|
28
|
|
|
|
1,463
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities, other
|
|
|
1,978
|
|
|
|
1,929
|
|
|
|
|
|
|
|
|
|
|
Accrued Liabilities
|
|
$
|
10,943
|
|
|
$
|
11,650
|
|
Contingent
Consideration
As
of June 30, 2021, the contingent consideration in connection with the Company’s acquisition of Pro Farm was accounted for as a
liability at its fair value. The following table provides a reconciliation of the activity for the contingent consideration measured
between the most recent reporting period and as of the balance sheet date based on the fair value using significant inputs including
the unobservable inputs (Level 3) (in thousands):
Schedule
of Liability Measured at Fair Value Using Unobservable Inputs
|
|
CONTINGENT
|
|
|
|
CONSIDERATION
|
|
|
|
LIABILITY
|
|
Fair value at December 31, 2020
|
|
$
|
2,182
|
|
Change in estimated fair value recorded of contingent consideration
|
|
|
(134
|
)
|
Fair value at March 31, 2021
|
|
|
2,048
|
|
Change in estimated fair value recorded of contingent consideration
|
|
|
178
|
|
Settlement of contingent consideration
|
|
|
(1,004
|
)
|
Fair value at June 30, 2021
|
|
$
|
1,222
|
|
The
change in fair value for the reporting period was driven by the result of the unobservable fair value model, a Monte Carlo simulation
in a risk-neutral framework assuming Geometric Browning Motion. The most significant input to the model was the estimated results of
the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2021 – 2023. The following represents other
inputs used in determining the fair value of the contingent consideration liability:
Schedule of Significant Assumptions Utilized in the Fair Value of Liabilities
|
|
JUNE 30,
|
|
|
MARCH 31,
|
|
|
|
2021
|
|
|
2021
|
|
Discount rate
|
|
|
15.5
|
%
|
|
|
16.0
|
%
|
Volatility
|
|
|
63.0
|
%
|
|
|
49.2
|
%
|
Credit spread
|
|
|
7.9
|
%
|
|
|
8.9
|
%
|
Risk-free rate
|
|
|
0.4
|
%
|
|
|
0.4
|
%
|
Discount
Rate. Discount rate is based on an adjusted weighted cost of capital contribution considering an estimated operational leverage ratio
and a risk-free rate, each (other than the risk-free rate) determined by publicly traded peer group median.
Estimated
Volatility Factor. Volatility factor is based on the adjusted weighted cost of capital, operating asset volatility, operating leverage
ratio and risk-free interest rate, each (other than the risk-free rate) determined by publicly traded peer group median.
Credit
Spread. Credit spread based on the Company’s financial ratio in comparison with those of publicly traded peer group.
Interest
Rate. Interest rate based on US Constant Maturity Treasury rates for the same period as the period of performance of 2021 to 2023.
The
change in the fair value estimate is recognized in the Company’s condensed consolidated statement of operations in Other Income
(expense) under caption Change in fair value of contingent consideration. The contingent consideration will be determined at each reporting
period and will be settled with the issuance of the Company’s common shares. On June 9, 2021, the Company issued 557,821
of its common shares in connection with the contingent
consideration settlement for fiscal year 2020, these common shares had a fair value of $1,004,000.
As a result of the fiscal year 2020 contingent consideration settlement, the total maximum amount of contingent consideration shares
to be issued in the future is 5,414,000. As of June 30, 2021, the remaining contingent consideration liability recorded in accrued
liabilities and other liabilities on the Company’s condensed consolidated balance sheets is $3,000
and $1,219,000,
respectively.
6.
Debt
Debt,
including debt due to related parties, consists of the following (in thousands):
Schedule
of Debt Including Debt to Related Parties
|
|
JUNE 30,
|
|
|
DECEMBER 31,
|
|
|
|
2021
|
|
|
2020
|
|
Debt
|
|
$
|
30,824
|
|
|
$
|
28,080
|
|
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.
|
|
$
|
3,425
|
|
|
$
|
3,425
|
|
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (5.25% as of June 30, 2021) per annum, payable monthly through June 2036, collateralized by certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles, net of unamortized debt discount as of June 30, 2021 and December 31, 2020 of $156 and $166.
|
|
|
7,941
|
|
|
|
8,106
|
|
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.80% annually) payable through the lenders direct collection of certain accounts receivable through August 2021, collateralized by substantially all of the Company’s personal property.
|
|
|
11,885
|
|
|
|
8,966
|
|
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.
|
|
|
7,300
|
|
|
|
7,300
|
|
Research loan facility (“2018 Research Facility”) bearing interest at 1.00% per annum, interest payments are due annually on the anniversary date of the facility with principal payable in 25% increments on the anniversary date of the facility beginning on the fourth anniversary of the loan (September 2022), net of imputed interest as of June 30, 2021 and December 31, 2020 of $40K and $41K, respectively.
|
|
|
273
|
|
|
|
283
|
|
Debt, including debt due to related parties
|
|
$
|
30,824
|
|
|
$
|
28,080
|
|
Less debt due to related parties, non-current
|
|
|
(7,300
|
)
|
|
|
(7,300
|
)
|
Less current portion
|
|
|
(12,229
|
)
|
|
|
(9,301
|
)
|
Debt, non-current
|
|
$
|
11,295
|
|
|
$
|
11,479
|
|
As
of June 30, 2021, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties
for each calendar year, are due as follows (in thousands):
Schedule
of Contractual Future Principal Payments
PERIOD ENDING DECEMBER 31,
|
|
DEBT
|
|
|
DEBT TO RELATED PARTY
|
|
2021 (remaining to be paid in 2021)
|
|
$
|
12,061
|
|
|
|
-
|
|
2022
|
|
|
2,900
|
|
|
|
5,000
|
|
2023
|
|
|
471
|
|
|
|
-
|
|
2024
|
|
|
491
|
|
|
|
-
|
|
2025
|
|
|
515
|
|
|
|
-
|
|
Thereafter
|
|
|
6,306
|
|
|
|
-
|
|
Total future principal payments
|
|
|
22,744
|
|
|
|
5,000
|
|
Interest
payments included in debt balance (1)
|
|
|
975
|
|
|
|
2,300
|
|
Total future debt payments
|
|
$
|
23,719
|
|
|
|
7,300
|
|
|
1)
|
Due
to the debt extinguishment requirements, the Company has included both accrued interest and
future interest in the debt balance for certain outstanding debt.
|
October
2012 and April 2013 Secured Promissory Notes
As
of June 30, 2021, there have been no changes to the previously reported total principal amount outstanding under the October 2012 and
April 2013 Secured Promissory Note, which continues to be $2,450,000. Due to the historical accounting for the promissory note the amount
recorded on the condensed consolidated balance sheet of $3,425,000 includes $975,000 in accrued interest, of which as of June 30, 2021
and 2020, a total of $680,000 and $484,000, respectively, had been incurred.
As
of June 30, 2021, the Company is in compliance with all financial covenants.
June
2014 Secured Promissory Note
In
June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory
Note”) with Five Star Bank that bears an interest of 5.25% (per annum) as of June 30, 2021. The interest rate is subject to change
and is based on the prime rate plus 2.00% per annum. The Company is required to maintain a deposit balance with the Five Star Bank of
$1,560,000, which is recorded as restricted cash included in non-current assets.
Under
this note the Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than
4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank. In
the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As
of June 30, 2021, the Company was in compliance with the “loan to value ratio” covenant, the “current ratio”,
and the “debt to worth ratio”, however, in previous periods of non-compliance, the Company had obtained a waiver from the
lender for any non-compliance through May 31, 2022.
The
following table reflects the activity under this note (in thousands):
Schedule
of Debt Activity
|
|
2021
|
|
|
2020
|
|
Principal balance, net at December 31, preceding year
|
|
$
|
8,106
|
|
|
$
|
8,404
|
|
Principal payments
|
|
|
(392
|
)
|
|
|
(427
|
)
|
Interest
|
|
|
218
|
|
|
|
280
|
|
Debt discount amortization
|
|
|
9
|
|
|
|
9
|
|
Principal balance, net at June 30,
|
|
$
|
7,941
|
|
|
$
|
8,266
|
|
LSQ
Financing
In
January 2020, the Company entered into a Second Amendment to the Company’s Invoice Purchase Agreement with LSQ. The amendment,
among other things, (i) increased the amount of eligible customer invoices which LSQ may elect to purchase from the Company to up to
$20,000,000 of eligible customer invoices from the Company from $7,000,000; (ii) increased the advance rate to 90% from 85% and 70% from
60%, respectively, of the face value of domestic and international receivables being sold; (iii) decreased the invoice purchase fee rate
from 0.40% to 0.25%; (iv) increased the funds usage fee from 0.020% to 0.025%; (v) extended the 0% aging and collection fee percentage
charged at the time when the purchased invoice is collected from 90 days to 120 days, and increased the fee percentage charged thereafter
from 0.35% to 0.75%; and (vi) decreased the early termination fee from 0.75% to 0.50%.
In
addition to the Amendment, the Company simultaneously entered into an Amended Inventory Financing Addendum (the “Addendum”)
with LSQ. The Addendum allows the Company to request an advance up to the lesser of (i) 100% of the Company’s unpaid finished goods
inventory; (ii) 65% of the appraised value of the Company’s inventory performed on or on behalf of LSQ; or (iii) $3,000,000. Funds
advance under the Addendum are subject to a monthly inventory management fee of 0.5% on the average monthly inventory funds available
and a daily interest rate of 0.025%.
As
of June 30, 2021, the Company is in compliance with all financial covenants of the agreement. For the three months ended June 30, 2021
and 2020, the Company recorded interest expense of approximately $200,000 and $142,000, respectively, in connection with the LSQ arrangement.
For the six months ended June 30, 2021 and 2020, the Company recorded interest expense of approximately $432,000 and $266,000, respectively,
in connection with the LSQ arrangement. As of June 30, 2021, $11,885,000 was outstanding under the LSQ Financing.
7.
Warrants
On
April 29, 2020, the Company entered into a warrant exchange agreement (“Warrant Exchange Agreement”) with certain holders
of warrants issued under the August 2015 Senior Secured Promissory Notes, the Securities Purchase Agreement and the Amendment and Plan
of Reorganization agreements. Pursuant to the Warrant Exchange Agreement, the Company agreed to exchange an aggregate of 45,977,809 previously
outstanding warrants for 29,881,855 new warrants (“April 2020 Warrants”).
The
April 2020 Warrants have terms expiring (i) for a total of 3,392,581 shares on May 1, 2020, (ii) for a total of 2,714,065 shares on September
15, 2020 (iii) for a total of 13,027,512 shares on December 15, 2020, (iv) for a total of 5,862,380 shares on March 15, 2021 and (v)
for a total of 4,885,317 Warrant Shares on December 15, 2021. All April 2020 Warrants have an exercise price of $0.75 per share. As of
June 30, 2021, approximately 24,995,000 shares under the April 2020 Warrants were exercised prior to each of the four tranche expiration
dates, leaving only the fifth tranche with an expiration date of December 15, 2021 with respect to 4,885,317 of the April 2020 Warrants
remaining.
In
December 2020, the Company also entered into an amendment (the “Warrant Amendment”) to a previously outstanding warrant (the
“Amended Warrant”) to purchase 5,333,333 shares of the Company’s common stock issued to a historical warrant holder
(the “Amended Warrant Holder”) on February 5, 2018. Pursuant to the Warrant Amendment, in exchange for the Holder’s
exercise of the Amended Warrant on December 29, 2020 with respect to 1,777,778 shares at the then-applicable exercise price of $0.96
per share the warrant’s expiration date was partially extended and allows the Amended Warrant Holder to purchase (i) 1,777,778
shares under the Amended Warrant at $1.00 per share by March 25, 2021, and (ii) 1,777,777 shares under the Amended Warrant at $1.04 share
by December 15, 2021. As of June 30, 2021, 3,555,556 shares under the April 2020 Warrants were exercised, leaving 1,777,777 of the Amended
Warrants remaining with an expiration date of December 15, 2021.
The
following table summarizes the Company’s common stock warrants outstanding as of June 30, 2021 (in thousands, except exercise price
data):
Summary
of Information About Common Stock Warrants Outstanding
|
|
|
|
|
|
|
|
|
|
|
SHARES SUBJECT TO
|
|
|
SIX MONTHS ENDED NUMBER OF
|
|
|
SHARES
SUBJECT TO
|
|
|
|
ISSUE
|
|
|
EXPIRATION
|
|
|
|
|
|
WARRANTS
|
|
|
WARRNTS
|
|
|
WARRANTS
|
|
|
|
DATE
|
|
|
DATE
|
|
|
EXERCISE
|
|
|
OUTSTANDING
|
|
|
EXERCISED
|
|
|
OUTSANDING
|
|
DESCRIPTION
|
|
MM/YY
|
|
|
MM/YY
|
|
|
PRICE
|
|
|
12/31/2020
|
|
|
6/30/2021
|
|
|
6/30/2021
|
|
June 2013 Warrants
|
|
|
06/13
|
|
|
|
06/23
|
|
|
$
|
8.40
|
|
|
|
27
|
|
|
|
-
|
|
|
|
27
|
|
November 2016 Warrants
|
|
|
11/16
|
|
|
|
11/26
|
|
|
$
|
2.38
|
|
|
|
125
|
|
|
|
-
|
|
|
|
125
|
|
November 2017 Warrants
|
|
|
06/17
|
|
|
|
06/27
|
|
|
$
|
1.10
|
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
-
|
|
April 2020 Warrants, Tranche 4
|
|
|
04/20
|
|
|
|
03/21
|
|
|
$
|
0.75
|
|
|
|
5,862
|
|
|
|
(5,862
|
)
|
|
|
-
|
|
April 2020 Warrants, Tranche 5
|
|
|
04/20
|
|
|
|
12/21
|
|
|
$
|
0.75
|
|
|
|
4,885
|
|
|
|
-
|
|
|
|
4,885
|
|
December 2020 Warrants, Tranche 2
|
|
|
12/20
|
|
|
|
03/21
|
|
|
$
|
1.00
|
|
|
|
1,778
|
|
|
|
(1,778
|
)
|
|
|
-
|
|
December 2020 Warrants, Tranche 3
|
|
|
12/20
|
|
|
|
12/21
|
|
|
$
|
1.04
|
|
|
|
1,777
|
|
|
|
-
|
|
|
|
1,777
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTALS:
|
|
|
|
14,534
|
|
|
|
(7,720
|
)
|
|
|
6,814
|
|
The
weighted average remaining contractual life and exercise price for these warrants is 0.56 years and $0.89, respectively.
On
June 30, 2021, the Ivy Science & Technology Fund (“IS&T”) and Ivy VIP Science & Technology (“Ivy
VIP” and, together with IS&T, the “Waddell Investors”) investments in the Company, including the
outstanding warrants held by the Waddell Investors, were transferred to Macquarie Group Limited.
8.
Share-Based Plans
As
of June 30, 2021, there were options to purchase 13,551,000 shares of common stock outstanding, 4,918,000 restricted stock units outstanding
and 9,370,000 share-based awards available for grant under the outstanding equity incentive plans.
For
the three months ended June 30, 2021 and 2020, the Company recognized share-based compensation of $881,000 and $884,000, respectively.
For the six months ended June 30, 2021 and 2020, the Company recognized share-based compensation of $1,796,000 and $1,791,000, respectively.
In
February 2021, in connection with the appointment of a new chief financial officer, the Company granted 400,000 options to purchase common
stock at an exercise price of $2.60 and with a fair value of $567,000 to its new chief financial officer. The Company’s fair value
of these grants was estimated utilizing a Black Scholes option pricing model based on assumptions which have determined consistent with
the Company’s historical methodology.
The
following table summarizes the activity of stock options from December 31, 2020 to June 30, 2021 (in thousands, except weighted average
exercise price):
Summary
of Stock Options Activity
|
|
|
|
|
WEIGHTED-
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
SHARES
|
|
|
EXERCISE
|
|
|
|
OUTSTANDING
|
|
|
PRICE
|
|
Balances at December 31, 2020
|
|
|
13,380
|
|
|
$
|
2.32
|
|
Options granted
|
|
|
475
|
|
|
$
|
2.47
|
|
Options exercised
|
|
|
(49
|
)
|
|
$
|
1.31
|
|
Options cancelled
|
|
|
(255
|
)
|
|
$
|
3.40
|
|
Balances at June 30, 2021
|
|
|
13,551
|
|
|
$
|
2.31
|
|
In
February 2021, in connection with the Company’s separation and consulting arrangement with its former chief financial officer,
the Company granted 200,000 restricted stock units to its former chief financial officer. The restricted stock units will vest and settle
monthly for a period of 12 months.
In April 2021 the Company also granted restricted
stock units to certain executives and employees in lieu of cash bonuses for performance related to the fiscal year ended December 31,
2020. The total number of restricted stock units granted to these employees was 237,000 at an exercise price of $1.95 and primarily settled
on May 20, 2021.
The
following table summarizes the activity of restricted stock units from December 31, 2020 to June 30, 2021 (in thousands, except weighted
average grant date fair value):
Summary
of Restricted Stock Units Activity
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
GRANT
|
|
|
|
|
SHARES
|
|
|
DATE FAIR
|
|
|
|
|
OUTSTANDING
|
|
|
VALUE
|
|
Outstanding at December 31, 2020
|
|
|
|
4,588
|
|
|
$
|
1.14
|
|
Granted
|
|
|
|
682
|
|
|
|
1.78
|
|
Settled
|
|
|
|
(352
|
)
|
|
|
1.81
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at June 30, 2021
|
|
|
|
4,918
|
|
|
$
|
1.18
|
|
The
following table summarizes the activity of non-vested restricted stock units from December 31, 2020 to June 30, 2021 (in thousands, except
weighted average grant date fair value):
Summary
of Non-vested Restricted Stock Units Activity
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
GRANT
|
|
|
|
|
SHARES
|
|
|
DATE FAIR
|
|
|
|
|
OUTSTANDING
|
|
|
VALUE
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2020
|
|
|
|
1,437
|
|
|
$
|
1.16
|
|
Granted
|
|
|
|
682
|
|
|
|
1.78
|
|
Vested
|
|
|
|
(588
|
)
|
|
|
1.72
|
|
Forfeited
|
|
|
|
-
|
|
|
|
-
|
|
Nonvested at June 30, 2021
|
|
|
|
1,531
|
|
|
$
|
1.22
|
|
9.
Related Party Transactions
Warrant
Exercises
Ospraie,
Ivy Science & Technology Fund (“IS&T”), Ivy VIP Science & Technology (“Ivy VIP” and, together with
IS&T, the “Waddell Investors”, and Ardsley, are each beneficial owners of more than 10% of the Company’s common
stock, holding 39.4%,
11.4%,
and 9.8%,
respectively, of the Company’s total outstanding common stock as of June 30, 2021. In March 2021, 4,264,299,
666,472
and 741,617,
of the April 2020 Warrants were exercised by each of them, respectively, in accordance with the terms of the Warrant Exchange Agreement.
(Refer to Note 7 of these condensed consolidated financial statements.)
On
June 30, 2021, the Waddell Investors’ investments in the Company, including the outstanding warrants held by the Waddell
Investors, were transferred to Macquarie Group Limited.
August
2015 Senior Secured Promissory Notes
As
of June 30, 2021, there have been no changes to the previously reported total principal amount outstanding under the August 2015 Senior
Secured Promissory Notes, which continues to be $5,000,000.
Due to the historical accounting for the promissory note the amount recorded on the condensed consolidated balance sheet of $7,300,000
includes $2,300,000
in accrued interest, of which as of June 30,
2021 and 2020, a total of $1,699,000
and $1,299,000,
respectively, had been incurred.
The
August 2015 Senior Secured Promissory Notes provide for various events of default, including, among others, default in payment of principal
or interest, breach of any representation or warranty by the Company or any subsidiary under any agreement or document delivered in connection
with the notes, a continued breach of any other condition or obligation under any loan document, certain bankruptcy, liquidation, reorganization
or change of control events, the acquisition by any person or persons acting as group, other than the lenders, of beneficial ownership
of 40% or more of the outstanding voting stock of the Company. Upon an event of default, the entire principal and interest may be declared
immediately due and payable. As of June 30, 2021, the Company was in compliance with its covenants under the August 2015 Senior Secured
Promissory Notes.
On
June 30, 2021, the Waddell Investors’ investments in the Company, including the August 2015 Senior Secured Promissory
Notes, were transferred to Macquarie Group Limited.
10.
Subsequent Events
The
Company has evaluated its subsequent events from June 30, 2021 through the date these condensed consolidated financial statements were
issued, and has determined that there are no additional subsequent events required to be disclosed.