1. Basis of Presentation and Summary of Significant Accounting Policies

 

Amyris, Inc. (Amyris or the Company) is a leading industrial biotechnology company that applies its technology platform to engineer, manufacture and sell high performance, natural, sustainably-sourced products into the Health & Wellness, Clean Beauty, and Flavor & Fragrance markets. The Company's proven technology platform enables the Company to rapidly engineer microbes and use them as catalysts to metabolize renewable, plant-sourced sugars into large volume, high-value ingredients. The Company's biotechnology platform and industrial fermentation process replace existing complex and expensive manufacturing processes. The Company has successfully used its technology to develop and produce eight 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 10-K, from which the condensed consolidated balance sheet as of December 31, 2017 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, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of 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.

 

Liquidity

 

The Company has incurred significant operating losses since its inception and expects to continue to incur losses and negative cash flows from operations for at least the next 12 months following the issuance of these financial statements. As of September 30, 2018, the Company had negative working capital of $105.6 million, excluding cash and cash equivalents and short-term investments (compared to negative working capital of $59.6 million as of December 31, 2017), and an accumulated deficit of $1.4 billion.

 

As of September 30, 2018, the Company's debt (including related party debt), net of deferred discount and issuance costs of $21.5 million, totaled $171.1 million, of which $108.9 million is classified as current. However, $23.3 million was converted into common stock in October and November 2018, thereby reducing the Company's short-term maturities by $23.3 million; see Note 13, "Subsequent Events" for more information. The Company's debt service obligations through November 30, 2019 are $111.4 million (excluding $25.0 million of principal that will be mandatorily converted into common stock upon maturity) , including $15.7 million of anticipated cash interest payments. 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 and cross-default clauses. A failure to comply with, or cure non-compliance events or obtain waivers for covenants violations, 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 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 the Company's outstanding indebtedness. During the three months ended September 30, 2018, the Company did not meet certain covenants with one lender and obtained waivers; see Note 4, "Debt" for more information. However, there is no guarantee that the Company will not violate these covenants in the future or be able to obtain waivers for future violations.

 

Cash and cash equivalents of $19.0 million as of September 30, 2018 are not sufficient to fund expected future negative cash flows from operations and cash debt service obligations through one year following the issuance of these financial statements. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. The 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 extend existing debt maturities by restructuring a majority of its convertible debt, which is uncertain and outside the control of the Company. Further, the Company's operating plan for the next 12 months from the date of issuance of these financial statements contemplates a significant reduction in its net operating cash outflows as compared to the previous 12 months, resulting from (i) revenue growth from sales of existing and new products such as Reb-M with positive gross margins, (ii) reduced cost of products sold as a percentage of renewable products revenue due to anticipated procurement and production efficiencies, and (iii) cash inflows from license fees, grants and collaborations. If the Company is unable to complete these actions, it expects to be unable to meet its operating cash flow needs and its obligations under its existing debt facilities. This could result in an acceleration of its obligation to repay all amounts outstanding under those facilities, and it may be forced to liquidate its assets or obtain additional equity or debt financing, which may not occur timely or on reasonable terms, if at all.

 

 

Significant Accounting Policies

 

Note 1, "Basis of Presentation and Summary of Significant Accounting Policies", to the audited consolidated financial statements in the 10-K includes a discussion of the significant accounting policies and estimates used in the preparation of the Company’s consolidated financial statements. Except as noted below for the adoption of Accounting Standards Codification (“ASC”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers , and Accounting Standards Update (“ASU”) 2016-01,  Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , there have been no material changes to the Company's significant accounting policies and estimates during the three and nine months ended September 30, 2018.

 

Revenue Recognition

 

The Company recognizes revenue from the sale of renewable products, licenses of and royalties from intellectual property, and grants and collaborative research and development services. Revenue is measured based on the consideration specified in a contract with a customer and recognized when, or as, the Company satisfies a performance obligation by transferring control over a product or service to a customer. The Company generally does not incur costs to obtain new contracts. The costs to fulfill a contract are expensed as incurred.

 

The Company accounts for a contract when it has approval and commitment to perform from both parties, the rights of the parties are identified, payment terms are established, the contract has commercial substance and collectability of the consideration is probable. Changes to contracts are assessed for whether they represent a modification or should be accounted for as a new contract. The Company considers the following indicators among others when determining whether it is acting as a principal in the transaction and recording revenue on a gross basis: (i) the Company is primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) the Company has inventory risk before the specified good or service has been transferred to a customer or after transfer of control to the customer and (iii) the Company has discretion in establishing the price for the specified good or service. If a transaction does not meet the Company's indicators of being a principal in the transaction, then the Company is acting as an agent in the transaction and the associated revenues are recognized on a net basis.

 

The Company’s significant contracts and contractual terms with its customers are presented in Note 10, "Significant Revenue Agreements" in Part II, Item 8 of the 10-K.

 

The Company recognizes revenue when control has passed to the customer. The following indicators are evaluated in determining when control has passed to the customer: (i) the Company has a right to payment for the product or service, (ii) the customer has legal title to the product, (iii) the Company has transferred physical possession of the product to the customer, (iv) the customer has the significant risk and rewards of ownership of the product and (v) the customer has accepted the product. The Company’s renewable products are delivered to customers from the Company’s facilities with shipping terms typically specifying F.O.B. shipping point.

 

Performance Obligations

 

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company's contracts may contain multiple performance obligations if a promise to transfer the individual goods or services is separately identifiable from other promises in the contracts and, therefore, is considered distinct. For contracts with multiple performance obligations, the Company determines the standalone selling price of each performance obligation and allocates the total transaction price using the relative selling price basis.

 

The following is a description of the principal goods and services from which the Company generates revenue.

 

Renewable Product Sales

 

Revenues from renewable product sales are recognized as a distinct performance obligation on a gross basis as the Company is acting as a principal in these transactions, with the selling price to the customer recorded net of discounts and allowances. Revenues are recognized at a point in time when control has passed to the customer, which typically is upon the renewable products leaving the Company’s facilities with the first transportation carrier. The Company, on occasion, may recognize revenue under a bill and hold arrangement, whereby the customer requests and agrees to purchase product but requests delivery at a later date. Under these arrangements, control transfers to the customer when the product is ready for delivery, which occurs when the product is identified separately as belonging to the customer, the product is ready for shipment to the customer in its current form, and the Company does not have the ability to direct the product to a different customer. It is at this point that we have right to payment, the customer obtains legal title, and the customer has the significant risks and rewards of ownership. The Company’s renewable product sales do not include rights of return. Returns are accepted only if the product does not meet product specifications and such nonconformity is communicated to the Company within a set number of days of delivery. The Company offers a two-year assurance-type warranty to replace squalane products that do not meet Company-established criteria as set forth in the Company’s trade terms. An estimate of the cost to replace the squalane products sold is made based on a historical rate of experience and recognized as a liability and related expense when the renewable product sale is consummated.

 

 

Licenses and Royalties

 

Licensing of Intellectual Property: When the Company’s intellectual property licenses are determined to be distinct from the other performance obligations identified in the arrangement, revenue is recognized from non-refundable, up-front fees allocated to the license at a point in time when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For intellectual property licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front-fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognized.

 

Royalties from Licensing of Intellectual Property: The Company earns royalties from the licensing of its intellectual property whereby the licensee uses the intellectual property to produce and sell its products to its customers and the Company shares in the profits.

 

When the Company’s intellectual property license is the only performance obligation, or it is the predominant performance obligation in arrangements with multiple performance obligations, the Company applies the sales-based royalty exception and revenue is estimated and recognized at a point in time when the licensee’s product sales occur. Estimates of sales-based royalty revenues are made using the most likely outcome method, which is the single amount in a range of possible amounts derived from the licensee’s historical sales volumes and sales prices of its products and recent commodity market pricing data and trends.

 

When the Company’s intellectual property license is not the predominant performance obligation in arrangements with multiple performance obligations, the royalty represents variable consideration and is allocated to the transaction price of the predominant performance obligation which generally is the supply of renewable products to the Company's customers. Revenue is estimated and recognized at a point in time when the renewable products are delivered to the customer. Estimates of the amount of variable consideration to include in the transaction price are made using the expected value method, which is the sum of probability-weighted amounts in a range of possible amounts determined based on the cost to produce the renewable product plus a reasonable margin for the profit share. The Company only includes an amount of variable consideration in the transaction price to the extent it is probable that a significant reversal in the cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Also, the transaction price is reduced for estimates of customer incentive payments payable by the Company for certain customer contracts.

 

Grants and Collaborative Research and Development Services

 

Collaborative Research and Development Services: The Company earns revenues from collaboration agreements with customers to perform research and development services to develop new molecules using the Company’s technology and to scale production of the molecules for commercialization and use in the collaborator’s products. The collaboration agreements generally include providing the Company's collaborators with research and development services and with licenses to the Company’s intellectual property to use the technology underlying the development of the molecules and to sell its products that incorporate the technology. The terms of the Company's collaboration agreements typically include one or more of the following: advance payments for the research and development services that will be performed, nonrefundable upfront license payments, milestone payments to be received upon the achievement of the milestone events defined in the agreements, and royalty payments upon the commercialization of the molecules in which the Company shares in the customer’s profits.

 

Collaboration agreements are evaluated at inception to determine whether the intellectual property licenses represent distinct performance obligations separate from the research and development services. If the licenses are determined to be distinct, the non-refundable upfront license fee is recognized as revenue at a point in time when the license is transferred to the licensee and the licensee is able to use and benefit from the license while the research and development service fees are recognized over time as the performance obligations are satisfied. The research and development service fees represent variable consideration. Estimates of the amount of variable consideration to include in the transaction price are made using the expected value method, which is the sum of probability-weighted amounts in a range of possible amounts. The Company only includes an amount of variable consideration in the transaction price to the extent it is probable that a significant reversal in the cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Revenue is recognized over time using either an input-based measure of labor hours expended or a time-based measure of progress towards the satisfaction of the performance obligations. The measure of progress is evaluated each reporting period and, if necessary, adjustments are made to the measure of progress and the related revenue recognized.

 

 

Collaboration agreements that include milestone payments are evaluated at inception to determine whether the milestone events are considered probable of achievement and estimates are made of the amount of the milestone payments to include in the transaction price using the most likely amount method which is the single amount in a range of possible amounts. If it is probable that a significant revenue reversal will not occur, the estimated milestone payment amount is included in the transaction price. Each reporting period, the Company re-evaluates the probability of achievement of the milestone events and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative basis, which would affect collaboration revenues in the period of adjustment.

 

The Company generally invoices its collaborators on a monthly or quarterly basis, or upon the completion of the effort or achievement of a milestone, based on the terms of each agreement. Deferred revenue arises from amounts received in advance of performing the research and development activities and is recognized as revenue in future periods as the performance obligations are satisfied.

 

Grants: The Company earns revenues from grants with government agencies to, among other things, provide research and development services to develop molecules using the Company’s technology, and create research and development tools to improve the timeline and predictability for scaling molecules from proof of concept to market by reducing time and costs. Grants typically consist of research and development milestone payments to be received upon the achievement of the milestone events defined in the agreements.

 

The milestone payments are evaluated at inception to determine whether the milestone events are considered probable of achievement and estimates are made of the amount of the milestone payments to include in the transaction price using the most likely amount method which is the single amount in a range of possible amounts. If it is probable that a significant revenue reversal will not occur, the estimated milestone payment amount is included in the transaction price. Each reporting period, the Company re-evaluates the probability of achievement of the milestone events and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative basis, which would affect collaboration revenues in the period of adjustment. Revenue is recognized over time using a time-based measure of progress towards the satisfaction of the performance obligations. The measure of progress is evaluated each reporting period and, if necessary, adjustments are made to the measure of progress and the related revenue recognized.

 

For descriptions of the Company's other significant accounting policies, see the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

 

Recent Accounting Pronouncements

 

(a) Recent Accounting Standards, Pronouncements or Updates Recently Adopted

 

In the nine months ended September 30, 2018, the Company adopted these new accounting standards or updates:

 

Revenue Recognition The Company adopted ASC 606 with a date of initial application of January 1, 2018. As a result, the Company has changed its accounting policy for revenue recognition as detailed above in “Significant Accounting Policies”. The Company applied ASC 606 using the modified retrospective approach by recognizing the cumulative effect of initially applying ASC 606 to all contracts not completed as of the date of adoption as an adjustment to the opening balance of accumulated deficit at January 1, 2018. Therefore, the comparative information has not been adjusted and continues to be reported under the legacy revenue recognition guidance of ASC 605, "Revenue Recognition".

 

The Company applied ASC 606 using a practical expedient for contracts that were modified before the application date, which allowed us to determine an aggregate effect of all modifications that occurred before January 1, 2018, when determining the satisfied and unsatisfied performance obligations, the transaction price, and allocating that transaction price to the performance obligations instead of retrospectively restating the contracts for such contract modifications.

 

The cumulative effect of initially applying ASC 606 resulted in an increase to accumulated deficit at January 1, 2018 of approximately $0.8 million. The increase in accumulated deficit arose primarily from a $0.8 million increase of deferred revenue related to the effects of measuring and allocating the transaction price to the performance obligations under ASC 606 compared to the legacy guidance of ASC 605. The most significant change in accounting policy is the Company now estimates royalty revenues from licenses of the Company’s intellectual property and recognizes estimated royalty revenues at a point in time when the Company sells its renewable products to its customers (if the sales-based royalty exception does not apply) or when the licensee sells its products to its customer (if the sales-based royalty exception does apply). Also, the transaction price for royalty revenues is reduced for variable incentive payments that may be payable by the Company to customers.

 

 

The following table presents the amounts by which revenue is affected in the current reporting period by the application of ASC 606 as compared with the legacy guidance that was in effect before the accounting change. No other consolidated statements of operations financial statement line items were impacted by the adoption of ASC 606.

 

		Three Months Ended September 30, 2018												Nine Months Ended September 30, 2018
(In thousands)		As Reported				Adjustments				Amounts Without the Adoption of ASC 606				As Reported				Adjustments				Amounts Without the Adoption of ASC 606
Renewable products		$	9,639			$	—			$	9,639			$	21,467			$	—			$	21,467
Licenses and royalties			142				1,656				1,798				18,466				(14,091	)			4,375
Grants and collaborations			5,085				(1,555	)			3,530				21,125				(3,820	)			17,305
Total revenue from all customers		$	14,866			$	101			$	14,967			$	61,058			$	(17,911	)		$	43,147

 

Financial Instruments In January 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-01,  Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , which changes the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The Company adopted ASU 2016-01 on January 1, 2018 and, as a result, has changed its accounting policy to account for investments in equity securities (other than those accounted for using the equity method of accounting) at fair value with changes in fair value recognized in net income. The Company applied the modified retrospective approach by recognizing a $1.4 million cumulative effect adjustment as an increase to the opening balance of accumulated deficit at January 1, 2018 representing an unrealized loss measured as the difference between the fair value and the cost basis of the Company’s equity investments as of January 1, 2018 previously accounted for using the cost method of accounting.

 

Classification of Cash Flow Elements In August 2016, the FASB issued ASU 2016-15,  Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,  which affects the classification of certain cash receipts and cash payments on the statement of cash flows. ASU 2016-15 results in a change in cash flow classification of debt prepayment or extinguishment costs. ASU 2016-15 became effective January 1, 2018 on a retrospective basis. Adoption of this ASU did not impact the Company's consolidated financial position, results of operations or cash flows.

 

Restricted Cash in Statement of Cash Flows In November 2016, the FASB issued ASU 2016-18,  Statement of Cash Flows (Topic 230): Restricted Cash,  which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The accounting standard update became effective January 1, 2018 using a retrospective transition method for each period presented. Upon adoption, ASU 2016-18 has resulted in a change in the presentation of restricted cash in the statement of cash flows for current and prior periods presented.

 

Derecognition of Nonfinancial Assets In February 2017, the FASB issued ASU 2017-05,  Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets , which requires entities to apply certain recognition and measurement principles in ASC 606 when they derecognize nonfinancial assets, and in substance, nonfinancial assets, and the counterparty is not a customer. The guidance applies to: (1) contracts to transfer to a noncustomer a nonfinancial asset or group of nonfinancial assets, or an ownership interest in a consolidated subsidiary that does not meet the definition of a business and is not a not-for-profit activity; and (2) contributions of nonfinancial assets that are not a business to a joint venture or other noncontrolled investee. The accounting standard update became effective January 1, 2018 on a modified retrospective basis. Adoption of this ASU did not impact the Company's consolidated financial position, results of operations or cash flows.

 

Staff Accounting Bulletin No 118 - Tax Cuts and Jobs Act of 2017 On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Act) was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21%, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

 

 

Based on the Company’s current operations it is anticipated that the only significant current impact of the Act for the Company will be the reduction in the U.S. corporate tax rate. The Act reduces the corporate tax rate to 21 percent, effective January 1, 2018. In December 2017, Staff Accounting Bulletin No. 118 (SAB 118) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As of September 30, 2018, due to the complexities of the new law, the Company has not yet completed its accounting for all the tax effects of the Tax Act, but has made a reasonable estimate of the effects on the Company's existing deferred tax balances. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. Specifically, the provisional items remaining relate to the Company's provisional estimate of the effects of the new rules governing the deductibility of executive compensation on its existing deferred tax balances and selection of accounting policy with respect to the “Global Intangible Low-Taxed Income” (GILTI). Provisional amounts recorded may also be adjusted as the Company gains a more thorough understanding of the tax law during the one-year measurement period allowed under SAB 118. The Act created a new requirement that certain income, referred to as GILTI, earned by controlled foreign corporations (CFCs) must be included currently in the gross income of the CFCs’ U.S. shareholder. The Company’s selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing the Company's global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. As of September 30, 2018, the Company has not yet made a policy decision regarding whether to record deferred taxes on GILTI.

 

(b) Recent Accounting Standards Pronouncements or Updates Not Yet Effective as of Period End

 

Leases In February 2016, the FASB issued ASU 2016-02,  Leases (Topic 842),  as subsequently updated, with fundamental changes as to how entities account for leases. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Additional disclosures for leases will also be required. The accounting standard update will be effective beginning in the first quarter of fiscal 2019 using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the beginning of the earliest period presented. Alternatively, entities may elect an optional transition method allowing entities to continue to apply the guidance in ASC 840, Leases , including its disclosure requirements, in the comparative periods presented in the year that the new leases guidance in ASC 842, Leases , is adopted. Entities that elect this option would still adopt the new leases standard using a modified retrospective transition method, but they would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. The Company is in the initial stages of evaluating the impact of the new standard on its accounting policies, processes and system requirements. The Company anticipates that the standard may have a material impact on the Company’s condensed consolidated balance sheets due to the requirement to recognize leased right-of-use assets and corresponding liabilities related to leases on the Company’s condensed consolidated balance sheets, but is still evaluating whether the standard might have a material impact on the Company’s other consolidated financial statements.

 

Financial Instruments with "Down Round" Features In July 2017, the FASB issued ASU 2017-11,  Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): Accounting for Certain Financial Instruments with Down Round Features . The amendments of this ASU update the classification analysis of certain equity-linked financial instruments, or embedded features, with down round features, as well as clarify existing disclosure requirements for equity-classified instruments. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The accounting standard update will be effective beginning in the first quarter of fiscal 2019 using a modified retrospective approach. The Company is in the initial stages of evaluating the impact of the new standard on its consolidated financial statements.

 

Non-employee Stock-based Compensation In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which more closely aligns the accounting for employee and nonemployee stock-based compensation. Under the new standard, companies will no longer be required to value non-employee awards differently from employee awards. This accounting standard update will be effective beginning in the first quarter of fiscal 2019 using a modified retrospective approach. The Company anticipates that the new standard will not materially impact the Company's consolidated financial statements.

 

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. The accounting standard update will be effective beginning 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 Company is in the initial stages of evaluating the impact of the new standard on its consolidated financial statements.

 

Use of Estimates

 

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates, and such differences may be material to the financial statements.

 

 

Reclassifications

 

Certain prior period amounts have been reclassified to conform to the current period presentation in the Company’s condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements, as follows:

 

•

The condensed consolidated statements of operations previously presented license fee revenue in combination with grants and collaborations revenue, and royalties (formerly referred to as “value share”) were previously presented in combination with renewable products revenue. Licenses and royalties revenue is presented as a separate line within the condensed consolidated statements of operations. The reclassifications reflect the growth in the Company’s business model of licensing its technology and earning royalties from customers utilizing the Company’s technology in the products it produces and sells. The reclassifications had no impact on total revenue.

 

•

The condensed consolidated statements of operations and condensed consolidated statements of cash flows previously presented gains or losses upon extinguishment of derivative liabilities in combination with gains or losses from change in fair value of derivative instruments. In 2018, the Company has begun separately identifying gains or losses upon extinguishment of derivative liabilities in the condensed consolidated statements of operations and condensed consolidated statements of cash flows, resulting in the need to present prior year amounts on the same basis. The reclassification had no impact on net loss.

 

•

In the statements of cash flows, the prior period has been restated to reflect accounting standards changes for reporting restricted cash.

2. Balance Sheet Details

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value and are comprised of the following:

 

(In thousands)		September 30, 2018				December 31, 2017
Raw materials		$	1,129			$	819
Work-in-process			929				364
Finished goods			4,202				4,225
Inventories		$	6,260			$	5,408

 

Property, Plant and Equipment, Net

 

Property, plant and equipment, net is comprised of the following:

 

(In thousands)		September 30, 2018				December 31, 2017
Machinery and equipment		$	46,725			$	49,277
Leasehold improvements			40,703				40,036
Computers and software			10,666				9,555
Furniture and office equipment, vehicles and land			3,705				3,415
Construction in progress			19,343				17,438
			121,142				119,721
Less: accumulated depreciation and amortization			(104,520	)			(105,829	)
Property, plant and equipment, net		$	16,622			$	13,892

 

Property, plant and equipment, net includes $4.9 million and $4.2 million of machinery and equipment under capital leases as of September 30, 2018 and December 31, 2017, respectively. Accumulated amortization of assets under capital leases totaled $2.1 million and $1.6 million as of September 30, 2018 and December 31, 2017, respectively.

 

 

During the three and nine months ended September 30, 2018, the Company capitalized $0.5 million and $2.1 million, respectively, of internal labor costs required to automate, integrate and ready certain laboratory and plant equipment for its intended use.

 

Depreciation and amortization expense, including amortization of assets under capital leases, was $1.0 million and $2.7 million for the three months ended September 30, 2018 and 2017, respectively, and $4.0 million and $8.1 million for the nine months ended September 30, 2018 and 2017, respectively.

 

Other Assets

 

Other assets are comprised of the following:

 

(In thousands)		September 30, 2018				December 31, 2017
Contingent consideration		$	7,805			$	8,151
Prepaid royalty			6,847				7,409
Equity investment in SweeGen			5,313				3,233
Deposits			4,171				2,462
Goodwill			560				560
Other			1,861				825
Other assets		$	26,557			$	22,640

 

Accrued and Other Current Liabilities

 

Accrued and other current liabilities are comprised of the following:

 

(In thousands)		September 30, 2018				December 31, 2017
Payroll and related expenses		$	9,774			$	7,238
Accrued interest			6,010				8,213
SMA relocation accrual			2,964				3,587
Tax-related liabilities			2,154				5,837
Professional services			1,402				1,894
Contract termination			1,000				—
Other			3,959				2,633
Total accrued and other current liabilities		$	27,263			$	29,402

 

15

3. Fair Value Measurement

 

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

 

The following tables summarize assets and liabilities measured at fair value, and the respective fair value by input classification level within the fair value hierarchy:

 

(In thousands)		September 30, 2018																December 31, 2017
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Assets
Money market funds		$	—			$	—			$	—			$	—			$	53,199			$	—			$	—			$	53,199
Certificates of deposit			—				—				—				—				7,813				—				—				7,813
Equity investment in SweeGen			—				5,313				—				5,313				—				—				—				—
Total assets measured and recorded at fair value		$	—			$	5,313			$	—			$	5,313			$	61,012			$	—			$	—			$	61,012
Liabilities
Embedded derivatives in connection with the issuance of debt and equity instruments		$	—			$	—			$	9,379			$	9,379			$	—			$	—			$	4,203			$	4,203
Freestanding derivative instruments in connection with the issuance of equity instruments			—				—				89,283				89,283				—				—				115,775				115,775
Total liabilities measured and recorded at fair value		$	—			$	—			$	98,662			$	98,662			$	—			$	—			$	119,978			$	119,978

 

There were no transfers between levels during the periods presented.

 

Equity Investment in SweeGen

 

The Company holds 850,115 unregistered shares of SweeGen, Inc. (SweeGen) common stock received as payment in connection with a December 2016 revenue agreement between the Company and Phyto Tech Corp. (d/b/a Blue California), the parent of SweeGen. At September 30, 2018, the fair value of the shares was $5.3 million, determined based on the over-the-counter market (OTCMKTS) trading price of the SweeGen shares (Level 2). For the three and nine months ended September 30, 2018, the Company recorded unrealized gains of $1.7 million and $3.5 million, respectively, for changes in fair value of the shares; the gains are included in Other Income (Expense), Net on the condensed consolidated statements of operations. The Company adopted ASU 2016-01 on January 1, 2018 and now accounts for its equity investment in SweeGen at fair value, with changes in fair value recognized in net income; see "Recent Accounting Pronouncements" in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” above. The fair value of the SweeGen shares is included in Other Assets in the condensed consolidated balance sheets.

 

Derivative Liabilities Recognized in Connection with the Issuance of Debt and Equity 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 and equity instruments, measured at fair value using significant unobservable inputs (Level 3):

 

(In thousands)		Equity-related Derivative Liability				Debt-related Derivative Liability				Total Derivative Liability
Balance at December 31, 2017		$	112,368			$	7,610			$	119,978
Change in fair value of derivative liabilities			49,442				15,154				64,596
Derecognition upon extinguishment of derivative liabilities			(85,912	)			—				(85,912	)
Balance at September 30, 2018		$	75,898			$	22,764			$	98,662

 

The derivative liabilities recognized in connection with the issuance of equity and debt instruments represent the fair value of the make-whole provisions of the Series A and B Preferred Stock as well as the cash and anti-dilution warrants issued concurrently with the Series A, B and D Preferred Stock (see Note 6, “Stockholders’ Deficit” in Part II, Item 8 of the Annual Report on Form 10-K), and conversion options, conversion price adjustment features and down round provisions associated with the Temasek Funding Warrant, August 2013 Financing Convertible Notes, 2014 144A Notes and 2015 144A Notes (see Note 4, “Debt” below and Note 6, "Stockholders' Deficit" in Part II, Item 8 of the Annual Report on Form 10-K).

 

 

The market-based assumptions and estimates used in applying a Monte Carlo simulation approach and Black-Scholes-Merton option value approach for valuing the derivative liabilities in connection with debt and equity instruments include amounts in the following ranges:

 

		September 30, 2018				December 31, 2017
Risk-free interest rate		2.12%	-	3.01%		1.68%	-	2.40%
Risk-adjusted yields		13.90%	-	24.03%		18.40%	-	28.53%
Stock price volatility		45%	-	80%		45%	-	80%
Probability of change in control		0%	-	5%			5%
Stock price			$7.94				$3.75
Credit spread		11.69%	-	21.65%		16.63%	-	26.70%
Estimated conversion dates		2018	-	2025		2018	-	2025

 

The valuation of the embedded derivatives in connection with the issuance of debt and equity instruments and freestanding derivative instruments in connection with the issuance of equity instruments can be significantly affected by changes in valuation assumptions. For example, all other things being equal, a decrease/increase in the Company’s stock price, probability of change of control, credit spread, term to maturity/conversion or stock price volatility decreases/increases the valuation of the liabilities, whereas a decrease/increase in risk adjusted yields or risk-free interest rates increases/decreases the valuation of the liabilities. A third-party valuation specialist assisted in determining estimates of fair value.

 

See Note 6, "Stockholders' Deficit" in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information about derecognition upon extinguishment of derivative liabilities in connection with the April 2018 warrants exercise.

 

Changes in Fair Value

 

Changes in the fair value of derivative liabilities measured at fair value on a recurring basis are recognized in “Gain (loss) from change in fair value of derivative instruments" in the condensed consolidated statements of operations.

 

Assets and Liabilities Recorded at Carrying Value

 

Financial Assets and Liabilities

 

The carrying amounts of certain financial instruments, such as cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities and low market interest rates, if applicable. Loans payable, credit facilities and convertible notes are recorded at carrying value, which is representative of fair value at the date of acquisition. The Company estimates the fair value of loans payable and credit facilities using observable market-based inputs (Level 2) and estimates the fair value of convertible notes based on rates currently offered for instruments with similar maturities and terms (Level 3). The fair values and carrying values of the Company's debt were as follows:

 

 

17

4. Debt

 

Net carrying amounts of debt are as follows:

 

		September 30, 2018												December 31, 2017
(In thousands)		Principal				Unamortized Debt Discount				Net Balance				Principal				Unamortized Debt Discount				Net Balance
Nonrelated Party
Convertible notes
2015 Rule 144A convertible notes		$	37,887			$	(3,268	)		$	34,619			$	37,887			$	(6,872	)		$	31,015
2014 Rule 144A convertible notes			24,004				(1,445	)			22,559				24,004				(3,170	)			20,834
December 2017 convertible note			—				—				—				5,000				(25	)			4,975
August 2013 financing convertible notes			4,416				(1,709	)			2,707				4,009				(2,918	)			1,091
			66,307				(6,422	)			59,885				70,900				(12,985	)			57,915
Loans payable and credit facilities
GACP term loan facility			36,000				(1,489	)			34,511				—				—				—
Senior secured loan facility			—				—				—				28,566				(253	)			28,313
Ginkgo notes			12,000				(4,390	)			7,610				12,000				(4,983	)			7,017
Other loans payable			4,643				(1,203	)			3,440				6,463				(1,277	)			5,186
Other credit facilities			126				—				126				381				—				381
			52,769				(7,082	)			45,687				47,410				(6,513	)			40,897
Subtotal nonrelated party			119,076				(13,504	)			105,572				118,310				(19,498	)			98,812
Related Party
Related party convertible notes
August 2013 financing convertible notes			23,334				205				23,539				21,711				897				22,608
2014 Rule 144A convertible notes			24,705				(1,731	)			22,974				24,705				(3,784	)			20,921
R&D note			—				—				—				3,700				(18	)			3,682
			48,039				(1,526	)			46,513				50,116				(2,905	)			47,211
Related party loans payable
DSM note			25,000				(6,474	)			18,526				25,000				(8,039	)			16,961
Other DSM loan			506				—				506				393				—				393
February 2016 private placement			—				—				—				2,000				—				2,000
			25,506				(6,474	)			19,032				27,393				(8,039	)			19,354
Subtotal related party			73,545				(8,000	)			65,545				77,509				(10,944	)			66,565
Total debt			192,621				(21,504	)			171,117				195,819				(30,442	)			165,377
Less: current portion											(108,924	)											(56,943	)
Long-term debt, net of current portion										$	62,193											$	108,434

 

During the nine months ended September 30, 2018, aside from debt payments (including payments-in-kind), the following debt transactions occurred:

 

•

Senior Secured Loan Facility Repayment: On June 29, 2018, the Company repaid in full the $27.3 million outstanding principal balance owed under the Senior Secured Loan Facility between the Company and Stegodon Corporation (Stegodon).

 

•

GACP Term Loan Facility: On June 29, 2018, the Company, certain of the Company’s subsidiaries and GACP Finance Co., LLC (GACP) entered into a Loan and Security Agreement (the LSA) to borrow $36.0 million (the GACP Term Loan Facility). The LSA also provides for an incremental secured term loan facility in an aggregate principal amount of up to $35.0 million (the Incremental GACP Term Loan Facility and, together with the GACP Term Loan Facility, the GACP Term Loan Facilities), subject to certain conditions and approvals, to fund the construction of a custom-built manufacturing facility in Brazil. The majority of the net proceeds from the GACP Term Loan Facility were used to repay all amounts outstanding under the Senior Secured Loan Facility between the Company and Stegodon (see Note 4, “Debt” in Part II, Item 8 of the Annual Report on Form 10-K). The remaining net proceeds were used on July 2, 2018 to repay amounts outstanding under the R&D Note (see Note 4, “Debt” in Part II, Item 8 of the Annual Report on Form 10-K) at maturity.

 

 

Loans under the GACP Term Loan Facilities have a maturity date of July 1, 2021; provided, that if the Company has not (i) met certain financial conditions on or prior to January 7, 2019 or (ii) refinanced the 2015 144A Notes and 2014 144A Notes with indebtedness that has a maturity date which is later than July 1, 2021 or converted such notes into equity prior to January 12, 2019, then the maturity date will be January 12, 2019. The GACP Term Loan Facilities will amortize beginning on July 1, 2019 in quarterly installments equal to 2.5% of the original loan amounts, with the remaining principal balance payable on the maturity date. Loans under the GACP Term Loan Facilities will accrue interest at a rate per annum equal to the sum of (i) the greater of (A) the U.S. prime rate as reported in the Wall Street Journal and (B) 4.0%, plus (ii) 6.25%, payable monthly. The GACP Term Loan Facilities are guaranteed by the subsidiaries of the Company party to the LSA and collateralized by first-priority liens on substantially all the Company’s and such subsidiaries’ assets, including intellectual property, subject to certain exceptions. The LSA includes customary terms, covenants and restrictions, including mandatory prepayments upon the occurrence of certain events, including asset sales, casualty events, incurrence of additional indebtedness and borrowing base deficiencies, subject to certain exceptions and reinvestment rights. The LSA contains certain financial covenants that include quarterly minimum revenues, minimum liquidity amounts and an asset coverage ratio. At September 30, 2018, the Company did not achieve minimum revenue required at September 30, 2018 and obtained a permanent waiver for this violation. The Company also amended the LSA to reduce the December 31, 2018 minimum revenue amount and increase the minimum liquidity amount. However, there is no guarantee that the Company will not violate these covenants in the future or be able to obtain waivers for future violations.

 

The Company paid origination fees at closing equal to 4%, or $1.4 million, of the funded amount of the GACP Term Loan Facility and other closing costs totaling $0.2 million, plus an agency fee of $25,000 per quarter during the term of the GACP Term Loan Facilities. The $1.6 million of issuance costs will be amortized using the effective interest method over the expected 3-year loan term.

 

•

August 2013 Financing Convertible Notes: In August 2018, in connection with certain amendments to the August 2017 Vivo Cash Warrants (see Note 6, “Stockholders' Deficit”), the conversion price of the August 2013 financing convertible notes was reduced from $5.2977 per share to $4.40 per share.

 

Future Minimum Payments

 

Future minimum payments under the Company's debt agreements as of September 30, 2018 are as follows:

 

Years ending December 31 (In thousands)			Convertible Notes				Loans Payable and Credit Facilities				Related Party Convertible Notes				Related Party Loans Payable and Credit Facilities				Total
2018 (remaining three months)		$	2,580			$	1,508			$	803			$	1,132			$	6,023
2019			69,333				9,068				25,508				2,500				106,409
2020			—				8,915				—				2,500				11,415
2021			—				34,178				—				27,521				61,699
2022			—				13,416				—				—				13,416
Thereafter			—				2,565				—				—				2,565
Total future minimum payments			71,913				69,650				26,311				33,653				201,527
Less: amount representing interest			(5,159	)			(16,881	)			(1,606	)			(8,146	)			(31,792	)
Add: amount mandatorily convertible into common stock upon maturity			—				—				24,970				—				24,970
Less: future conversion of accrued interest to principal			(447	)			—				(1,636	)			—				(2,083	)
Present value of minimum debt payments			66,307				52,769				48,039				25,507				192,622
Less: current portion of debt principal			(66,307	)			(2,739	)			(48,039	)			(507	)			(117,592	)
Noncurrent portion of debt principal		$	—			$	50,030			$	—			$	25,000			$	75,030

 

5. Mezzanine Equity

 

Mezzanine equity is comprised of the following:

 

 

 

 

Mezzanine equity at September 30, 2018 and December 31, 2017 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%.

6. Stockholders' Deficit

 

Warrants

 

In connection with various debt and equity transactions (see Note 4, "Debt" and Note 6, “Stockholders’ Deficit” in Part II, Item 8 of the Annual Report on Form 10-K), the Company has issued warrants exercisable for shares of common stock. The following table summarizes warrant activity for the nine months ended September 30, 2018:

 

Transaction		Number Outstanding as of December 31, 2017				Additional Warrants Issued				Exercises				Number Outstanding as of September 30, 2018
July 2015 private placement			81,197				—				—				81,197
July 2015 related party debt exchange			2,082,010				471,204				—				2,553,214
February 2016 related party private placement			171,429				—				—				171,429
May 2017 cash and dilution warrants			18,042,568				—				(10,784,933	)			7,257,635
August 2017 cash and dilution warrants			9,543,234				—				(5,575,118	)			3,968,116
April 2018 warrant exercise agreements			—				3,616,174				—				3,616,174
August 2018 warrant exercise agreements			—				12,097,164				—				12,097,164
Other			1,406				—				—				1,406
			29,921,844				16,184,542				(16,360,051	)			29,746,335

 

For the nine months ended September 30, 2018, net proceeds were $60.5 million from the issuance of common stock upon exercise of 16,360,051 warrants.

 

Warrant Exercises and New Warrant Issuances

 

April 2018 Warrant Transactions

 

On April 12, 2018, certain holders of the May 2017 Warrants (see Note 6, “Stockholders’ Deficit” in Part II, Item 8 of the Annual Report on Form 10-K) exercised their May 2017 Cash Warrants to purchase 3,616,174 shares of common stock for net proceeds to the Company of $14.5 million and surrendered their May 2017 Dilution Warrants. Upon exercise of such May 2017 Cash Warrants and surrender of such May 2017 Dilution Warrants, certain derivative liabilities representing certain anti-dilution rights embedded in the May 2017 Warrants were effectively settled. Concurrent with the exercise of the May 2017 Cash Warrants and surrender of such May 2017 Dilution Warrants, the Company issued new warrants to these same holders to purchase 3,616,174 shares of common stock, exercisable at a price of $7.00 per share. The new warrants were fully exercisable upon issuance, with an expiration date of July 12, 2019. The new warrants do not provide the holders with anti-dilution protection. Consequently, the new warrants were treated as additional consideration to the May 2017 Warrant holders in exchange for their anti-dilution rights embedded in the original May 2017 Warrants. The Company used the Black-Scholes-Merton option pricing model to determine the fair value of the new warrants, which resulted in a fair value of $9.4 million. Black-Scholes-Merton input assumptions were as follows: volatility of 90%, risk-free rate of 2.16%, expected term of 1.25 years, expected dividend yield of $0, exercise price of $7.00, and Company stock price on issue date of $6.80. As a result of this exchange transaction, the Company recorded a $1.9 million net gain on the extinguishment of the related derivative liability during the three months ended June 30, 2018. This net gain was comprised of an $11.3 million gain on derecognition of the derivative liability and a $9.4 million loss on issuance of the new warrant. These transactions resulted in a $21.9 million decrease in the derivative liabilities underlying the May 2017 Warrants.

 

 

August 2018 Warrant Transactions

 

In August 2018, Foris Ventures and Vivo Capital, related parties and holders of the May 2017 Warrants and August 2017 Warrants (see Note 6, “Stockholders’ Deficit” in Part II, Item 8 of the Annual Report on Form 10-K), exercised their Cash Warrants and Dilution Warrants to purchase approximately 12.6 million shares of common stock for $46.0 million in proceeds to the Company. Upon exercise of such Cash Warrants and Dilution Warrants, certain derivative liabilities representing certain anti-dilution rights embedded in the May 2017 Warrants and August 2017 Warrants were effectively settled. Concurrent with the exercise of the Cash Warrants and Dilution Warrants, the Company issued a series of new warrants to these same holders to purchase 12.1 million shares of common stock, exercisable at $7.52 per share. The new warrants are exercisable any time after the six-month anniversary from the issuance date and for 15 months thereafter, with an expiration date in May 2020. The new warrants do not provide the holders with anti-dilution protection. Consequently, the new warrants were treated as additional consideration to the May 2017 Warrant and August 2017 Warrant holders in exchange for their anti-dilution rights embedded in the original May 2017 Warrants and August 2017 Warrants. The Company used the Black-Scholes-Merton option pricing model to determine the fair value of the new warrants, which resulted in a fair value of $30.1 million. Black-Scholes-Merton input assumptions were as follows: volatility of 80%, risk-free rate of 2.57%–2.58%, expected term of 1.75 years, expected dividend yield of zero, exercise price of $7.52, and Company stock price on issue date of $6.56–$6.79. During the three months ended September 30, 2018, as a result of this exchange transaction, the Company recorded a net loss of $3.6 million, comprised of a $26.5 million gain on derecognition of the derivative liability and a $30.1 million loss on issuance of the new warrants. These transactions resulted in a $63.3 million decrease in the derivative liabilities underlying the May 2017 Warrants and August 2017 Warrants.

 

Temasek Funding Warrant

 

In August 2018, as a result of the reduction in the conversion price of the August 2013 financing convertible from $5.2977 per share to $4.40 per share (see Note 4, “Debt” above), the Temasek Funding Warrant (see Note 6, “Stockholders’ Deficit” in Part II, Item 8 of the Annual Report on Form 10-K) became exercisable for an additional 471,204 shares of common stock in accordance with its terms.

 

At Market Issuance Sales Agreement

 

On March 8, 2016, the Company entered into an At Market Issuance Sales Agreement (the ATM Sales Agreement) with FBR Capital Markets & Co. and MLV & Co. LLC (the Agents) under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million (the ATM Shares) from time to time through the Agents, acting as its sales agents, under the Company's Registration Statement on Form S-3 (File No. 333-203216), effective April 15, 2015. Sales of the ATM Shares through the Agents may be made by any method that is deemed an "at the market offering" as defined in Rule 415 under the Securities Act of 1933, as amended, including by means of ordinary brokers' transactions at market prices, in block transactions, or as otherwise agreed by the Company and the Agents. The Company will pay the applicable Agent a commission rate of up to 3.0% of the gross proceeds from the sale of any ATM Shares sold through such Agent under the ATM Sales Agreement. The ATM Sales Agreement includes no commitment by other parties to purchase ATM Shares the Company offers for sale.

 

During the three and nine months ended September 30, 2018, the Company issued and sold 0 and 205,168 shares of common stock under the ATM Sales Agreement, at an average price of $6.90 per share, respectively, resulting in total net proceeds to the Company of $1.4 million. The ATM Sales Agreement expired on April 15, 2018, and as a result, zero remained available for issuance under the ATM Sales Agreement as of September 30, 2018.

7. Consolidated Variable-interest Entities and Unconsolidated Investments

 

Consolidated Variable-interest Entity

 

The table below reflects the carrying value of the Aprinnova joint venture (JV) (see Note 7, “Variable-interest Entities and Unconsolidated Investments” in Part II, Item 8 of the Annual Report on Form 10-K) assets and liabilities, for which the Company is the primary beneficiary at September 30, 2018:

 

(In thousands)		September 30, 2018				December 31, 2017
Assets		$	38,422			$	36,781
Liabilities		$	1,960			$	3,187

 

The Aprinnova JV's creditors have recourse only to the assets of the Aprinnova JV.

 

During the three and nine months ended September 30, 2018 and 2017, there was no activity in noncontrolling interest.

 

 

Unconsolidated Investments

 

The Company's unconsolidated investments are summarized as follows:

 

						Carrying Value of Investment on Condensed Consolidated Balance Sheets
(Amounts in thousands)		Amyris Equity Ownership %				September 30, 2018				December 31, 2017
Equity-method investments:
Novvi LLC			20	%		$	—			$	—
Total Amyris BioSolutions B.V.			25	%		$	—			$	—
Other unconsolidated equity investment:
SweeGen, Inc.			3	%		$	5,313			$	3,233

 

8. Net Loss per Share Attributable to Common Stockholders

 

For the three and nine months ended September 30, 2018 and September 30, 2017, basic loss per share attributable to common stockholders was the same as diluted loss per share attributable to common stockholders because the inclusion of all potentially dilutive securities outstanding was antidilutive.

 

The following table presents the calculation of basic and diluted loss per share attributable to common stockholders:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
(In thousands, except shares and per share amounts)		2018				2017				2018				2017
Numerator:
Net loss attributable to Amyris, Inc.		$	(68,321	)		$	(33,861	)		$	(158,284	)		$	(70,612	)
Less deemed dividend on capital distribution to related parties			—				—				—				(8,648	)
Less deemed dividend related to beneficial conversion feature on Series A preferred stock			—				—				—				(562	)
Less deemed dividend related to beneficial conversion feature on Series B preferred stock			—				(634	)			—				(634	)
Less deemed dividend related to beneficial conversion feature on Series D preferred stock			—				(5,757	)			—				(5,757	)
Less cumulative dividends on Series A and B preferred stock			(279	)			(2,567	)			(1,073	)			(4,242	)
Net loss attributable to Amyris, Inc. common stockholders, basic and diluted		$	(68,600	)		$	(42,819	)		$	(159,357	)		$	(90,455	)
Denominator:
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted			60,966,071				37,529,694				55,735,571				27,280,894
Basic and diluted loss per share		$	(1.13	)		$	(1.14	)		$	(2.86	)		$	(3.32	)

 

Diluted loss per share for the nine months ended September 30, 2017 has been revised from the amount presented in the September 30, 2017 Form 10-Q. For that period, diluted loss attributable to Amyris, Inc. common stockholders was previously reported as $125.9 million, and diluted loss per share was previously reported as $4.61. The table shown above reflects the error correction. The Company does not consider the difference in amounts to be material to the financial statements for the nine months ended September 30, 2017 as originally filed or in the current presentation of the loss per share calculation.

 

 

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,
		2018				2017				2018				2017
Period-end stock options to purchase common stock			5,449,701				949,023				5,449,701				949,023
Convertible promissory notes (1)			9,397,134				8,133,594				9,397,134				8,133,594
Period-end common stock warrants			25,986,432				31,303,080				25,986,432				31,303,080
Period-end restricted stock units			5,324,092				599,425				5,324,092				599,425
Period-end preferred stock			2,955,732				—				2,955,732				—
Total potentially dilutive securities excluded from computation of diluted loss per share			49,113,091				40,985,122				49,113,091				40,985,122

 ______________

(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.

9. Commitments and Contingencies

 

Commitments

 

Future minimum payments under the Company's lease obligations as of September 30, 2018 are as follows (in thousands):

 

Years ending December 31: (In thousands)		Capital Leases				Operating Leases				Total Lease Obligations
2018 (remaining three months)		$	143			$	2,776			$	2,919
2019			513				9,966				10,479
2020			199				7,675				7,874
2021			3				7,237				7,240
2022			—				7,410				7,410
Thereafter			—				3,270				3,270
Total future minimum payments		$	858			$	38,334			$	39,192
Less: amount representing interest			(46	)
Present value of minimum lease payments			812
Less: current portion			(503	)
Long-term portion		$	309

 

Guarantor Arrangements

 

In November 2010, the Company entered into the FINEP Credit Facility to finance a research and development project on sugarcane-based biodiesel; see Note 4, "Debt" in Part II, Item 8 of the Annual Report on Form 10-K. The FINEP Credit Facility is guaranteed by a chattel mortgage on certain equipment of the Company. The Company's total acquisition cost for the equipment under this guarantee as of September 30, 2018 and December 31, 2017 was R$6.0 million (US$1.5 million and US$1.8 million, respectively) based on exchange rates at each date.

 

Contingencies

 

The Company has levied indirect taxes on sugarcane-based biodiesel sales that took place several years ago by Amyris Brasil Ltda. (see Note 13, “Divestiture” in Part II, Item 8 of the Annual Report on 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.

 

 

The Company and a number of the Company’s current officers and directors are parties to four separate purported shareholder derivative complaints based on allegedly misleading statements and/or omissions made in connection with the Company’s securities filings (the Derivative Complaints). The Derivative Complaints seek to recover, on the Company's behalf, unspecified damages purportedly sustained by the Company and also seek a series of changes to the Company’s corporate governance policies, restitution to the Company from the individual defendants, and an award of attorneys’ fees. Two of the Derivative Complaints were filed in the U.S. District Court for the Northern District of California (together, the Federal Derivative Cases). On December 21, 2017, the defendants filed a motion to dismiss the Federal Derivative Cases, which was granted on March 9, 2018. On March 29, 2018, the plaintiffs filed an amended complaint, and on May 4, 2018 the defendants filed a motion to dismiss the amended complaint. On July 23, 2018, the court granted defendants’ motion to dismiss the amended complaint with prejudice and entered judgment in favor of the defendants. The remaining two Derivative Complaints were filed in the Superior Court for the State of California (together, the State Derivative Cases). On August 30, 2018, the parties in the State Derivative Cases filed a joint stipulation and proposed order to dismiss the State Derivative Cases without prejudice, and on September 4, 2018, the court entered an order to that effect. See Part II, Item 1, “Legal Proceedings” in this Quarterly Report on Form 10-Q for more additional information.

 

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 are not predictable with reasonable assurance and therefore an estimate of all the reasonably possible losses cannot be determined at this time. Therefore, 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.

10. 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)		2018																2017
		Renewable Products				Licenses and Royalties				Grants and Collaborations				Total				Renewable Products				Licenses and Royalties				Grants and Collaborations				Total
United States		$	4,884			$	—			$	626			$	5,510			$	5,873			$	—			$	6,141			$	12,014
Europe			1,175				142				3,908				5,225				2,314				1,022				3,935				7,271
Asia			3,544				—				—				3,544				2,773				—				125				2,898
South America			36				—				551				587				36				—				1,978				2,014
Other			—				—				—				—				—				—				—				—
		$	9,639			$	142			$	5,085			$	14,866			$	10,996			$	1,022			$	12,179			$	24,197

 

 

		Nine Months Ended September 30,
(In thousands)		2018																2017
		Renewable Products				Licenses and Royalties				Grants and Collaborations				Total				Renewable Products				Licenses and Royalties				Grants and Collaborations				Total
United States		$	9,185			$	—			$	6,457			$	15,642			$	8,871			$	2,673			$	15,510			$	27,054
Europe			6,596				18,466				11,723				36,785				5,621				1,468				9,295				16,384
Asia			5,335				—				1,000				6,335				14,242				2,633				375				17,250
South America			251				—				1,945				2,196				180				—				1,978				2,158
Other			100				—				—				100				11				—				—				11
		$	21,467			$	18,466			$	21,125			$	61,058			$	28,925			$	6,774			$	27,158			$	62,857

 

 

 

Significant Revenue Agreements

 

In connection with significant revenue agreements (see Note 10, “ Significant Revenue Agreements” in Part II, Item 8 of the Annual Report on Form 10-K) , the Company recognized the following revenues for the three and nine months ended September 30, 2018 and 2017 :

 

		Three Months Ended September 30,
(In thousands)		2018																2017
		Renewable Products				Licenses and Royalties				Grants and Collaborations				Total				Renewable Products				Licenses and Royalties				Grants and Collaborations				Total
DSM - related party		$	17			$	(39	)		$	1,748			$	1,726			$	—			$	703			$	634			$	1,337
Givaudan			525				—				1,500				2,025				1,331				—				1,500				2,831
Firmenich			904				181				1,212				2,297				4,525				319				1,351				6,195
Nenter			—				—				—				—				1,678				—				—				1,678
DARPA			—				—				241				241				—				—				1,252				1,252
Subtotal revenue from significant revenue agreements			1,446				142				4,701				6,289				7,534				1,022				4,737				13,293
Revenue from all other customers			8,193				—				384				8,577				3,462				—				7,442				10,904
Total revenue from all customers		$	9,639			$	142			$	5,085			$	14,866			$	10,996			$	1,022			$	12,179			$	24,197

 

 

		Nine Months Ended September 30,
(In thousands)		2018																2017
		Renewable Products				Licenses and Royalties				Grants and Collaborations				Total				Renewable Products				Licenses and Royalties				Grants and Collaborations				Total
DSM - related party		$	17			$	18,248			$	5,611			$	23,876			$	10			$	703			$	783			$	1,496
Givaudan			3,710				—				4,358				8,068				1,950				—				4,500				6,450
Firmenich			1,110				218				3,698				5,026				6,178				765				4,562				11,505
Nenter			—				—				1,000				1,000				8,003				2,633				—				10,636
DARPA			—				—				5,278				5,278				—				—				6,894				6,894
Subtotal revenue from significant revenue agreements			4,837				18,466				19,945				43,248				16,141				4,101				16,739				36,981
Revenue from all other customers			16,630				—				1,180				17,810				12,784				2,673				10,419				25,876
Total revenue from all customers		$	21,467			$	18,466			$	21,125			$	61,058			$	28,925			$	6,774			$	27,158			$	62,857

 

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 assets are presented as Unbilled Receivables on the consolidated balance sheets.

 

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. Contract liabilities are presented as Deferred Revenue on the consolidated balance sheets.

 

Trade receivables related to revenue from contracts with customers are included in accounts receivable on the consolidated balance sheets, net of the allowance for doubtful accounts. Trade accounts receivable are recorded 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 for sale of goods or the performance of services.

 

Contract Balances

 

The following table provides information about unbilled receivables, deferred revenue, and accounts receivable from contracts with customers:

 

(In thousands)		September 30, 2018				December 31, 2017
Unbilled receivable, current		$	56			$	9,340
Unbilled receivable, noncurrent		$	9,767			$	7,940
Deferred revenue, current		$	6,698			$	4,880
Deferred revenue, noncurrent		$	383	(1)		$	383	(1)
Accounts receivable, net		$	35,564			$	24,281

 

______________

⁽¹⁾     As of September 30, 2018 and December 31, 2017, deferred revenue, noncurrent is presented in Other Noncurrent Liabilities in the consolidated balance sheets because of its insignificance.

 

 

Unbilled receivables relate to the Company’s right to consideration from DSM for (i) minimum future royalties and (ii) performance fees. The Company’s right to cash receipt for these minimum royalty amounts occurs on or before December 31, 2019. From December 31, 2017 to September 30, 2018, the combination of current and noncurrent unbilled receivables decreased by $7.5 million as the result of invoices issued to DSM during the period.

 

Deferred revenue, current increased by $1.8 million at September 30, 2018 resulting from a $0.8 million increase upon adoption of ASC 606 on January 1, 2018 plus the net amount of collaboration and royalty revenues invoiced in excess of amounts recognized as revenue, less $3.3 million of revenue recognized during the nine months ended September 30, 2018 that was included in deferred revenue at the beginning of the period.

 

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, 2018.

 

(In thousands)		As of September 30, 2018
Remaining 2018		$	3,592
2019			9,742
2020			7,742
2021 and thereafter			672
Total from all customers		$	21,748

 

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 $17.4 million of estimated future revenue is excluded from the table above, as that amount represents constrained variable consideration.

11. Related Party Transactions

 

Related Party Debt

 

See Note 4. "Debt" in Part I, Item 1 of this Quarterly Report on Form 10-Q for related party debt balances as of September 30, 2018 and December 31, 2017.

 

Related Party Accounts Receivable and Unbilled Receivables

 

Related party accounts receivable and unbilled receivables as of September 30, 2018 and December 31, 2017 were as follows:

 

(In thousands)		September 30, 2018				December 31, 2017
Accounts receivable, net:
DSM		$	20,419			$	3,483
Novvi			24				1,607
Total			120				238
		$	20,563			$	5,328
Unbilled receivable, current:
DSM		$	56			$	9,340
Unbilled receivable, noncurrent:
DSM		$	9,767			$	7,940

 

 

 

Related Party Joint Ventures

 

See Note 7, "Variable-interest Entities and Unconsolidated Investments" in Part I, Item 1 of this Quarterly Report on Form 10-Q and in Part II, Item 8 of the Annual Report on Form 10-K for information about the Company's:

 

•

Aprinnova joint venture with Nikko, and

•

TAB joint venture with Total

12. Stock-based Compensation

 

The Company’s stock option activity and related information for the nine months ended September 30, 2018 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, 2017			1,338,367			$	33.40				7.7			$	97
Granted			4,296,337			$	5.18
Exercised			(61,750	)		$	3.68
Forfeited or expired			(123,253	)		$	28.18
Outstanding - September 30, 2018			5,449,701			$	11.60				9.0			$	13,721
Vested or expected to vest after September 30, 2018			5,031,524			$	12.14				8.9			$	12,552
Exercisable at September 30, 2018			942,636			$	41.25				6.7			$	1,536

 

The Company’s restricted stock units (RSUs) activity and related information for the nine months ended September 30, 2018 was as follows:

 

		Quantity of Restricted Stock Units				Weighted- average Grant- date Fair Value				Weighted- average Remaining Contractual Life, in Years
Outstanding - December 31, 2017			683,554			$	8.62				1.4
Awarded			4,993,022			$	5.38
RSUs released			(226,129	)		$	10.38
RSUs forfeited			(126,355	)		$	6.16
Outstanding - September 30, 2018			5,324,092			$	5.57				1.8
Vested or expected to vest after September 30, 2018			5,065,108			$	5.57				1.8

 

Stock-based compensation expense related to options and RSUs granted to employees and non-employees during the three and nine months ended September 30, 2018 and 2017 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)		2018				2017				2018				2017
Research and development		$	495			$	395			$	1,191			$	1,320
Sales, general and administrative			2,442				863				4,924				2,622
Total stock-based compensation expense		$	2,937			$	1,258			$	6,115			$	3,942

 

As of September 30, 2018, there was unrecognized compensation expense of $35.0 million related to stock options and RSUs. The Company expects to recognize this expense over a weighted-average period of 3.5 years.

 

 

The fair value of employee stock options was estimated using the following weighted-average assumptions:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018				2017				2018				2017
Expected dividend yield			—	%			—	%			—	%			—	%
Risk-free interest rate			2.8	%			2.0	%			2.7	%			2.0	%
Expected term (in years)			6.87				6.20				6.85				6.10
Expected volatility			79.1	%			92.2	%			79.6	%			81.6	%

 

In May 2018, shareholders approved amendments to the Company's 2010 Equity Incentive Plan (EIP) to (i) increase the number of shares of common stock available for grant and issuance thereunder by 9 million shares and (ii) increase the annual per-participant award limit thereunder to 4 million shares.

 

Also in May 2018, shareholders approved an amendment to the Company's 2010 Employee Stock Purchase Plan (ESPP) to increase the maximum number of shares of common stock that may be issued over the term of the ESPP by 1 million shares.

 

In May 2018, the Company granted its chief executive officer performance-based stock options (PSOs) to purchase 3,250,000 shares. PSOs are equity awards with the final number of PSOs that may vest determined based on the Company’s performance against pre-established EBITDA milestones and Amyris stock price milestones. The EBITDA milestones are measured from the grant date through December 31, 2021, and the stock price milestones are measured from the grant date through December 31, 2022. The PSOs vest in four tranches contingent upon the achievement of both the EBITDA milestones and stock price milestones for each respective tranche, and the chief executive officer’s continued employment with the Company. Over the measurement periods, the number of PSOs that may be issued and the related stock-based compensation expense that is recognized is adjusted upward or downward based upon the probability of achieving the EBITDA milestones. Depending on the probability of achieving the EBITDA milestones and stock price milestones and certification of achievement of those milestones for each vesting tranche by the Company’s Board of Directors or Compensation Committee, the PSOs issued could be from zero to 3,250,000 stock options, with an exercise price of $5.08 per share.

 

Stock-based compensation expense for this award is recognized using a graded-vesting approach over the service period beginning at the grant date through December 31, 2022, as the Company’s management has determined that certain EBITDA milestones are probable of achievement as of September 30, 2018, The Company utilized a Monte Carlo simulation model to estimate the grant date fair value of each tranche of the award which totaled $5.1 million. For the three and nine months ended September 30, 2018, the Company recognized $0.3 million and $0.4 million, respectively, of compensation expense for this award. The assumptions used to estimate the fair value of this award with performance and market vesting conditions were as follows: