ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
AMYRIS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Amyris, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Amyris, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit and mezzanine equity, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 13, 2020 expressed an adverse opinion thereon.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit of $1.8 billion and current debt service requirements that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Changes in Accounting Principles
As discussed in Note 1to the consolidated financial statements, the Company has changed its accounting method of accounting for leases on January 1, 2019, due to the adoption of Financial Accounting Standard Board’s Accounting Standards Codification 842, Leases. . The Company also amended the classification of certain equity-linked financial instruments with down round features and the respective disclosure requirements in fiscal year 2019 due to adoption of Accounting Standards Update No. 2017-11.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provides a reasonable basis for our opinion.
/s/ Macias Gini & O'Connell LLP
We have served as the Company's auditor since 2019.
San Francisco, California
March 13, 2020
AMYRIS, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 31,
(In thousands, except shares and per share amounts)
|
2019
|
2018
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
270
|
|
$
|
45,353
|
|
Restricted cash
|
469
|
|
741
|
|
Accounts receivable, net of allowance of $45 and $642, respectively
|
16,322
|
|
16,003
|
|
Accounts receivable - related party, net of allowance of $0 and $0, respectively
|
3,868
|
|
1,349
|
|
Accounts receivable, unbilled - related party
|
—
|
|
8,021
|
|
Contract assets
|
8,485
|
|
—
|
|
Inventories
|
27,770
|
|
9,693
|
|
Deferred cost of products sold - related party
|
3,677
|
|
489
|
|
Prepaid expenses and other current assets
|
12,750
|
|
10,566
|
|
Total current assets
|
73,611
|
|
92,215
|
|
Property, plant and equipment, net
|
28,930
|
|
19,756
|
|
Contract assets, noncurrent - related party
|
1,203
|
|
1,203
|
|
Deferred cost of products sold, noncurrent - related party
|
12,815
|
|
2,828
|
|
Restricted cash, noncurrent
|
960
|
|
960
|
|
Recoverable taxes from Brazilian government entities
|
7,676
|
|
3,005
|
|
Right-of-use assets under financing leases, net (Note 2)
|
12,863
|
|
—
|
|
Right-of-use assets under operating leases, net (Note 2)
|
13,203
|
|
—
|
|
Other assets
|
9,705
|
|
7,958
|
|
Total assets
|
$
|
160,966
|
|
$
|
127,925
|
|
Liabilities, Mezzanine Equity and Stockholders' Deficit
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
51,234
|
|
$
|
26,844
|
|
Accrued and other current liabilities
|
36,655
|
|
28,979
|
|
Financing lease liabilities (Note 2)
|
3,465
|
|
—
|
|
Operating lease liabilities (Note 2)
|
4,625
|
|
—
|
|
Contract liabilities
|
1,353
|
|
8,236
|
|
Debt, current portion (includes instrument measured at fair value of $24,392 and $57,918, respectively)
|
45,313
|
|
124,010
|
|
Related party debt, current portion
|
18,492
|
|
23,667
|
|
Total current liabilities
|
161,137
|
|
211,736
|
|
Long-term debt, net of current portion (includes instrument measured at fair value of $26,232 and $0, respectively)
|
48,452
|
|
43,331
|
|
Related party debt, net of current portion
|
149,515
|
|
18,689
|
|
Financing lease liabilities, net of current portion (Note 2)
|
4,166
|
|
—
|
|
Operating lease liabilities, net of current portion (Note 2)
|
15,037
|
|
—
|
|
Derivative liabilities
|
9,803
|
|
42,796
|
|
Other noncurrent liabilities
|
23,024
|
|
23,192
|
|
Total liabilities
|
411,134
|
|
339,744
|
|
Commitments and contingencies (Note 8)
|
|
|
|
|
Mezzanine equity:
|
|
|
|
|
Contingently redeemable common stock (Note 5)
|
5,000
|
|
5,000
|
|
Stockholders’ deficit:
|
|
|
|
|
Preferred stock - $0.0001 par value, 5,000,000 shares authorized as of December 31, 2019 and 2018, and 8,280 and 14,656 shares issued and outstanding as of December 31, 2019 and 2018, respectively
|
—
|
|
—
|
|
Common stock - $0.0001 par value, 250,000,000 shares authorized as of December 31, 2019 and 2018, respectively; 117,742,677 and 76,564,829 shares issued and outstanding as of December 31, 2019 and 2018, respectively
|
12
|
|
8
|
|
Additional paid-in capital
|
1,543,668
|
|
1,346,996
|
|
Accumulated other comprehensive loss
|
(43,804)
|
|
(43,343)
|
|
Accumulated deficit
|
(1,755,653)
|
|
(1,521,417)
|
|
Total Amyris, Inc. stockholders’ deficit
|
(255,777)
|
|
(217,756)
|
|
Noncontrolling interest
|
609
|
|
937
|
|
Total stockholders' deficit
|
(255,168)
|
|
(216,819)
|
|
Total liabilities, mezzanine equity and stockholders' deficit
|
$
|
160,966
|
|
$
|
127,925
|
|
See accompanying notes to consolidated financial statements.
AMYRIS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands, except shares and per share amounts)
|
2019
|
2018
|
Revenue
|
|
|
|
|
Renewable products (includes related party revenue of $56 and $360, respectively)
|
$
|
59,872
|
|
$
|
33,598
|
|
Licenses and royalties, net (includes related party revenue of $49,051 and $5,958, respectively)
|
54,043
|
|
7,658
|
|
Grants and collaborations (includes related party revenue of $4,120 and $4,735 respectively)
|
38,642
|
|
22,348
|
|
Total revenue (includes related party revenue of $53,227 and $11,053, respectively)
|
152,557
|
|
63,604
|
|
Cost and operating expenses
|
|
|
|
|
Cost of products sold
|
76,185
|
|
36,698
|
|
Research and development
|
71,460
|
|
68,722
|
|
Sales, general and administrative
|
126,586
|
|
90,902
|
|
Impairment of other assets
|
216
|
|
3,865
|
|
Total cost and operating expenses
|
274,447
|
|
200,187
|
|
Loss from operations
|
(121,890)
|
|
(136,583)
|
|
Other income (expense)
|
|
|
|
|
Loss on divestiture
|
—
|
|
(1,778)
|
|
Interest expense
|
(58,665)
|
|
(42,703)
|
|
Gain (loss) from change in fair value of derivative instruments
|
2,777
|
|
(30,880)
|
|
(Loss) gain from change in fair value of debt
|
(19,369)
|
|
2,082
|
|
Loss upon extinguishment of debt
|
(44,208)
|
|
(17,424)
|
|
Other expense, net
|
(783)
|
|
(2,949)
|
|
Total other expense, net
|
(120,248)
|
|
(93,652)
|
|
Loss before income taxes
|
(242,138)
|
|
(230,235)
|
|
Provision for income taxes
|
(629)
|
|
—
|
|
Net loss attributable to Amyris, Inc.
|
(242,767)
|
|
(230,235)
|
|
Less deemed dividend to preferred shareholder on issuance and modification of common stock warrants
|
(34,964)
|
|
—
|
|
Less deemed dividend related to proceeds discount upon conversion of Series D preferred stock
|
—
|
|
(6,852)
|
|
Add: losses allocated to participating securities
|
7,380
|
|
13,991
|
|
Net loss attributable to Amyris, Inc. common stockholders
|
$
|
(270,351)
|
|
$
|
(223,096)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic
|
101,370,632
|
|
60,405,910
|
|
Basic loss per share
|
$
|
(2.67)
|
|
$
|
(3.69)
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, diluted
|
101,296,575
|
|
60,405,910
|
|
Diluted loss per share
|
$
|
(2.72)
|
|
$
|
(3.69)
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
AMYRIS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands)
|
2019
|
2018
|
Comprehensive loss:
|
|
|
|
|
Net loss attributable to Amyris, Inc.
|
$
|
(242,767)
|
|
$
|
(230,235)
|
|
Foreign currency translation adjustment
|
(461)
|
|
(1,187)
|
|
|
|
|
|
|
|
Comprehensive loss attributable to Amyris, Inc.
|
$
|
(243,228)
|
|
$
|
(231,422)
|
|
See accompanying notes to consolidated financial statements.
AMYRIS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT AND MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except number of shares)
|
Shares
|
|
Amount
|
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Loss
|
|
Accumulated Deficit
|
|
Noncontrolling Interest
|
|
Total Stockholders' Deficit
|
|
Mezzanine Equity - Common Stock
|
December 31, 2017
|
22,171
|
|
$
|
—
|
|
|
|
45,637,433
|
|
$
|
5
|
|
|
|
$
|
1,114,546
|
|
|
|
$
|
(42,156)
|
|
|
|
$
|
(1,290,420)
|
|
|
|
$
|
937
|
|
|
|
$
|
(217,088)
|
|
|
|
$
|
5,000
|
|
Cumulative effect of change in accounting principle for ASC 606 (see "Significant Accounting Policies" in Note 1)
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(762)
|
|
|
|
—
|
|
|
|
(762)
|
|
|
|
—
|
|
Issuance of common stock upon exercise of warrants
|
—
|
|
—
|
|
|
|
20,891,038
|
|
2
|
|
|
|
62,152
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,154
|
|
|
|
—
|
|
Settlement of derivatives liability upon exercise of warrants
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
108,670
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
108,670
|
|
|
|
|
|
Issuance of common stock in private placement, net of issuance costs of $0
|
—
|
|
—
|
|
|
|
205,168
|
|
—
|
|
|
|
1,415
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,415
|
|
|
|
—
|
|
Issuance of common stock in private placement - related party, net of issuance costs of $0
|
—
|
|
—
|
|
|
|
1,643,991
|
|
—
|
|
|
|
6,050
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,050
|
|
|
|
—
|
|
Issuance of common stock upon conversion of preferred stock
|
(7,515)
|
|
—
|
|
|
|
1,548,480
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Deemed dividend on preferred stock discounts upon conversion of Series D preferred stock
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
6,852
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,852
|
|
|
|
—
|
|
Deemed dividend on preferred stock discounts upon conversion of Series D preferred stock
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
(6,852)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,852)
|
|
|
|
—
|
|
Issuance of common stock upon conversion of convertible notes
|
—
|
|
—
|
|
|
|
5,674,926
|
|
1
|
|
|
|
42,368
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,369
|
|
|
|
—
|
|
Issuance of common stock for settlement of debt interest payments
|
—
|
|
—
|
|
|
|
238,898
|
|
—
|
|
|
|
1,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,800
|
|
|
|
—
|
|
Issuance of common stock upon exercise of stock options
|
—
|
|
—
|
|
|
|
70,807
|
|
—
|
|
|
|
288
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
288
|
|
|
|
—
|
|
Issuance of common stock upon ESPP purchase
|
—
|
|
—
|
|
|
|
246,230
|
|
—
|
|
|
|
777
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
777
|
|
|
|
—
|
|
Issuance of common stock and payment of minimum employee taxes withheld upon net share settlement of restricted stock
|
—
|
|
—
|
|
|
|
407,858
|
|
—
|
|
|
|
(260)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(260)
|
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
9,190
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,190
|
|
|
|
—
|
|
Foreign currency translation adjustment
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
(1,187)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,187)
|
|
|
|
—
|
|
Net loss attributable to Amyris, Inc.
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(230,235)
|
|
|
|
—
|
|
|
|
(230,235)
|
|
|
|
—
|
|
December 31, 2018
|
14,656
|
|
—
|
|
|
|
76,564,829
|
|
$
|
8
|
|
|
|
$
|
1,346,996
|
|
|
|
$
|
(43,343)
|
|
|
|
$
|
(1,521,417)
|
|
|
|
$
|
937
|
|
|
|
$
|
(216,819)
|
|
|
|
$
|
5,000
|
|
Cumulative effect of change in accounting principle for ASU 2017-11 (see "Significant Accounting Policies" in Note 1)
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
32,512
|
|
|
|
—
|
|
|
|
8,531
|
|
|
|
—
|
|
|
|
41,043
|
|
|
|
—
|
|
Issuance of common stock and warrants upon conversion of debt principal and accrued interest
|
—
|
|
—
|
|
|
|
14,107,637
|
|
2
|
|
|
|
62,859
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,861
|
|
|
|
—
|
|
Issuance of common stock in private placement, net of issuance costs - related party
|
—
|
|
—
|
|
|
|
10,478,338
|
|
1
|
|
|
|
39,499
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,500
|
|
|
|
—
|
|
Issuance and modification of common stock warrants
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
34,964
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
34,964
|
|
|
|
—
|
|
Deemed dividend to preferred shareholder on issuance and modification of common stock warrants
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
(34,964)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(34,964)
|
|
|
|
—
|
|
Issuance of common stock in private placement
|
—
|
|
—
|
|
|
|
3,610,944
|
|
—
|
|
|
|
14,221
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,221
|
|
|
|
—
|
|
Issuance of warrants in connection with related party debt issuance
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
20,121
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,121
|
|
|
|
—
|
|
Issuance of warrants in connection with related party debt modification
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
4,932
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,932
|
|
|
|
—
|
|
Issuance of warrants in connection with debt accounted for at fair value
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
5,358
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,358
|
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
12,554
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,554
|
|
|
|
—
|
|
Fair value of pre-delivery shares issued to lenders
|
—
|
|
—
|
|
|
|
7,500,000
|
|
1
|
|
|
|
4,214
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,215
|
|
|
|
—
|
|
Issuance of common stock upon ESPP purchase
|
—
|
|
—
|
|
|
|
318,490
|
|
—
|
|
|
|
1,078
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,078
|
|
|
|
—
|
|
Fair value of bifurcated embedded conversion feature in connection with debt modification
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
398
|
|
|
|
—
|
|
Issuance of common stock upon exercise of stock options
|
—
|
|
—
|
|
|
|
3,612
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
Issuance of common stock upon exercise of warrants
|
—
|
|
—
|
|
|
|
2,515,174
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
Conversion of Series B preferred shares into common shares
|
(6,376)
|
|
—
|
|
|
|
1,012,071
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Distribution to non-controlling interests
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(328)
|
|
|
|
(328)
|
|
|
|
—
|
|
Foreign currency translation adjustment
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
(461)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(461)
|
|
|
|
—
|
|
Issuance of common stock and payment of minimum employee taxes withheld upon net share settlement of restricted stock
|
—
|
|
—
|
|
|
|
1,631,582
|
|
—
|
|
|
|
(1,102)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,102)
|
|
|
|
—
|
|
Net loss attributable to Amyris, Inc.
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(242,767)
|
|
|
|
—
|
|
|
|
(242,767)
|
|
|
|
—
|
|
Balance as of December 31, 2019
|
8,280
|
|
—
|
|
|
|
117,742,677
|
|
$
|
12
|
|
|
|
$
|
1,543,668
|
|
|
|
$
|
(43,804)
|
|
|
|
$
|
(1,755,653)
|
|
|
|
$
|
609
|
|
|
|
$
|
(255,168)
|
|
|
|
$
|
5,000
|
|
See accompanying notes to consolidated financial statements.
AMYRIS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands)
|
2019
|
2018
|
Operating activities
|
|
|
|
|
Net loss attributable to Amyris, Inc.
|
$
|
(242,767)
|
|
$
|
(230,235)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Loss upon conversion or extinguishment of debt
|
44,208
|
|
17,424
|
|
Loss (gain) from change in fair value of debt
|
19,369
|
|
(2,082)
|
|
Amortization of right-of-use assets under operating leases
|
12,597
|
|
—
|
|
Stock-based compensation
|
12,554
|
|
9,190
|
|
Accretion of debt discount
|
11,665
|
|
16,602
|
|
Expense for warrants issued for covenant waivers
|
5,358
|
|
—
|
|
Depreciation and amortization
|
4,581
|
|
4,921
|
|
Impairment of property, plant and equipment
|
1,354
|
|
—
|
|
Loss in equity-method investee
|
297
|
|
—
|
|
Loss on disposal of property, plant and equipment
|
212
|
|
941
|
|
(Gain) loss from change in fair value of derivative instruments
|
(2,777)
|
|
30,880
|
|
Gain on foreign currency exchange rates
|
(22)
|
|
(2,223)
|
|
Modification of warrants recorded as legal expense
|
—
|
|
6,764
|
|
Issuance costs on warrant exercises for cash
|
—
|
|
4,389
|
|
Loss on impairment of other assets
|
216
|
|
3,865
|
|
Debt issuance costs expensed due to fair value option
|
—
|
|
3,810
|
|
Loss on divestiture
|
—
|
|
1,778
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(2,818)
|
|
7,448
|
|
Contract assets
|
(8,485)
|
|
—
|
|
Contract assets - related party
|
8,021
|
|
8,056
|
|
Inventories
|
(17,989)
|
|
(4,416)
|
|
Deferred cost of products sold - related party
|
(13,175)
|
|
(3,317)
|
|
Prepaid expenses and other assets
|
(8,064)
|
|
(6,383)
|
|
Accounts payable
|
23,748
|
|
11,603
|
|
Accrued and other liabilities
|
18,981
|
|
8,461
|
|
Lease liabilities
|
(17,125)
|
|
—
|
|
Contract liabilities
|
(6,872)
|
|
3,158
|
|
Net cash used in operating activities
|
(156,933)
|
|
(109,366)
|
|
Investing activities
|
|
|
|
|
Purchases of property, plant and equipment
|
(13,080)
|
|
(12,472)
|
|
Net cash used in investing activities
|
(13,080)
|
|
(12,472)
|
|
Financing activities
|
|
|
|
|
Proceeds from issuance of debt, net of issuance costs
|
189,175
|
|
94,371
|
|
Proceeds from issuance of common stock in private placements, net of issuance costs - related party
|
39,500
|
|
—
|
|
Proceeds from issuance of common stock in private placements, net of issuance costs
|
14,221
|
|
1,415
|
|
Proceeds from ESPP purchases
|
1,078
|
|
777
|
|
Proceeds from exercises of common stock options
|
27
|
|
288
|
|
Proceeds from exercise of warrants, net of issuance costs
|
1
|
|
57,767
|
|
Principal payments on debt
|
(112,393)
|
|
(41,668)
|
|
Principal payments on financing leases
|
(5,268)
|
|
(981)
|
|
Payment of minimum employee taxes withheld upon net share settlement of restricted stock units
|
(1,103)
|
|
(260)
|
|
Capital distribution to noncontrolling interest
|
(328)
|
|
—
|
|
Debt issuance costs incurred in connection with debt instrument accounted at fair value
|
—
|
|
(3,752)
|
|
Net cash provided by financing activities
|
124,910
|
|
107,957
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(252)
|
|
(77)
|
|
Net decrease in cash, cash equivalents and restricted cash
|
(45,355)
|
|
(13,958)
|
|
Cash, cash equivalents and restricted cash at beginning of year
|
47,054
|
|
61,012
|
|
Cash, cash equivalents and restricted cash at end of year
|
$
|
1,699
|
|
$
|
47,054
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets
|
|
|
|
|
Cash and cash equivalents
|
$
|
270
|
|
$
|
45,353
|
|
Restricted cash, current
|
469
|
|
741
|
|
Restricted cash, noncurrent
|
960
|
|
960
|
|
Total cash, cash equivalents and restricted cash
|
$
|
1,699
|
|
$
|
47,054
|
|
Amyris, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands)
|
2019
|
2018
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
Cash paid for interest
|
$
|
20,780
|
|
$
|
18,524
|
|
Supplemental disclosures of non-cash investing and financing activities:
|
|
|
|
|
Cumulative effect of change in accounting principle for ASU 2017-11 (Note 2)
|
$
|
41,043
|
|
$
|
—
|
|
Lease liabilities recorded upon adoption of ASC 842 (Note 2)
|
$
|
33,552
|
|
$
|
—
|
|
Right-of-use assets under operating leases recorded upon adoption of ASC 842 (Note 2)
|
$
|
29,713
|
|
$
|
—
|
|
Cumulative effect adjustment of ASC 606
|
$
|
—
|
|
$
|
762
|
|
Accrued interest added to debt principal
|
$
|
7,292
|
|
$
|
3,664
|
|
Acquisition of additional interest in equity-method investee in exchange for payment obligation
|
$
|
5,031
|
|
$
|
—
|
|
Acquisition of property, plant and equipment under accounts payable, accrued liabilities and notes payable
|
$
|
2,576
|
|
$
|
—
|
|
Acquisition of right-of-use assets under operating leases
|
$
|
3,551
|
|
$
|
—
|
|
Debt fair value adjustment in connection with debt issuance
|
$
|
11,575
|
|
$
|
—
|
|
Derecognition of derivative liabilities upon exercise of warrants
|
$
|
—
|
|
$
|
108,670
|
|
Fair value of embedded features in connection with debt issuances and modifications
|
$
|
237
|
|
$
|
—
|
|
Fair value of embedded features in connection with debt issuances and modifications - related party
|
$
|
1,954
|
|
$
|
—
|
|
Fair value of pre-delivery shares in connection with debt issuance
|
$
|
4,215
|
|
$
|
—
|
|
Fair value of warrants recorded as debt discount in connection with debt issuances
|
$
|
8,965
|
|
$
|
—
|
|
Fair value of warrants recorded as debt discount in connection with debt issuances - related party
|
$
|
16,155
|
|
$
|
—
|
|
Fair value of warrants recorded as debt discount in connection with debt modification
|
$
|
398
|
|
$
|
—
|
|
Fair value of warrants recorded as debt discount in connection with debt modification - related party
|
$
|
2,050
|
|
$
|
—
|
|
Financing of equipment under financing leases
|
$
|
7,436
|
|
$
|
271
|
|
Financing of insurance premium under note payable
|
$
|
253
|
|
$
|
495
|
|
Issuance of common stock - related party
|
$
|
—
|
|
$
|
6,050
|
|
Issuance of common stock for settlement of debt principal and interest payments
|
$
|
—
|
|
$
|
1,800
|
|
Issuance of common stock upon conversion of convertible notes
|
$
|
62,860
|
|
$
|
24,970
|
|
See accompanying notes to consolidated financial statements.
Amyris, Inc.
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Business Description
Amyris, Inc. and subsidiaries (collectively, 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 many distinct molecules at commercial volumes.
Going Concern
The Company has incurred significant operating losses since its inception and expects to continue to incur losses and negative cash flows from operations for at least the next 12 months following the issuance of the financial statements. As of December 31, 2019, the Company had negative working capital of $86.7 million and an accumulated deficit of $1.8 billion.
As of December 31, 2019, the Company's debt (including related party debt), net of deferred discount and issuance costs of $20.3 million and a fair value adjustment of $15.4 million, totaled $261.8 million, of which $63.8 million is classified as current. However, $75.0 million of debt was converted into equity in January 2020; see Note 15, “Subsequent Events” for more information. The Company's debt agreements contain various covenants, including certain restrictions on the Company's business that could cause the Company to be at risk of defaults, such as restrictions on additional indebtedness, material adverse effect and cross default provisions. A failure to comply with the covenants and other provisions of the Company’s debt instruments, including any failure to make a payment when required, would generally result in events of default under such instruments, which could permit acceleration of a substantial portion of such indebtedness. If such indebtedness is accelerated, it would generally also constitute an event of default under the Company’s other outstanding indebtedness, permitting acceleration of a substantial portion of such other outstanding indebtedness. At December 31, 2019, the Company failed to meet certain covenants under several credit arrangements (which are discussed in Note 4, “Debt”), including those associated with cross-default provisions, minimum liquidity and minimum asset coverage requirements. In March 2020, these lenders provided permanent waivers to the Company for breaches of all past covenant violations and cross-default payment failures (discussed below), through March 13, 2020 under the respective credit agreements, and significantly reduced the minimum liquidity requirement and substantially increased the base of eligible assets to calculate the asset coverage requirement..
On January 31, 2020, the Company failed to pay Total Raffinage Chimie (Total), Nikko Chemicals Co. Ltd (Nikko) and certain affiliates of the Schottenfeld Group LLC (Schottenfeld) an aggregate of $17.6 million of maturing promissory notes, and previously on December 15, 2019 failed to pay Ginkgo $5.2 million of past due interest, past due partnership payments and the first installment of a waiver fee. These failures resulted in an event of default under the respective agreements and also triggered cross-defaults under other debt instruments (discussed above) that permitted each of the affected cross-default debt holders of such indebtedness to accelerate the amounts owing under such instruments. The Company subsequently received waivers from each of the affected cross-default debt holders to waive the right to accelerate due to the event specific cross-defaults. As a result, the indebtedness with respect to which the Company has obtained such waivers continues to be classified as long-term on the Company’s balance sheet. The indebtedness reflected by the Total and certain Ginkgo, Nikko and Schottenfeld amounts continues to be classified as a current liability on the Company’s balance sheet as the due date for these amounts was within one year of December 31, 2019.
Subsequent to December 31, 2019, the Company (i) obtained a waiver and forbearance agreement from Schottenfeld, (ii) amended the credit arrangements with Total and Nikko Notes to extend the maturity date of the original promissory notes, and (iii) entered into a waiver and amendment to the partnership agreement with Ginkgo to waive all past payment defaults under the Ginkgo Note and Ginkgo Partnership Agreement, and to extend the payment due date and modify the periodic partnership payment timing and amount. See Note 15, “Subsequent Events” for further information.
Although the Company obtained extensions to make these payments, it currently does not have sufficient funds to repay the amounts due under the Total, Nikko, Schottenfeld and Ginkgo credit arrangements, and while the Company intends to seek equity or debt financing, the proceeds of which would be used to repay Total, Nikko, Schottenfeld and Ginkgo, there can be no assurance that the Company will be able to obtain such financing on our expected timeline, or on acceptable terms, if at all.
Also, while the Company has been able to cure these defaults to date to avoid additional cross-acceleration, it may not be able to cure such a default promptly in the future.
Further, cash and cash equivalents of $0.3 million as of December 31, 2019 are not sufficient to fund expected future negative cash flows from operations and cash debt service obligations through March 2021. 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. In addition to repaying the Total, Nikko, Schottenfeld and Ginkgo amounts previously discussed, the Company's ability to continue as a going concern will depend, in large part, on its ability to raise additional proceeds through financings, achieve positive cash flows from operations during the 12 months from the date of this filing, and refinance or extend other existing debt maturities occurring later in 2020, all of which are uncertain and outside the control of the Company. Further, the Company's operating plan for 2020 contemplates a significant reduction in its net operating cash outflows as compared to the year ended December 31, 2019, resulting from (i) revenue growth from sales of existing and new products with positive gross margins, (ii) reduced production costs as a result of manufacturing and technical developments, (iii) reduced spending in general and administrative areas, and (iv) an increase in cash inflows from collaborations and grants. 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 the Company may be forced to obtain additional equity or debt financing, which may not occur timely or on reasonable terms, if at all, and/or liquidate its assets. In such a scenario, the value received for assets in liquidation or dissolution could be significantly lower than the value reflected in these financial statements. The Company has in the past, including in July 2019, had certain of its debt instruments accelerated for failure to make a payment when due. While we have been able to obtain permanent waivers or cure these defaults to date to avoid additional cross-acceleration, we may not be able to obtain waivers or cure such a default promptly in the future.
Basis of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (U.S. GAAP). The consolidated financial statements include the accounts of Amyris, Inc. and its wholly-owned and partially-owned subsidiaries in which the Company has a controlling interest after elimination of all significant intercompany accounts and transactions.
Investments and joint venture arrangements are assessed to determine whether the terms provide economic or other control over the entity requiring consolidation of the entity. Entities controlled by means other than a majority voting interest are referred to as variable-interest entities (VIEs) and are consolidated when Amyris has both the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the entity. For any investment or joint venture in which (i) the Company does not have a majority ownership interest, (ii) the Company possesses the ability to exert significant influence and (iii) the entity is not a VIE for which the Company is considered the primary beneficiary, the Company accounts for the investment or joint venture using the equity method. Equity investments in which the Company does not exert significant influence and that do not have readily determinable fair values are measured at cost, adjusted for changes from observable market transactions, less impairment (“adjusted cost basis”). The Company evaluates its investments for impairment by considering a variety of factors, including the earnings capacity of the related investments. Fair value measurements for the Company’s equity investments are classified within Level 3 of the fair value hierarchy based on the nature of the fair value inputs. Realized and unrealized gains or losses are recognized in other income or expense.
Raizen Joint Venture Agreement
On May 10, 2019, the Company and Raizen Energia S.A. (Raizen) entered into a joint venture agreement relating to the formation and operation of a joint venture relating to the production, sale and commercialization of alternative sweetener products. In connection with the formation of the joint venture, among other things, (i) the joint venture will construct a manufacturing facility on land owned by Raizen and leased to the joint venture (the Sweetener Plant), (ii) the Company will grant to the joint venture an exclusive, royalty-free, worldwide license to certain technology owned by the Company relevant to the joint venture’s business, and (iii) the Company and Raizen will enter into a shareholders agreement setting forth the rights and obligations of the parties with respect to, and the management of, the joint venture. The formation of the joint venture is subject to certain conditions, including certain regulatory approvals and the achievement of certain technological and economic milestones relating to the Company’s existing production of its alternative sweetener product. If such conditions are not satisfied by May 2020, the joint venture will automatically terminate. However, the termination date can be extended by mutual agreement of the parties. In addition, notwithstanding the satisfaction of the closing conditions, Raizen may elect not to
consummate the formation and operation of the joint venture, in which event, the Company will retain the right to construct and operate the Sweetener Plant.
Upon the closing of the joint venture, each party will make an initial capital contribution to the joint venture of 2.5 million Brazilian Real (R$2.5 million) and the joint venture will be owned 50% by the Company and 50% by Raizen. Within 60 days of the formation, the parties will make an aggregate cash contribution to the joint venture of USD $9.0 million to purchase certain fixed assets currently owned by the Company and located at the site of the Company’s former joint venture with Sao Martinho S.A. in Pradopolis, Brazil for USD $3.0 million, as well as to pay for costs related to the removal and transportation of such assets to the site of the Sweetener Plant. In addition, within six months of the formation, the Company will contribute to the joint venture its existing supply agreements related to its alternative sweetener product, subject to certain exceptions, in exchange for shares of dividend-bearing preferred stock in the joint venture, which will be entitled, for a period of 10 years commencing from the initial date of operation of the Sweetener Plant, to certain priority fixed cumulative dividends including, in the event that certain technological and economic milestones are met in any fiscal quarter, a percentage of the operating cash flow of the joint venture in such quarter.
The Company is evaluating the accounting treatment for its future interest in the joint venture under ASC 810, Consolidations and ASC 323, Equity Method and Joint Ventures and will conclude once the corporate governance and economic participation structure is finalized and the formation of the joint venture is consummated.
Use of Estimates and Judgements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. Significant estimates and judgements used in these consolidated financial statements are discussed in the relevant accounting policies below or specifically discussed in the Notes to Consolidated Financial Statements where such transactions are disclosed.
Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are maintained with various financial institutions.
Inventories
Inventories, which consist of farnesene-derived products, flavors and fragrances ingredients and clean beauty products, are stated at the lower of actual cost or net realizable value and are categorized as finished goods, work in process or raw material inventories. The Company evaluates the recoverability of its inventories based on assumptions about expected demand and net realizable value. If the Company determines that the cost of inventories exceeds their estimated net realizable value, the Company records a write-down equal to the difference between the cost of inventories and the estimated net realizable value. If actual net realizable values are less favorable than those projected by management, additional inventory write-downs may be required that could negatively impact the Company's operating results. If actual net realizable values are more favorable, the Company may have favorable operating results when products that have been previously written down are sold in the normal course of business. The Company also evaluates the terms of its agreements with its suppliers and establishes accruals for estimated losses on adverse purchase commitments as necessary, applying the same lower of cost or net realizable value approach that is used to value inventory. Cost for farnesene-derived products and flavors and fragrances ingredients are computed on a weighted-average basis. Cost for clean beauty products are computed on a standard cost basis.
Property, Plant and Equipment, Net
Property, plant and equipment are recorded at cost. Depreciation and amortization are computed straight-line based on the estimated useful lives of the related assets, ranging from 3 to 15 years for machinery, equipment and fixtures, and 15 years for buildings. Leasehold improvements are amortized over their estimated useful lives or the period of the related lease, whichever is shorter.
The Company expenses costs for maintenance and repairs and capitalizes major replacements, renewals and betterments. For assets retired or otherwise disposed, both cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts, and gains or losses related to the disposal are recorded in the statement of operations for the period.
Impairment
Long-lived assets that are held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of the undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets that management expects to hold and use is based on the difference between the fair value of the asset and its carrying value. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
Recoverable Taxes from Brazilian Government Entities
Recoverable taxes from Brazilian government entities represent value-added taxes paid on purchases in Brazil, which are reclaimable from the Brazilian tax authorities, net of reserves for amounts estimated not to be recoverable.
Fair Value Measurements
The carrying amounts of certain financial instruments, such as cash equivalents, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.
The Company measures the following financial assets and liabilities at fair value:
•Freestanding and bifurcated derivatives in connection with certain debt and equity financings; and
•Senior Convertible Notes Due 2022 and 6% Convertible Notes Due 2021 (see Note 3, "Fair Value Measurement" and Note 4, "Debt", for which the Company elected fair value accounting.
Fair value is based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation techniques are applied. These valuation techniques involve some level of management estimation and judgement, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Changes to the inputs used in these valuation models can have a significant impact on the estimated fair value of the Senior Convertible Notes Due 2022, 6% Convertible Notes Due 2021 and the Company's embedded and freestanding derivatives. For example, a decrease (increase) in the estimated credit spread for the Company results in an increase (decrease) in estimated fair value. Conversely, a decrease (increase) in the stock price results in a decrease (increase) in estimated fair value.
The changes during 2019 and 2018 in the fair values of the bifurcated compound embedded derivatives are primarily related to the change in price of the Company's common stock and are reflected in the consolidated statements of operations as “Gain (loss) from change in fair value of derivative instruments”.
For debt instruments for which the Company has not elected fair value accounting, fair value is based on the present value of expected future cash flows and assumptions about the then-current market interest rates as of the reporting period and the creditworthiness of the Company. Most of the Company's debt is carried on the consolidated balance sheet on a historical cost basis net of unamortized discounts and premiums, because the Company has not elected the fair value option of accounting. However, for the Senior Convertible Notes Due 2022 and the 6% Notes Due 2021, the Company elected fair value accounting, so that balances reported for those debt instruments represent fair value as of the applicable balance sheet date; see Note 3, "Fair Value Measurement", for additional information. Changes in fair value of the Senior Convertible Notes Due 2022 and the 6% Convertible Notes Due 2021 are reflected in the consolidated statements of operations as “Gain (loss) from change in fair value of debt”.
For all debt instruments, including any for which the Company has elected fair value accounting, the Company classifies interest that has been accrued during each period as Interest expense on the consolidated statements of operations.
Derivatives
Embedded derivatives that are required to be bifurcated from the underlying debt instrument (i.e., host) are accounted for and valued as separate financial instruments. The Company has evaluated the terms and features of its convertible notes payable and convertible preferred stock and identified compound embedded derivatives requiring bifurcation and accounting at fair value, using the valuation techniques mentioned in the Fair Value Measurements section of this Note, because the economic and contractual characteristics of the embedded derivatives met the criteria for bifurcation and separate accounting due to the instruments containing conversion options, certain “make-whole interest” provisions, down-round conversion price adjustment provisions and/or conversion rate adjustments, and mandatory redemption features that are not clearly and closely related to the debt host instrument.
Prior to the adoption of ASU 2017-11, certain previously issued warrants with a fair value of $41 million issued in conjunction with the convertible debt and equity financings were freestanding financial instruments and classified as derivative liabilities as of December 31, 2019. Upon adoption of ASU 2017-11 on January 1, 2019, these freestanding instruments met the criteria to be accounted for within equity and the $41 million derivative liability balance was reclassified to stockholders’ equity.
During the third and fourth quarter of 2019, the Company issued warrants in connection with a debt financing that met the criteria of a freestanding instrument but did not qualify for equity accounting treatment. As a result, these warrants are accounting for at fair value until settled and are classified as derivative liabilities at December 31, 2019. See Note 6 “Stockholders’ Deficit” for further information.
Noncontrolling Interest
Noncontrolling interests represent the portion of net income (loss), net assets and comprehensive income (loss) that is not allocable to the Company, in situations where the Company consolidates its equity investment in a joint venture for which there are other owners. The amount of noncontrolling interest is comprised of the amount of such interests at the date of the Company's original acquisition of an equity interest in a joint venture, plus the other shareholders' share of changes in equity since the date the Company made an investment in the joint venture.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company places its cash equivalents and investments (primarily certificates of deposits) with high credit quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents and short-term investments.
The Company performs ongoing credit evaluation of its customers, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary.
Customers representing 10% or greater of accounts receivable were as follows:
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As of December 31,
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2019
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2018
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Customer A (related party)
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19%
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**
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Customer B
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21%
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24%
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Customer C
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**
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19%
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Customer E
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**
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11%
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Customer F
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10%
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**
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______________
** Less than 10%
Customers representing 10% or greater of revenue were as follows:
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Years Ended December 31,
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Year First Customer
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2019
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2018
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Customer A (related party)
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2017
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35%
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17%
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Customer B
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2014
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10%
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18%
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Customer C
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2014
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**
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13%
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Customer D
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2014
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**
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13%
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Customer G
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2019
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12%
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*
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______________
* Not a customer
** Less than 10%
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 transaction price is allocated utilizing stand-alone selling price. Revenue is 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 if 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 9, "Revenue Recognition".
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 receive 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. For most of the Company's renewable products customers, supply agreements between the Company and each customer indicate when transfer of title occurs.
In some cases, the Company may make a payment to a customer. When that occurs, the Company evaluates whether the payment is for a distinct good or service receivable from the customer. If the fair value of the goods or services receivable is greater than or equal to the amount paid to the customer, then the entire payment is treated as a purchase. If, on the other hand, the fair value of goods or services is less than the amount paid, then the difference is treated as a reduction in transaction price of the Company's sales to the customer or a reduction of cumulative to-date revenue recognized from the customer in the period the payment is made or goods or services are received from the customer.
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 the Company has the right to receive 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, except for direct-to-consumer products, for which the Company estimates sales returns subsequent to sale and reduces revenue accordingly. For renewable products other than direct-to-consumer, 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 which requires the Company to estimate the revenue that is 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, using the best evidence available at the time, derived from the licensee’s historical sales volumes and sales prices of its products and recent commodity market pricing data and trends. Estimates are adjusted to actual or as new information becomes available.
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 collaboration partners 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. Generally, revenue is recognized using an input-based measure of progress towards the satisfaction of the performance obligations which can be labor hours expended or time-based in proportion to the estimated total project effort or total projected time to complete. 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. Certain performance obligations are associated with milestones agreed between the Company and its customer. Revenue generated from the performance of services in accordance with these milestones is recognized upon confirmation from the customer that the milestone has been achieved. In these cases, amounts recognized are constrained to the amount of consideration received upon achievement of the milestone.
The Company generally invoices its collaboration partners 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. Contract liabilities arise from amounts received in advance of performing the research and development activities and are 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 grant 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.
The Company receives certain consideration from AICEP Portugal Global (AICEP), and entity funded by government of Portugal, under the Consortium Internal Regulatory Agreement and an AICEP Investment Contract (the “Agreements”) entered
into by Amyris (the “Company”) with Universidade Católica Portuguesa (UCP) Porto Campus. The Company considered this arrangement to be a government grant and accounts for the arrangement under International Accounting Standard 20 “Accounting for Government Grants and Disclosure of Government Assistance”. Grant revenue is recognized when there is reasonable assurance that monies will be received and that conditions attached to the grant have been met.
Cost of Products Sold
Cost of products sold includes the production costs of renewable products, which include the cost of raw materials, in-house manufacturing labor and overhead, amounts paid to contract manufacturers, including amortization of tolling fees, and period costs including inventory write-downs resulting from applying lower of cost or net realizable value inventory adjustments. Cost of products sold also includes certain costs related to the scale-up of production. Shipping and handling costs charged to customers are recorded as revenues. Outbound shipping costs incurred are included in cost of products sold. Such charges were not material for any of the periods presented.
The Company recognizes deferred cost of products sold as an asset on the balance sheet when a cost is incurred in connection with a revenue performance obligation that will not be fulfilled until a future period. The Company also recorded a deferred cost of products asset in 2018 and 2019 for the fair value of amounts paid to DSM under a supply agreement for manufacturing capacity to produce its sweetener product at the Brotas facility in Brazil. The deferred cost of products sold asset is expensed to cost of products sold on a units of production basis over the five-year term of the supply agreement. On a quarterly basis, the Company evaluates its future production volumes for its sweetener product and adjusts the unit cost to be expensed over the remaining estimated production volume. The Company also periodically evaluates the asset for recoverability based on changes business strategy and product demand trends over the term of the supply agreement.
Research and Development
Research and development costs are expensed as incurred and include costs associated with research performed pursuant to collaborative agreements and government grants, including internal research. Research and development costs consist of direct and indirect internal costs related to specific projects, as well as fees paid to others that conduct certain research activities on the Company’s behalf.
Debt Extinguishment
The Company accounts for the income or loss from extinguishment of debt in accordance with ASC 470, Debt, which indicates that for all extinguishments of debt, including instances where the terms of a debt instrument are modified in a manner that significantly changes the underlying cash flows, the difference between the reacquisition consideration and the net carrying amount of the debt being extinguished should be recognized as gain or loss when the debt is extinguished. Losses from debt extinguishment are shown in the consolidated statements of operations under "Other income (expense)" as "Loss upon extinguishment of debt".
Stock-based Compensation
The Company accounts for stock-based employee compensation plans under the fair value recognition and measurement provisions of U.S. GAAP. Those provisions require all stock-based payments to employees, including grants of stock options and restricted stock units (RSUs), to be measured using the grant-date fair value of each award. The Company recognizes stock-based compensation expense net of expected forfeitures over each award's requisite service period, which is generally the vesting term. Expected forfeiture rates are estimated based on the Company's historical experience. Stock-based compensation plans are described more fully in Note 11, "Stock-based Compensation".
Income Taxes
The Company is subject to income taxes in the United States and foreign jurisdictions and uses estimates to determine its provisions for income taxes. The Company uses the asset and liability method of accounting for income taxes, whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income.
Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. The Company recognizes a valuation allowance against its net deferred tax assets unless it is more likely than not that such deferred tax assets will be realized. This assessment requires judgement as to the likelihood and amounts of future taxable income by tax jurisdiction.
The Company applies the provisions of Financial Accounting Standards Board (FASB) guidance on accounting for uncertainty in income taxes. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability, and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgement, and such judgements may change as new information becomes available.
Foreign Currency Translation
The assets and liabilities of foreign subsidiaries, where the local currency is the functional currency, are translated from their respective functional currencies into U.S. dollars at the rates in effect at each balance sheet date, and revenue and expense amounts are translated at average rates during each period, with resulting foreign currency translation adjustments recorded in other comprehensive loss, net of tax, in the consolidated statements of stockholders’ deficit. As of December 31, 2019 and 2018, cumulative translation adjustment, net of tax, were $43.8 million and $43.3 million, respectively.
Where the U.S. dollar is the functional currency, remeasurement adjustments are recorded in other income (expense), net in the accompanying consolidated statements of operations. Net losses resulting from foreign exchange transactions were $0.2 million and $1.6 million for the years ended December 31, 2019 and 2018, respectively and are recorded in other income (expense), net in the consolidated statements of operations.
New Accounting Standards or Updates Recently Adopted
During the year ended December 31, 2019 the Company adopted the following Accounting Standards Updates (ASUs):
Leases In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). The standard requires the recognition of lease liabilities and right-of-use (ROU) assets on the balance sheet arising from lease transactions at the lease commencement date and the disclosure of key information about leasing arrangements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provided entities the option to use the effective date as the date of initial application on transition to the new guidance. The Company elected this transition method, and as a result, the Company did not adjust comparative information for prior periods. The Company elected certain additional practical expedients permitted by the new guidance allowing the Company to carry forward historical accounting related to lease identification and classification for existing leases upon adoption.
The Company adopted this standard on January 1, 2019 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of: (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs, where applicable. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the Company’s current contracts. The Company elected the post-transition practical expedient to not separate lease components from non-lease components for all leases of manufacturing equipment. The Company also elected a policy of not recording leases on its condensed consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset.
The Company's adoption of this standard had the effect of increasing assets and liabilities by $25.7 million, after considering prepaid and other current and noncurrent assets previously recorded on the condensed consolidated balance sheet but did not have a material impact on the condensed consolidated statements of operations or cash flows. The most significant impact relates to (1) the recognition of new ROU assets and lease liabilities on the balance sheet for the Company's operating leases; and (2) providing significant new disclosures about the Company's leasing activities.
Upon adoption, the Company recognized operating lease liabilities of $33.6 million, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The Company also recognized ROU assets of $29.7 million, which represents the operating lease liability, adjusted for prepaid expenses and deferred rent. The difference between the operating lease ROU assets and lease liabilities reflects the net of advanced rent payments and deferred rent balances that were derecognized at the time of adoption.
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 became effective in the first quarter of fiscal year 2019, and the Company adopted the standard using a modified retrospective approach. Since the adoption of ASU 2017-11 would have classified the warrants effected as equity at inception, the cumulative-effect adjustment should (i) record the issuance date value of the warrants as if they had been equity classified at the issuance date, (ii) reverse the effects of changes in the fair value of the warrants that had been recorded in the statement of operations of each period, and (iii) eliminate the derivative liabilities from the balance sheet. Upon adoption, the Company (i) recorded an increase of $32.5 million to additional paid-in capital, (ii) recorded a decrease to accumulated deficit of $8.5 million and (iii) decreased the warrant liability by $41.0 million.
Recent Accounting Standards or Updates Not Yet Effective
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 year 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 does not believe that the impact of the new standard on its consolidated financial statements will be material.
Collaborative Revenue Arrangements In November 2018, the FASB issued ASU 2018-18, Clarifying the Interaction between Topic 808 and Topic 606, that clarifies the interaction between the guidance for certain collaborative arrangements and Topic 606, the new revenue recognition standard. A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. The ASU provides guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The accounting standard update will be effective beginning in the first quarter of fiscal year 2020 retroactively. The Company does not believe that the impact of the new standard on its consolidated financial statements will be material.
Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU 2016-13 also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity's portfolio. ASU 2016-13 will become effective for the Company beginning in the first quarter of fiscal year 2020. The Company does not believe that the impact of the new standard on its consolidated financial statements will be material.
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments- Credit Losses. This ASU clarifies and addresses certain items related to amendments in ASU 2016-13. This new guidance is effective for the Company beginning on January 1, 2020. This new guidance is not expected to have a material impact on the Company’s consolidated financial statements.
Income Taxes In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes. This guidance will become effective for the Company in the first quarter of fiscal year 2021 on a prospective basis. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. This new guidance is effective for the
Company beginning on January 1, 2021. While the Company is currently assessing the impact of the new guidance, it is not expected to have a material impact on the Company’s consolidated financial statements.
2. Balance Sheet Details
Allowance for Doubtful Accounts
Allowance for doubtful accounts activity and balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Balance at Beginning of Year
|
Provisions
|
Write-offs, Net
|
Balance at End of Year
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
$
|
642
|
|
$
|
110
|
|
$
|
(707)
|
|
$
|
45
|
|
Year Ended December 31, 2018
|
$
|
642
|
|
$
|
—
|
|
$
|
—
|
|
$
|
642
|
|
Inventories
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Raw materials
|
$
|
3,255
|
|
$
|
3,901
|
|
Work in process
|
7,204
|
|
539
|
|
Finished goods
|
17,311
|
|
5,253
|
|
Total inventories
|
$
|
27,770
|
|
$
|
9,693
|
|
Deferred cost of products sold — related party
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Deferred cost of products sold - related party
|
$
|
3,677
|
|
$
|
489
|
|
Deferred cost of products sold, noncurrent - related party
|
12,815
|
|
2,828
|
|
Total
|
$
|
16,492
|
|
$
|
3,317
|
|
In November 2018, the Company amended the supply agreement with DSM to secure manufacturing capacity at the Brotas facility for sweetener production through 2022. See Note 9, “Revenue Recognition” for information regarding the November 2018 Supply Agreement Amendment. The supply agreement was included as an element of a combined transaction with DSM, which resulted in a fair value allocation of $24.4 million to the manufacturing capacity fees. See Note 3, “Fair Value Measurement” for information related to this fair value allocation. Of the $24.4 million fair value allocated to the manufacturing capacity fee, $3.3 million was recorded as deferred cost of products sold during 2018. Also, the Company paid an additional $14.1 million in manufacturing capacity fees during 2019, which were recorded as additional deferred cost of products sold. The remaining $7.0 million manufacturing capacity fees will be recorded as deferred cost of products sold in the period the additional payments are made to DSM. The manufacturing capacity deferred cost of products sold asset is expensed to cost of products sold on a units of production basis as the Company's sweetener product is sold over the five-year term of the
supply agreement. During the years ended December 31, 2019 and 2018, the Company expensed $0.9 million and $0, respectively, of the deferred cost of products sold asset.
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Non-inventory production supplies
|
$
|
5,376
|
|
$
|
2,391
|
|
Prepayments, advances and deposits
|
4,726
|
|
5,644
|
|
Recoverable taxes from Brazilian government entities
|
79
|
|
631
|
|
Other
|
2,569
|
|
1,900
|
|
Total prepaid expenses and other current assets
|
$
|
12,750
|
|
$
|
10,566
|
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Machinery and equipment
|
$
|
48,041
|
|
$
|
43,713
|
|
Leasehold improvements
|
41,478
|
|
39,922
|
|
Computers and software
|
9,822
|
|
9,987
|
|
Furniture and office equipment, vehicles and land
|
3,510
|
|
3,016
|
|
Construction in progress
|
9,752
|
|
1,749
|
|
Total property, plant and equipment, gross
|
112,603
|
|
98,387
|
|
Less: accumulated depreciation and amortization
|
(83,673)
|
|
(78,631)
|
|
Total property, plant and equipment, net
|
$
|
28,930
|
|
$
|
19,756
|
|
Property, plant and equipment, net at December 31, 2018 includes $5.0 million of machinery and equipment under capital lease. Accumulated amortization of assets under capital lease totaled $2.3 million as of December 31, 2018. For the year ended December 31, 2018, amortization expense in connection with capital lease assets was $0.7 million. Beginning January 1, 2019, capital lease assets are classified as right-of-use assets under financing leases, net; see "Leases" below.
Losses on disposal of property, plant and equipment were $0.2 million and $0.9 million for the years ended December 31, 2019 and 2018, respectively. Such losses or gains were included in the lines captioned "Research and development expense" and "Sales, general and administrative expense" in the consolidated statements of operations.
Leases
Prior to the modified prospective adoption of ASU 2016-02 on January 1, 2019, the Company leased certain facilities and certain laboratory equipment under operating and financing leases, respectively. The Company recognized rent expense for operating leases on a straight-line basis over the noncancelable lease term and recorded the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Where leases contained escalation clauses, rent abatements, and/or concessions, such as rent holidays and landlord or tenant incentives or allowances, the Company applied them as straight-line rent expense over the lease term. The Company had noncancelable operating lease agreements for office, research and development, and manufacturing space that expired at various dates, with the latest expiration in May 2023. Rent expense under operating leases was $5.8 million for the year ended December 31, 2018. See below for the Company’s account treatment of leases upon adoption of new leasing standard.
Operating Leases
The Company has entered into operating leases primarily for administrative offices, laboratory equipment and other facilities. The operating leases have remaining terms that range from 1 year to 5 years, and often include one or more options to renew. These renewal terms can extend the lease term from 1 to 5 years and are included in the lease term when it is reasonably certain that the Company will exercise the option. The operating leases are classified as Right-of-use assets under operating leases, net (ROU assets) on the Company's December 31, 2019 consolidated balance sheet, and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make operating lease payments is included in
"Operating lease liabilities" and "Operating lease liabilities, net of current portion" on the Company's December 31, 2019 consolidated balance sheet. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized ROU assets of $29.7 million and operating lease liabilities of $33.6 million on January 1, 2019. Operating lease ROU assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. As of December 31, 2019, total ROU assets and operating lease liabilities were $13.2 million and $19.7 million, respectively. All operating lease expense is recognized on a straight-line basis over the lease term. In the year ended December 31, 2019, the Company recorded $16.4 million of operating lease amortization that was charged to expense, of which $7.0 million was recorded to cost of products sold.
Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company has certain contracts for real estate and marketing which may contain lease and non-lease components which it has elected to treat as a single lease component.
Information related to the Company's right-of-use assets and related lease liabilities were as follows:
|
|
|
|
|
|
|
Year Ended December 31, 2019
|
Cash paid for operating lease liabilities, in thousands
|
$
|
17,809
|
|
Right-of-use assets obtained in exchange for new operating lease obligations(1)
|
$
|
33,264
|
|
Weighted-average remaining lease term
|
3.35
|
Weighted-average discount rate
|
18.1
|
%
|
(1) Includes $29.7 million for operating leases existing on January 1, 2019 and $3.6 million for operating leases that commenced during the year ended December 31, 2019. Also, the Company renegotiated one of its operating leases during 2019, which resulted in a new financing lease. Approximately $7.7 million of Right-of-use assets under operating leases, net were reclassified to Right-of-use assets under financing leases, net related to this operating lease modification.
Financing Leases
The Company has entered into financing leases primarily for laboratory and computer equipment. Assets purchased under financing leases are included in Right-of-use assets under financing leases, net on the consolidated balance sheets. For financing leases, the associated assets are depreciated or amortized over the shorter of the relevant useful life of each asset or the lease term. At December 31, 2019, accumulated amortization of assets under financing lease was $1.7 million.
Maturities of Financing and Operating Leases
Maturities of lease liabilities as of December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31
(In thousands)
|
Financing Leases
|
Operating Leases
|
Total Lease Obligations
|
2020
|
$
|
4,490
|
|
$
|
7,798
|
|
$
|
12,288
|
|
2021
|
4,565
|
|
7,541
|
|
12,106
|
|
2022
|
—
|
|
7,719
|
|
7,719
|
|
2023
|
—
|
|
3,363
|
|
3,363
|
|
2024
|
—
|
|
192
|
|
192
|
|
Thereafter
|
—
|
|
—
|
|
—
|
|
Total future minimum payments
|
9,055
|
|
26,613
|
|
35,668
|
|
Less: amount representing interest
|
(1,424)
|
|
(6,951)
|
|
(8,375)
|
|
Present value of minimum lease payments
|
7,631
|
|
19,662
|
|
27,293
|
|
Less: current portion
|
(3,465)
|
|
(4,625)
|
|
(8,090)
|
|
Long-term portion
|
$
|
4,166
|
|
$
|
15,037
|
|
$
|
19,203
|
|
Other assets
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Equity-method investment
|
$
|
4,734
|
|
$
|
—
|
|
Contingent consideration
|
3,303
|
|
4,286
|
|
Deposits
|
295
|
|
2,465
|
|
Other
|
1,373
|
|
1,207
|
|
Total other assets
|
$
|
9,705
|
|
$
|
7,958
|
|
In September 2019, the Company was notified by DSM that certain contingent consideration payable to the Company upon the realization of certain NOL tax benefits transferred to DSM with the sale of the Brotas facility in December 2017 would not be realized due to changes in DSM’s Brazilian legal entity structure. The Company considered this information in conjunction with the probability and timing of DSM’s realization of the underlying NOL tax benefits and determined that a portion of the contingent consideration receivable was not recoverable as of December 31, 2018 and recorded a $3.9 million impairment in the statement of operations as Impairment of other assets. The Company reassessed the recoverability of this receivable at December 31, 2019 based on projected utilization of the underlying tax credits by DSM and recorded an additional impairment of $0.2 million for the year ended December 31, 2019.
In October 2019, the Company agreed to purchase the ownership interest previously held by Cosan in Novvi LLC, a joint venture among the Company, Cosan and certain other members, for $10.8 million (Purchase Price). The Company is obligated to pay the Purchase Price through the assignment of certain preferred dividends to be distributed by the proposed joint venture between the Company and Raizen Energia S.A., provided that, if the joint venture is not formed by October 2021, the Purchase Price shall be paid in full by October 31, 2022. The Company measured and recorded the fair value of the investment based on the present value of the unsecured $10.8 million obligation, which was deemed to be more readily determinable than the fair value of the Novvi partnership interest. In accordance with equity-method accounting, the Company records its share of Novvi's earnings or losses for each accounting period and adjusts the investment balance accordingly. However, the Company is not obligated to fund Novvi's potential future losses, so the Company will not record equity-method losses that would result in the investment in Novvi falling to below zero and becoming a liability. For additional information regarding the Company's accounting for equity-method investments, see Note 1, "Basis of Presentation and Summary of Significant Accounting Policies".
Accrued and other current liabilities
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Accrued interest
|
$
|
8,209
|
|
$
|
3,853
|
|
Payroll and related expenses
|
7,296
|
|
9,220
|
|
Contract termination fees
|
5,347
|
|
4,092
|
|
Ginkgo partnership payments obligation
|
4,319
|
|
2,155
|
|
Asset retirement obligation(1)
|
3,184
|
|
3,063
|
|
Professional services
|
2,968
|
|
1,173
|
|
Tax-related liabilities
|
1,685
|
|
2,139
|
|
Other
|
3,647
|
|
3,284
|
|
Total accrued and other current liabilities
|
$
|
36,655
|
|
$
|
28,979
|
|
______________
(1) The asset retirement obligation represents liabilities incurred but not yet discharged in connection with our 2013 abandonment of a partially constructed facility in Pradópolis, Brazil.
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Liability for unrecognized tax benefit
|
$
|
7,204
|
|
$
|
6,582
|
|
Liability in connection with acquisition of equity-method investment
|
5,249
|
|
—
|
|
Ginkgo partnership payments, net of current portion (See Note 4)
|
4,492
|
|
6,185
|
|
Refund liability
|
3,750
|
|
—
|
|
Contract liabilities, net of current portion(1)
|
1,449
|
|
1,587
|
|
Deferred rent, net of current portion
|
—
|
|
6,440
|
|
Contract termination fees, net of current portion
|
—
|
|
1,530
|
|
Capital leases, net of current portion
|
—
|
|
195
|
|
Other
|
880
|
|
673
|
|
Total other noncurrent liabilities
|
$
|
23,024
|
|
$
|
23,192
|
|
______________
(1) Contract liabilities, net of current portion at December 31, 2019 and 2018 includes $1,204 at each date in connection with DSM, which is a related party.
In relation to the refund liability item above, in April 2019, the Company assigned the Value Sharing Agreement to DSM. See Note 9, "Revenue Recognition and Contract Assets and Liabilities" for further information. The assignment was accounted for as a contract modification under ASC 606 that resulted in variable consideration of $12.5 million in the form of a stand-ready obligation to refund some or all of the $12.5 million consideration if certain criteria are not met by December 2021. The Company periodically updates its estimate of amounts to be retained and reduces the refund liability and records additional license and royalty revenue as the criteria are met. The Company recorded an additional $8.8 million of license and royalty revenue during the year ended December 31, 2019 related to a change in the estimated refund liability, which reduced the balance to $3.8 million.
3. Fair Value Measurement
Assets and liabilities are measured and reported at fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. An asset's or liability's classification level is based on the lowest level of input that is significant to the fair value measurement. Assets and liabilities carried at fair value are valued and disclosed in one of the following three levels of the valuation hierarchy:
•Level 1: Quoted market prices in active markets for identical assets or liabilities.
•Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
•Level 3: Unobservable inputs that are not corroborated by market data.
Liabilities Measured and Recorded at Fair Value on a Recurring Basis
As of December 31, 2019 and 2018, the Company’s financial liabilities measured and recorded at fair value on a recurring basis were classified within the fair value hierarchy as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
|
|
|
|
2018
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Convertible Notes Due 2022
|
$
|
—
|
|
$
|
—
|
|
$
|
50,624
|
|
50,624
|
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
6% Convertible Notes Due 2021
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
57,918
|
|
57,918
|
|
Embedded derivatives bifurcated from debt instruments
|
—
|
|
—
|
|
2,832
|
|
2,832
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Freestanding derivative instruments issued in connection with other debt and equity instruments
|
—
|
|
—
|
|
6,971
|
|
6,971
|
|
|
|
—
|
|
—
|
|
42,796
|
|
42,796
|
|
Total liabilities measured and recorded at fair value
|
$
|
—
|
|
$
|
—
|
|
$
|
60,427
|
|
$
|
60,427
|
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
100,714
|
|
$
|
100,714
|
|
The Company did not hold any financial assets to be measured and recorded at fair value on a recurring basis as of December 31, 2019 and 2018. Also, there were no transfers between the levels during 2019 or 2018.
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgements and consider factors specific to the asset or liability. The method of determining the fair value of compound embedded derivative liabilities is described subsequently in this note. Market risk associated with compound embedded derivative liabilities relates to the potential reduction in fair value and negative impact to future earnings from a decrease in interest rates.
At December 31, 2019 and December 31, 2018, the carrying value of certain financial instruments, such as cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and other current accrued liabilities, approximate fair value due to their relatively short maturities and low market interest rates, if applicable.
Changes in fair value of derivative liabilities are presented as gains or losses in the consolidated statements of operations in the line captioned "Gain (loss) from change in fair value of derivative instruments".
Changes in the fair value of debt that is accounted for at fair value are presented as gains or losses in the consolidated statements of operations in the line captioned "Gain (loss) from change in fair value of debt".
Senior Convertible Notes Due 2022
On November 15, 2019, the Company issued $66.0 million of Senior Convertible Notes Due 2022 and elected the fair value option of accounting for this debt instrument (see Note 4, "Debt" for details). At December 31, 2019, the contractual outstanding principal of the Senior Convertible Notes Due 2022 was $66.0 million and the fair value was $50.6 million. The Company measured the fair value using a binomial lattice model (which is discussed in further detail below) with the following inputs: (i) 233% discount yield, (ii) 45% equity volatility, (iii) 25% / 75% probability of principal repayment in cash or stock, respectively and (iv) 5% probability of change in control. The Company assumed that if a change of control event were to occur, it would occur at the end of the calendar year.
In connection with the issuance of the Senior Convertible Notes Due 2022, the Company was required to pre-deliver 7.5 million shares of common stock (the Pre-Delivery Shares) to the note holders, which are freely tradeable, validly issued, fully paid, nonassessable and free from all preemptive or similar rights or liens, for the note holders to sell, trade or hold, subject to certain limitations, for as long as the Senior Convertible Notes Due 2022 are outstanding. However, the Company may elect or be required to apply the value of the pre-delivered shares to satisfy periodic principal and interest payments or other repayment events. Within ten business days following redemption or repayment of in full the Senior Convertible Notes Due 2022 and the satisfaction or discharge by the Company of all outstanding Company obligations under the Senior Convertible Notes Due 2022, the noteholders shall deliver 7.5 million shares of the Company’s common stock to the Company, less any shares used to satisfy any accrued interest or principal amortization payments under such notes.
The Company concluded the Pre-Delivery Shares provision meets the criteria of freestanding instrument that is legally detachable and separately exercisable from the Senior Convertible Notes Due 2022 and should be classified in equity as the common shares issued are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the Pre-Delivery Shares within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the shares to be reclassified to an asset or liability. The Company measured the issue date fair value of the Pre-Delivery Shares under an expected borrowing cost approach using a 9.75% annual borrowing rate over a 19-month estimated repayment term for the Senior Convertible Notes Due 2022. The resulting $4.2 million fair value was recorded in equity as additional paid in capital with an offset to the fair value of the Senior Convertible Notes Due 2022. See Note 6, “Stockholders’ Deficit” for further information regarding the issuance of the common stock.
For the year ended December 31, 2019, the Company recorded a $3.8 million gain from change in fair value of debt in connection with the initial issuance and subsequent fair value remeasurement of the Senior Convertible Notes Due 2022, as follows:
|
|
|
|
|
|
In thousands
|
|
|
Fair value at November 14, 2019
|
$
|
54,425
|
|
Less: Gain from change in fair value
|
(3,801)
|
|
Fair value at December 31, 2019
|
$
|
50,624
|
|
A binomial lattice model was used to determine if the Senior Convertible Notes Due 2022 would be converted, called or held at each decision point. Within the lattice model, the following assumptions are made: (i) the convertible note will be converted early if the conversion value is greater than the holding value and (ii) the convertible note will be called if the holding value is greater than both (a) redemption price and (b) the conversion value at the time. If the convertible note is called, the holder will maximize their value by finding the optimal decision between (1) redeeming at the redemption price and (2) converting the convertible note. Using this lattice method, the Company valued the Senior Convertible Notes Due 2022 using the "with-and-without method", where the fair value of the Senior Convertible Notes Due 2022 including the embedded and freestanding features is defined as the "with", and the fair value of the Senior Convertible Notes Due 2022 excluding the embedded and freestanding features is defined as the "without". This method estimates the fair value of the Senior Convertible Notes Due 2022 by looking at the difference in the values of Senior Convertible Notes Due 2022 with the embedded and freestanding derivatives and the fair value of Senior Convertible Notes Due 2022 without the embedded and freestanding features. The lattice model uses the stock price, conversion price, maturity date, risk-free interest rate, estimated stock volatility and estimated credit spread. The Company remeasures the fair value of the debt instrument and records the change as a gain or loss from change in fair value of debt in the statement of operations for each reporting period.
6% Convertible Notes Due 2021
On December 10, 2018, the Company issued $60.0 million of 6% Convertible Notes Due 2021 (see Note 4, "Debt" for details) and elected the fair value option of accounting for this debt instrument. The notes were extinguished in November 2019. The Company recorded a $23.2 million loss from change in fair value of debt in the year ended December 31, 2019 prior to extinguishing the debt.
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 – either freestanding or compound embedded – 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, 2018
|
$
|
41,272
|
|
$
|
1,524
|
|
$
|
42,796
|
|
Derecognition upon adoption of ASU 2017-11
|
(39,513)
|
|
(1,524)
|
|
(41,037)
|
|
Fair value of derivative liabilities issued during the period
|
—
|
|
15,158
|
|
15,158
|
|
Change in fair value of derivative liabilities
|
2,039
|
|
(4,816)
|
|
(2,777)
|
|
Derecognition on extinguishment
|
(3,798)
|
|
(539)
|
|
(4,337)
|
|
Balance at December 31, 2019
|
$
|
—
|
|
$
|
9,803
|
|
$
|
9,803
|
|
As of December 31, 2019, the $3.8 million derivative liability recorded in connection with the November 2018 Securities Purchase Agreement with DSM was settled and extinguished through a cash payment in April 2019.
During the second half of 2019, the Company issued four debt instruments with an embedded mandatory redemption feature and two freestanding liability classified warrants with conversion rate adjustment and antidilution provisions. See Note 4, “Debt” for a description of the transactions and the initial accounting treatment for these debt related derivatives. There is no current observable market for these types of derivatives and the Company determined the fair value of the embedded mandatory redemption feature using a probability weighted discounted cash flow model measuring the fair value of the debt instrument both with and without the embedded feature, which is discussed in more detail below; and the freestanding liability warrants using a Black-Scholes-Merton option pricing model, which is also discussed in more detail below.
The collective fair value of the four embedded derivatives totaled $2.5 million at issuance date and were recorded as a derivative liability and a debt discount against the underlying debt instruments. In the fourth quarter of 2019, the Company modified certain key terms in two of the four underlying debt instruments, resulting in a debt extinguishment of the two instruments. Consequently, the collective fair value of the two embedded derivative liabilities totaling $0.5 million were written off against the loss on debt extinguishment and the $0.7 million collective fair value of the two new embedded mandatory redemption features were recorded as derivative liabilities at the date of debt modification. The collective fair value of the four embedded derivative liabilities totaled $2.8 million at December 31, 2019.
The freestanding liability warrants issued on September 10, 2019 and November 14, 2019 had an initial fair value of $7.9 million and $4.0 million, respectively and were recorded as a derivative liability and a debt discount. The warrants will be remeasured each reporting period until settled or extinguished with subsequent changes in fair value recorded through the statement of operations as a gain or loss on change in fair value of derivative liabilities. At December 31, 2019 the warrants derivative had a fair value of $6.9 million. For the year ended December 31, 2019, the Company recorded a $4.8 million gain from change in fair value of debt-related embedded derivative liabilities.
Valuation Methodology and Approach to Measuring the Derivative Liabilities
The liabilities associated with the Company’s freestanding and compound embedded derivatives outstanding at December 31, 2019 and 2018 represent the fair value of freestanding equity instruments, mandatory redemption features embedded in certain debt instruments and antidilution provisions in some of the Company's debt warrant instruments. See Note 4, "Debt", and Note 6, "Stockholders' Deficit" for further information regarding these host instruments. There is no current observable market for these types of derivatives and, as such, the Company determined the fair value of the freestanding instrument or embedded derivatives using the Black-Scholes-Merton option pricing model, a probability weighted discounted cash flow analysis, or a Monte Carlo simulation.
The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of its liability classified warrants issued in 2019. Input assumptions for these freestanding instruments are as follows:
|
|
|
|
|
|
Input assumptions for liability classified warrants:
|
Range
|
Fair value of common stock on issue date
|
$3.09 – $4.76
|
Expected volatility
|
94% - 105%
|
Risk-free interest rate
|
1.58% - 1.67%
|
Dividend yield
|
0.0
|
%
|
The Company uses a probability weighted discounted cash flow model to measure the fair value of the mandatory redemption features embedded in the four debt instruments issued in the second half of 2019. The model is designed to measure and determine if the debt instruments would be called or held at each decision point. Within the model, the following assumption is made: the underlying debt instrument will be called early if the change in control redemption value is greater than the holding value. If the underlying debt instrument is called, the holder will maximize their value by finding the optimal decision between (i) redeeming at the redemption price and (ii) holding the instrument until maturity. Using this assumption, the Company valued the embedded derivatives on a "with-and-without method", where the fair value of each underlying debt instrument including the embedded derivative is defined as the "with", and the fair value of each underlying debt instrument excluding the embedded derivatives is defined as the "without". This method estimates the fair value of the embedded derivatives by comparing the fair value differential between the with and without mandatory redemption feature. The model incorporates the mandatory redemption price, time to maturity, risk-free interest rate, estimated credit spread and estimated probability of a change in control default event.
The Company used a Monte Carlo simulation valuation model to determine the fair value of the May 2017 and August 2017 Cash and Dilution Warrants through December 31, 2018. Upon adoption of ASU 2017-11 on January 1, 2019, the fair value of these warrants was reclassified to equity as they no longer met the criteria for derivative liability accounting. Monte Carlo simulation combines a random number generator based on a probability distribution and additional inputs of volatility, time to expiration to generate a stock price and other uncertainties. The generated stock price at the time of expiration is then used to calculate the value of the option. The model then calculates results tens of thousands of times, each time using a different set of random values from the probability functions. The resulting Monte Carlo simulation valuation is based on the average of all the calculated results.
The market-based assumptions and estimates used in valuing the compound embedded and freestanding derivative liabilities include amounts in the following ranges/amounts:
|
|
|
|
|
|
|
|
|
December 31,
|
2019
|
2018
|
Risk-free interest rate
|
1.6% - 1.7%
|
2.5% - 3.0%
|
Risk-adjusted discount yield
|
20.0% - 27.0%
|
17.2% - 27.3%
|
Stock price volatility
|
45%
|
45.0% - 85.0%
|
Probability of change in control
|
5.0%
|
|
0.0%
|
|
Stock price
|
$3.09
|
|
$3.34
|
|
Credit spread
|
18.4% - 25.4%
|
14.6% - 24.9%
|
Estimated conversion dates
|
2022 - 2023
|
2019 - 2025
|
Changes in valuation assumptions can have a significant impact on the valuation of the embedded and freestanding derivative liabilities and debt that the Company elects to account for at fair value. For example, all other things being equal, 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. Certain of the convertible notes, shares of convertible preferred stock and warrants also include conversion or exercise price adjustment features and, for example, certain issuances of common stock by the Company at prices lower than the current conversion or exercise price result in a reduction of the conversion price of such notes or convertible preferred stock, or a reduction in the exercise price of, or an increase in the number of shares subject to, such warrants, which increases the value of the embedded and freestanding derivative liabilities and debt measured at fair value; see Note 4, "Debt" for details.
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 and credit facilities are recorded at carrying value, which is representative of fair value at the date of acquisition. The Company estimates the fair value of these instruments using observable market-based inputs (Level 2). The carrying amount (the total amount of net debt presented on the balance sheet) of the Company's debt at December 31, 2019 and at December 31, 2018, excluding the debt instruments recorded at fair value, was $195.8 million and $151.8 million, respectively. The fair value of such debt at December 31, 2019 and at December 31, 2018 was $194.8 million and $149.3 million,
respectively, and was determined by (i) discounting expected cash flows using current market discount rates estimated for certain of the debt instruments and (ii) using third-party fair value estimates for the remaining debt instruments.
Assets and Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis
On November 19, 2018, the Company amended its supply agreement with DSM, as discussed in Note 9, “Revenue Recognition” to secure production capacity at the Brotas facility in exchange for future cash payments totaling $22.7 million, the issuance of 1,643,991 shares common stock valued at $6.1 million on the date of issuance and a further cash payment for the difference between the fair value of the common stock and $7.3 million on March 29, 2019. In addition, the Company modified certain warrants held by DSM which resulted in the transfer of $2.9 million of value to DSM and paid $1.8 million to settle certain obligations to DSM related to the 2017 sale of the Brotas facility. The Company also entered into other transactions contemporaneously with the amended supply agreement as discussed in Note 10, “Related Party Transactions”. This series of transactions with DSM in November 2018 was accounted for as a combined transaction in which the Company determined and allocated the fair value of the consideration to each element. The fair value of the consideration transferred to DSM under the combined arrangement totaled $33.3 million and was allocated as follows (in thousands):
|
|
|
|
|
|
Element
|
Fair Value Allocation
|
Manufacturing capacity reservation fee
|
$
|
24,395
|
|
Legal settlement and consent waiver
|
6,764
|
|
Working capital adjustment
|
2,145
|
|
Total fair value of consideration transferred
|
$
|
33,304
|
|
The fair value of these elements is based on Level 3 inputs, which considered the lowest level of input that is significant to the fair value measurement of these elements. To determine the fair value of the manufacturing capacity reservation fee, the Company used a discounted cash flow model under a cost savings valuation approach based on a competing manufacturing quote for similar capacity, location and timing. The Company used a discount rate of 22.5% and a tax rate of 0% to discount the gross cash flows. The fair value of the legal settlement for failure to obtain consent from DSM prior to executing the August 2018 Vivo Warrant transaction was determined by calculating the difference between the fair values of the warrants held by Vivo prior to and after the August 2018 Vivo Warrant transaction using a combination of a Monte Carlo simulation and the Black-Scholes-Merton option pricing model. The fair value of the working capital adjustment was determined to equal the difference between the preliminary estimate for working capital upon closing the Brotas facility sale and the final working capital amounts transferred.
4. Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
2018
|
|
|
|
December 31,
(In thousands)
|
Principal
|
|
Unaccreted Debt (Discount) Premium
|
|
Fair Value Adjustment
|
Net
|
|
Principal
|
|
Unaccreted Debt (Discount) Premium
|
|
Fair Value Adjustment
|
Net
|
Convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior convertible notes due 2022
|
$
|
66,000
|
|
$
|
—
|
|
$
|
(15,376)
|
|
$
|
50,624
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
6% convertible notes due 2021
|
—
|
|
—
|
|
—
|
|
—
|
|
|
60,000
|
|
—
|
|
(2,082)
|
|
57,918
|
|
2015 Rule 144A convertible notes
|
—
|
|
—
|
|
—
|
|
—
|
|
|
37,887
|
|
(2,413)
|
|
—
|
|
35,474
|
|
2014 Rule 144A convertible notes
|
—
|
|
—
|
|
—
|
|
—
|
|
|
24,004
|
|
(867)
|
|
—
|
|
23,137
|
|
August 2013 financing convertible notes
|
—
|
|
—
|
|
—
|
|
—
|
|
|
4,415
|
|
(70)
|
|
—
|
|
4,345
|
|
|
66,000
|
|
—
|
|
(15,376)
|
|
50,624
|
|
|
126,306
|
|
(3,350)
|
|
(2,082)
|
|
120,874
|
|
Related party convertible notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 Rule 144A convertible notes
|
10,178
|
|
—
|
|
—
|
|
10,178
|
|
|
24,705
|
|
(1,038)
|
|
—
|
|
23,667
|
|
|
10,178
|
|
—
|
|
—
|
|
10,178
|
|
|
24,705
|
|
(1,038)
|
|
—
|
|
23,667
|
|
Loans payable and credit facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schottenfeld notes
|
20,350
|
|
(1,315)
|
|
—
|
|
19,035
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Nikko notes
|
14,318
|
|
(901)
|
|
—
|
|
13,417
|
|
|
4,598
|
|
(1,047)
|
|
—
|
|
3,551
|
|
Ginkgo note
|
12,000
|
|
(3,139)
|
|
—
|
|
8,861
|
|
|
12,000
|
|
(4,047)
|
|
—
|
|
7,953
|
|
Other loans payable
|
1,828
|
|
—
|
|
—
|
|
1,828
|
|
|
312
|
|
—
|
|
—
|
|
312
|
|
GACP term loan facility
|
—
|
|
—
|
|
—
|
|
—
|
|
|
36,000
|
|
(1,349)
|
|
—
|
|
34,651
|
|
|
48,496
|
|
(5,355)
|
|
—
|
|
43,141
|
|
|
52,910
|
|
(6,443)
|
|
—
|
|
46,467
|
|
Related party loans payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foris notes
|
115,351
|
|
(9,516)
|
|
—
|
|
105,835
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
DSM notes
|
33,000
|
|
(4,621)
|
|
—
|
|
28,379
|
|
|
25,000
|
|
(6,311)
|
|
—
|
|
18,689
|
|
Naxyris note
|
24,437
|
|
(822)
|
|
—
|
|
23,615
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
172,788
|
|
(14,959)
|
|
—
|
|
157,829
|
|
|
25,000
|
|
(6,311)
|
|
—
|
|
18,689
|
|
Total debt
|
$
|
297,462
|
|
$
|
(20,314)
|
|
$
|
(15,376)
|
|
261,772
|
|
|
$
|
228,921
|
|
$
|
(17,142)
|
|
$
|
(2,082)
|
|
209,697
|
|
Less: current portion
|
|
|
|
|
|
|
(63,805)
|
|
|
|
|
|
|
|
|
(147,677)
|
|
Long-term debt, net of current portion
|
|
|
|
|
|
|
$
|
197,967
|
|
|
|
|
|
|
|
|
$
|
62,020
|
|
Future minimum payments under the debt agreements as of December 31, 2019 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
|
2020
|
$
|
43,384
|
|
$
|
26,324
|
|
$
|
10,437
|
|
$
|
33,730
|
|
$
|
113,875
|
|
2021
|
40,177
|
|
3,342
|
|
—
|
|
53,566
|
|
97,085
|
|
2022
|
—
|
|
15,177
|
|
—
|
|
113,818
|
|
128,995
|
|
2023
|
—
|
|
13,011
|
|
—
|
|
24,323
|
|
37,334
|
|
2024
|
—
|
|
398
|
|
—
|
|
—
|
|
398
|
|
Thereafter
|
—
|
|
1,870
|
|
—
|
|
—
|
|
1,870
|
|
Total future minimum payments
|
83,561
|
|
60,122
|
|
10,437
|
|
225,437
|
|
379,557
|
|
Less: amount representing interest(1)
|
(17,561)
|
|
(11,626)
|
|
(259)
|
|
(52,649)
|
|
(82,095)
|
|
Less: future conversion of accrued interest to principal
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Present value of minimum debt payments
|
66,000
|
|
48,496
|
|
10,178
|
|
172,788
|
|
297,462
|
|
Less: current portion of debt principal
|
(31,800)
|
|
(21,193)
|
|
(10,178)
|
|
(11,380)
|
|
(74,551)
|
|
Noncurrent portion of debt principal
|
$
|
34,200
|
|
$
|
27,303
|
|
$
|
—
|
|
$
|
161,408
|
|
$
|
222,911
|
|
______________
(1) Excluding net debt discount of $20.3 million that will be amortized to interest expense over the term of the debt.
August 2013 Financing Convertible Note
On January 14, 2019, Wolverine Flagship Fund Trading Limited (Wolverine) agreed to waive payment of the August 2013 Financing Convertible Note held by Wolverine at its January 15, 2019 maturity until July 15, 2019 in exchange for a fee, payable on or prior to July 15, 2019, of $0.6 million. The due date of the waiver fee was extended to October 13, 2019 and was subsequently paid on October 29, 2019. The Company concluded that the maturity date extension represented a debt modification, and the fee was accounted for as additional debt discount to be amortized over the remaining term.
On July 8, 2019, $5.1 million principal balance of the convertible note and unpaid interest was exchanged for 1.8 million shares of common stock with a total fair value of $5.9 million or $3.30 per share and a warrant to purchase 1.1 million shares of common stock with a fair value of $1.9 million. The Company recorded a $2.7 million loss on debt extinguishment for the difference between the carrying value of the debt and the sum of the fair values of the common stock and warrant. See Note 6, “Stockholders’ Deficit” for additional information regarding the fair value measurement of the common stock and warrant issued in connection with this exchange.
2015 Rule 144A Convertible Notes Extinguishment
On April 16, 2019, the Company repaid in cash the $37.9 million outstanding principal, as well as accrued and unpaid interest, under its 9.50% Convertible Senior Notes due 2019 (the 2015 Rule 144A Convertible Notes). This repayment did not result in an extinguishment gain or loss.
2014 Rule 144A Convertible Notes
In May 2019, the Company exchanged a portion of its 6.50% Convertible Senior Notes (the 2014 Rule 144A Convertible Notes), representing $38.2 million aggregate principal amount of 2014 Rule 144A Convertible Notes, for shares of common stock, warrants to purchase common stock and a new senior convertible note as described below and repaid the remaining $10.5 million of the 2014 Rule 144A Convertible Notes in cash at maturity.
Notes Conversion into Common Stock
On May 10, 2019, the Company exchanged $13.5 million aggregate principal amount of 2014 Rule 144A Convertible Notes held by certain non-affiliated investors, including accrued and unpaid interest thereon, for an aggregate of 3.5 million shares of common stock and warrants to purchase an aggregate of 1.4 million shares of common stock at an exercise price of $5.02 per share, with an exercise term of two years from issuance, in a private exchange.
On May 14, 2019, the Company exchanged $5.0 million aggregate principal amount of 2014 Rule 144A Convertible Notes held by Foris, including accrued and unpaid interest thereon, for 1.1 million shares of common stock and a warrant to purchase up to 0.4 million shares of common stock at an exercise price of $4.56 per share, with an exercise term of two years from issuance, in a private exchange. On August 28, 2019, the Company and Foris agreed to reduce the exercise price of such warrant from $4.56 per share to $3.90 per share in connection with the “August 2019 Foris Credit Agreements” below. Also, see Note 6, “Stockholders’ Deficit” for additional information and Note 15, “Subsequent Events” for information regarding the amendment and exercise of the warrants on January 31, 2020.
On May 15, 2019, the Company exchanged $10.0 million aggregate principal amount of 2014 Rule 144A Convertible Notes held by Maxwell (Mauritius) Pte Ltd for 2.5 million shares of common stock in a private exchange.
The Company evaluated the May 2019 note conversions into common stock discussed above and concluded that the transactions resulted in a debt extinguishment. The Company recorded a $5.9 million loss on debt extinguishment of the 2014 144A Convertible Notes in the three months ended June 30, 2019. The loss represented the difference between the $30.8 million fair value of 7.1 million common shares issued upon exchange, $3.8 million fair value of warrants issued to purchase 1.7 million shares of common stock and $0.4 million of fees incurred, less the $29.1 million carrying value of the debt that was extinguished. See Note 6. "Stockholders’ Deficit" for further information regarding the fair value measurement of the common stock and warrants issued in connection with the May 2019 note conversions discussed above.
Total Note Exchange and Extensions
On May 15, 2019, the Company exchanged $9.7 million aggregate principal amount of 2014 Rule 144A Convertible Notes due May 15, 2019 held by Total Raffinage Chimie (Total) for a new senior convertible note (the New Note) with an equal principal amount and with substantially identical terms, except that the New Note had a maturity date of June 14, 2019.
Effective June 14, 2019, the Company and Total agreed to extend the maturity date of the New Note from June 14, 2019 to July 18, 2019. Effective July 18, 2019, the Company and Total agreed to (i) further extend the maturity date of the New Note from July 18, 2019 to August 28, 2019 and (ii) increase the interest rate on the New Note to 10.5% per annum, beginning July 18, 2019. Effective August 28, 2019, the Company and Total agreed to (i) further extend the maturity date of the New Note from August 28, 2019 to October 28, 2019 and (ii) increase the interest rate on the New Note to 12% per annum, beginning August 28, 2019. On October 31, 2019, the Company and Total agreed, effective as of October 28, 2019, to (i) extend the maturity date of the New Note from October 28, 2019 to December 16, 2019 and (ii) capitalize all interest accruing under the New Note from May 15, 2019 through and including November 14, 2019, in the amount of $0.5 million, which interest would be added to the principal of the New Note, which would begin accruing interest on such new principal amount on November 15, 2019. Effective December 16, 2019, the Company and Total agreed to extend the maturity date of the New Note from December 16, 2019 to January 31, 2020. See Note 15, “Subsequent Events” for further information regarding the Company’s failure to repay the $10.2 million New Note by January 31, 2020.
The Company accounted for the note exchange and series of extensions with Total as a debt modification; however, no additional fees were paid in connection with the exchange and extensions, and consequently there was no impact on the carrying value of the debt as of December 31, 2019.
Foris Debt Transactions—Related Party
The Company has loans payable to Foris Ventures, LLC (Foris) with a total principal balance of $115.4 million at December 31, 2019. Foris is an entity affiliated with director John Doerr of Kleiner Perkins Caufield & Byers, a current stockholder, and an owner of greater than five percent of the Company’s outstanding common stock. The notes payable to Foris are comprised of the following (amounts in thousands):
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Description
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Date Issued
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Original Loan Amount
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Balance at December 31, 2019
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Interest Rate per Annum
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Maturity Date
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Foris $19 Million Note
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August 28, 2019
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$
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19,000
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$
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19,000
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12.0%
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January 1, 2023
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Foris LSA
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April 15, 2019
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36,000
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96,351
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12.5%
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For $81.0 million borrowed prior to November 27, 2019, the maturity date is July 1, 2022; for $10.0 million borrowed November 27, 2019, the maturity date is March 31, 2023.
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$
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55,000
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$
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115,351
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Foris Credit Agreements
On April 8, 2019, the Company and Foris entered into a credit agreement to make available to the Company an unsecured credit facility in an aggregate principal amount of $8.0 million (the April Foris Credit Agreement), which the Company borrowed in full on April 8, 2019 and issued to Foris a promissory note in the principal amount of $8.0 million (the April Foris Note). The April Foris Note has a maturity date of October 14, 2019, which has no stated interest rate. The Company agreed to pay Foris a fee of $1.0 million, payable on or prior to the maturity date; provided, that the fee will be reduced to $0.5 million if the Company repays the April Foris Note in full by July 15, 2019. The Company accrues this fee as interest expense over the six-month term of the note.
On June 11, 2019, the Company and Foris entered into a credit agreement to make available to the Company an unsecured credit facility in an aggregate principal amount of $8.5 million, which the Company borrowed in full on June 11, 2019 and issued to Foris a promissory note in the principal amount of $8.5 million (the June Foris Note). The June Foris Note (i) accrues interest at a rate of 12.5% per annum and is payable on the maturity date or the earlier repayment or other satisfaction of the June Foris Note, and (ii) matured on August 28, 2019.
On July 10, 2019, the Company and Foris entered into a credit agreement to make available to the Company an unsecured credit facility in an aggregate principal amount of $16.0 million (the July Foris Credit Agreement), of which the Company borrowed $8.0 million on July 10, 2019 and $8.0 million on July 26, 2019 and issued to Foris promissory notes, each in the principal amount of $8.0 million, on such dates (the July Foris Notes). The July Foris Notes (i) accrue interest at a rate of 12.5% per annum, which is payable on the maturity date or the earlier repayment or other satisfaction of the applicable July Foris Note, and (ii) mature on December 31, 2019.
In connection with the entry into the July Foris Credit Agreement, the Company and Foris amended the warrant issued to Foris on August 17, 2018 to reduce the exercise price of such warrant from $7.52 per share to $2.87 per share. The warrant modification resulted in $4.0 million of incremental value which was accounted for as a debt discount to the $16 million July
Foris Notes. See Note 6, “Stockholders’ Deficit” for additional information regarding the fair value measurement of the modified warrant.
On August 14, 2019, the April Foris Note, the June Foris Note and the July Foris Notes were added to the loans under the LSA, made subject to the LSA and secured by the security interest in the collateral granted to Foris under the LSA, and such notes were cancelled in connection therewith. See "LSA Assignment, Amendments and Waiver" below for further information.
Foris LSA Assignment, Amendments and Waivers
On April 4, 2019, the Company and GACP Finance Co., LLC (GACP) amended the Loan and Security Agreement, dated June 29, 2018 (as amended, the LSA), to remove, add and modify certain restrictions, covenants and other provisions and to waive breaches of certain covenants under the LSA occurring prior to, as of and after December 31, 2018 through April 8, 2019. In connection with such waiver, the Company agreed to pay GACP fees of $0.8 million, which the Company paid in April 2019. This waiver fee was recorded as interest expense in the statement of operations in the nine months ended September 30, 2019.
On April 15, 2019, the Company, GACP and Foris Ventures, LLC (Foris), an entity affiliated with director John Doerr of Kleiner Perkins Caufield & Byers, a current stockholder, and an owner of greater than 5% of the Company’s outstanding common stock) entered into a Loan Purchase Agreement, pursuant to which Foris agreed to purchase and assume from GACP, the outstanding principal balance under the LSA, which totaled $36.0 million and all documents and assets related thereto. In connection with such purchase and assignment, the Company agreed to repay Foris $2.5 million of the purchase price and accrued interest paid by Foris to GACP (the LSA Obligation). The closing of the loan purchase and assignment occurred on April 16, 2019.
On August 14, 2019, the Company and Foris entered into an Amendment No. 5 and Waiver to the LSA (the LSA Amendment and Waiver), pursuant to which (i) the maturity date of the loans under the LSA was extended from July 1, 2021 to July 1, 2022, (ii) the interest rate for the loans under the LSA was modified to the greater of (A) 12% or (B) the rate of interest payable with respect to any indebtedness of the Company, including, but not limited to, the rate of interest charged pursuant to the Naxyris Loan Agreement, provided, that for such purpose, the rate of interest charged pursuant to the Naxyris Loan Agreement shall be the rate of interest payable by the Borrower pursuant to the Naxyris Loan Agreement, minus 25 basis points (iii) the amortization of the loans under the LSA was delayed until December 16, 2019, (iv) certain accrued and future interest and agency fee payments under the LSA were delayed until December 16, 2019, (v) certain covenants under the LSA, including related definitions, were amended to provide the Company with greater operational and financial flexibility, including, without limitation, to permit the incurrence of the indebtedness under the August 2019 Naxyris Loan (as described below) and the granting of liens with respect thereto, subject to the terms of an intercreditor agreement between Foris and Naxyris S.A. (Naxyris) governing the respective rights of the parties with respect to, among other things, the assets securing the Naxyris Loan Agreement (as defined below) and the LSA (the Intercreditor Agreement), (vi) certain outstanding unsecured promissory notes issued by the Company to Foris on April 8, 2019, June 11, 2019, July 10, 2019 and July 26, 2019 (as described in the “Foris Credit Agreements” section above), in an aggregate principal amount of $32.5 million, as well as the $2.5 million LSA Obligation, were added to the loans under the LSA, made subject to the LSA and secured by the security interest in the collateral granted to Foris under the LSA, and such promissory notes and contractual obligation were canceled in connection therewith, and (vii) Foris agreed to waive certain existing defaults under the LSA, including with respect to covenants related to cross-defaults, minimum liquidity and minimum asset coverage requirements. After giving effect to the LSA Amendment and Waiver, there was $71.0 million aggregate principal amount of loans outstanding under the LSA.
The Company also issued to Foris a warrant (the LSA Warrant) on August 14, 2019 to purchase up to 1.4 million shares of common stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance. The warrant had a fair value of $2.9 million, which was measured using the Black-Scholes-Merton option pricing model. See Note 6, “Stockholders’ Deficit” for further information regarding the fair value measurement and issuance of this warrant.
Due to multiple changes in key provisions of the LSA from April 15, 2019 through August 14, 2019, the Company analyzed the before and after cash flows from the prior twelve months of modifications resulting from the increased principal balance, decreased interest rate, extended maturity date, waiver of default interest and the fair value of the new LSA Warrant provided to Foris in order to determine if these changes result in a modification or extinguishment of the original LSA. Based on the combined before and after cash flows of the five separate note balances making up the new principal balance of the LSA and the fair value of the LSA warrant, the change in cash flows was not significantly different. Consequently, the LSA Amendment and Waiver was accounting for as a debt modification with the $2.9 million fair value of the LSA Warrant
recorded as an increase to additional paid in capital and as a debt discount to be amortized to interest expense under the effective interest method over the remaining term of the LSA.
Foris LSA Amendments, Additional Loan and Warrant Issuance
On October 10, 2019, the Company and Foris entered into Amendment No. 6 to the LSA (the October 2019 LSA Amendment), pursuant to which the maximum loan commitment of Foris under the LSA was increased by $10.0 million. On October 11, 2019, the Company borrowed an additional $10.0 million from Foris under the LSA (the October 2019 LSA Loan), which is subject to the terms and provisions of the LSA, including the lien on substantially all the assets of the Company. After giving effect to the LSA Loan, there was $81.0 million aggregate principal amount of loans outstanding under the LSA. Also, in connection with the October 2019 LSA Amendment, the Company issued a warrant (the October 2019 Foris LSA Warrant) to purchase up to 2.0 million shares of common stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance. The warrant had a fair value of $4.1 million which was measured using the Black-Scholes-Merton option pricing model. See Note 6, “Stockholders’ Deficit” for further information regarding the fair value measurement and issuance of this warrant.
On October 28, 2019, the Company and Foris entered into an amended and restated LSA (the A&R LSA), pursuant to which, among other things, certain covenants and related definitions were amended to permit the incurrence of the indebtedness under the October 2019 Naxyris Loan (as defined below), subject to the terms of an amended and restated intercreditor agreement, dated October 28, 2019, between Foris and Naxyris governing the respective rights of the parties with respect to, among other things, the assets securing the A&R Naxyris LSA (as defined below) and the A&R LSA, and additional covenants were added relating to, among other things, maintenance of intellectual property, compliance with laws, delivery of reports and repayment of indebtedness.
On November 27, 2019, the Company borrowed an additional $10.0 million from Foris under the A&R LSA dated October 28, 2019. The new loan has identical terms to the previous loans under the LSA except that the maturity date is March 31, 2023 (as opposed to July 1, 2022 for the other loans under the LSA). In connection with the new loan, the Company issued a warrant to purchase up to 1,000,000 shares of common stock at an exercise price of $3.87 per share, exercisable for a period of two years from issuance (the November 2019 Foris Warrant). The warrant had a fair value of $2.1 million which was measured using the Black-Scholes-Merton option pricing model. See Note 6, “Stockholders’ Deficit” for further information regarding the fair value measurement and issuance of this warrant. After giving effect to the LSA Loan, there was $91.0 million aggregate principal amount of loans outstanding under the A&R LSA.
Due to multiple changes in key provisions of the LSA through November 27, 2019, the Company analyzed the before and after cash flows from the prior twelve months of modifications resulting from the increased principal balance, decreased interest rate, extended maturity date, waiver of default interest and the fair value of the new LSA Warrant, the October 2019 Foris Warrant and the November 2019 Foris Warrant provided to Foris in order to determine if these changes result in a modification or extinguishment of the original LSA. Based on the combined before and after cash flows of the various note balances making up the new principal balance of the LSA and the fair value of the three warrants, the Company determined that the change in cash flows through and including the October 2019 LSA Amendment were significantly different. Consequently, the October 2019 LSA Amendment was accounting for as a debt extinguishment and a new debt issuance. The Company recorded a $12.8 million loss on extinguishment comprised of (i) $8.7 million unamortized debt discount and (ii) the $4.1 million fair value of the October 2019 Foris LSA Warrant (a non-cash fee paid to the lender).
However, the change in cash flows from the October 2019 LSA Amendment to the November 27, 2019 borrowing under the A&R LSA were not significantly different. As a result, the A&R LSA was accounting for as a debt modification. The Company recorded a new $3.5 million debt discount, comprised of (i) $2.1 million fair value of the November 2019 Warrant, recorded as an increase to additional paid in capital and as a debt discount to be amortized to interest expense under the effective interest method over the remaining term of the A&R LSA, and (ii) $1.4 million fair value of a bifurcated embedded mandatory redemption feature, recorded as a derivative liability and as a debt discount to be amortized to interest expense under the effective interest method over the remaining term of the A&R LSA. See Note 3, “Fair Value Measurement” for further information on the valuation and subsequent fair value accounting for the bifurcated embedded derivative.
August 2019 Foris Credit Agreements
On August 28, 2019, the Company and Foris entered into a credit agreement for an unsecured credit facility in an aggregate principal amount of $19.0 million (the August 2019 Foris Credit Agreement), which the Company borrowed in full on August 28, 2019 (the Foris $19 Million Note). The Foris $19 Million Note (i) accrues interest at a rate of 12% per annum, which is payable quarterly in arrears on each March 31, June 30, September 30 and December 31, beginning December 31,
2019, and (ii) matures on January 1, 2023. The Company may at its option repay the amounts outstanding under the Foris $19 Million Note before the maturity date, in whole or in part, at a price equal to 100% of the amount being repaid plus accrued and unpaid interest on such amount to the date of repayment.
The Foris $19 Million Note also contained a mandatory redemption feature that was not clearly and closely related to the debt host instrument, and thus, required bifurcation and separate accounting as a derivative liability. The embedded feature had an initial fair value of $0.5 million and was recorded as a derivative liability and a debt discount to be amortized to interest expense under the effective interest method over the term of the Foris $19 Million Note. See Note 3, “Fair Value Measurement” for information regarding the fair value measurement and subsequent accounting for the embedded mandatory redemption feature.
In connection with the entry into the August 2019 Foris Credit Agreement, the Company issued to Foris a warrant (the August 2019 Foris Warrant) to purchase up to 4.9 million shares of Common Stock at an exercise price of $3.90 per share, with an exercise term of two years from issuance. See Note 6, “Stockholders’ Deficit” for information regarding the fair value measurement and issuance of this warrant. The warrant had a $8.7 million fair value and a $5.2 million relative fair value after allocating the Foris $19 Million Note proceeds to the $0.5 million fair value of the embedded mandatory redemption feature contained in the Foris $19 Million Note, and allocating on a residual basis, to the relative fair values of the Foris $19 Million Note and the August 2019 Foris Warrant. The $5.2 million relative fair value of the August 2019 Foris Warrant was recorded as an increase to additional paid in capital and as a debt discount to be amortized to interest expense under the effective interest method over the term of the Foris $19 Million Note.
Also, on August 28, 2019 in connection with the entry into the August 2019 Foris Credit Agreement, the Company and Foris amended the warrant to purchase up to 3.9 million shares of common stock issued to Foris on April 26, 2019 to reduce the exercise price from $5.12 per share to $3.90 per share, and amended the warrant to purchase up to 0.4 million shares of common stock issued to Foris on May 14, 2019 to reduce the exercise price from $4.56 per share to $3.90 per share. The warrant modifications resulted in $1.1 million of incremental value that was recorded as an increase to additional paid in capital and a debt discount to be amortized to interest expense under the effective interest method over the term of the Foris $19 Million Note. See Note 6, “Stockholders’ Deficit” for additional information regarding the fair value measurement of these warrant modifications.
In addition to the $5.2 million relative fair value of the August 2019 Foris Warrant, the $0.5 million fair value of the embedded mandatory redemption feature, and $1.1 million incremental value related to the warrant modifications, the Company incurred $0.1 million of legal fees in connection the issuing the Foris $19 Million Note. These amounts totaled $6.8 million and were recorded as a debt discount to be amortized as interest expense under the effective interest method over the term of the Foris $19 Million Note. This note was repaid in full in January 2020; see "Warrant Exercise, Common Stock Purchase and Debt Equitization by Foris – Related Party" in Note 15, "Subsequent Events" for additional information.
Naxyris LSA
On August 14, 2019, the Company, certain of the Company’s subsidiaries (the Subsidiary Guarantors) and, as lender, Naxyris, an existing stockholder of the Company and an investment vehicle owned by Naxos Capital Partners SCA Sicar, which is affiliated with NAXOS S.A.R.L. (Switzerland), for which director Carole Piwnica serves as director, entered into a Loan and Security Agreement (the Naxyris Loan Agreement) to make available to the Company a secured term loan facility in an aggregate principal amount of up to $10.4 million (the August 2019 Naxyris Loan), which the Company borrowed in full on August 14, 2019. In connection with the funding of the August 2019 Naxyris Loan, the Company paid Naxyris an upfront fee of $0.4 million.
Loans under the August 2019 Naxyris Loan have a maturity date of July 1, 2022 and accrue interest at a rate per annum equal to the greater of (i) 12% or (ii) the rate of interest payable with respect to any indebtedness of the Company plus 25 basis points, which interest will be payable monthly in arrears, provided that all interest accruing from and after August 14, 2019 through December 1, 2019 shall be due and payable on December 15, 2019.
The obligations of the Company under the Naxyris Loan Agreement are (i) guaranteed by the Subsidiary Guarantors and (ii) secured by a perfected security interest in substantially all of the assets of the Company and the Subsidiary Guarantors (the Collateral), junior in payment priority to Foris subject to certain limitations and exceptions, as well as the terms of the Intercreditor Agreement.
Mandatory prepayments of the outstanding amounts under the August 2019 Naxyris Loan will be required upon the occurrence of certain events, including asset sales, a change in control, and the incurrence of additional indebtedness, subject
to certain exceptions and reinvestment rights. Outstanding amounts under the August 2019 Naxyris Loan must also be prepaid to the extent that the borrowing base exceeds the outstanding principal amount of the loans under the August 2019 Naxyris Loan. In addition, the Company may at its option prepay the outstanding principal amount of the loans under the August 2019 Naxyris Loan in full before the maturity date. Any prepayment of the loans under the August 2019 Naxyris Loan prior to the maturity date, whether pursuant to a mandatory or optional prepayment, is subject to a prepayment charge equal to one year’s interest at the then-current interest rate for the August 2019 Naxyris Loan. Upon any repayment of the loans under the August 2019 Naxyris Loan, whether on the maturity date or earlier pursuant to an optional or mandatory prepayment, the Company will pay Naxyris an end of term fee based on a percentage of the aggregate amount borrowed. In addition, (i) the Company will be required to pay a fee equal to 6% of any amount the Company fails to pay within three business days of its due date and (ii) any interest that is not paid when due will be added to principal and will accrue compound interest at the applicable rate.
The August 2019 Naxyris Loan contains customary affirmative and negative covenants and financial covenants, including covenants related to minimum revenue, minimum liquidity and minimum asset coverage requirements.
The August 2019 Naxyris Loan also contained a mandatory redemption feature that was not clearly and closely related to the debt host instrument, and thus, required bifurcation and separate accounting as a derivative liability. The embedded feature had an initial fair value of $0.3 million and was recorded as a derivative liability and a debt discount to be amortized to interest expense under the effective interest method over the term of the August 2019 Naxyris Loan. See Note 3, “Fair Value Measurement” for information regarding the fair value measurement and subsequent accounting for the embedded mandatory redemption feature.
In connection with the entry into the August 2019 Naxyris Loan, on August 14, 2019 the Company issued to Naxyris a warrant (the Naxyris LSA Warrant) to purchase up to 2.0 million shares of common stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance. See Note 6, “Stockholders’ Deficit” for information regarding the fair value measurement and issuance of this warrant. The warrant had a $4.0 million fair value and a $3.0 million relative fair value after allocating the August 2019 Naxyris Loan proceeds to the $0.3 million fair value of the embedded mandatory redemption feature contained in the August 2019 Naxyris Loan, and allocating on a residual basis, to the relative fair values of the August 2019 Naxyris Loan and the Naxyris LSA Warrant. The $3.0 million relative fair value of the Naxyris LSA Warrant was recorded as an increase to additional paid in capital and as a debt discount to be amortized to interest expense under the effective interest method over the term of the August 2019 Naxyris Loan.
In addition to the $3.0 million relative fair value of the Naxyris LSA Warrant and the $0.3 million fair value of the embedded mandatory redemption feature, the August 2019 Naxyris Loan contained $0.4 million original issue discount, $0.5 million mandatory end of term fee and $0.3 million of issuances costs, all totaling $4.5 million. All such amounts were recorded as a debt discount to be amortized to interest expense over the term of the August 2019 Naxyris Loan.
Naxyris LSA Amendment
On October 28, 2019, the Company, the Subsidiary Guarantors and Naxyris amended and restated the Naxyris Loan Agreement (the A&R Naxyris LSA), pursuant to which the maximum loan commitment of Naxyris under the Naxyris Loan Agreement was increased by $10.4 million. On October 29, 2019, the Company borrowed an additional $10.4 million (the October 2019 Naxyris Loan) from Naxyris under the A&R Naxyris LSA, which is subject to the terms and provisions of the A&R Naxyris LSA, including the lien on substantially all of the assets of the Company and the Subsidiary Guarantors. Also, under the terms of A&R Naxyris LSA, the Company owes a 5% end of term fee on the October 2019 Naxyris Loan amount and a $2.0 million term loan fee, both of which are due at July 1, 2022 maturity or upon full repayment of the amounts borrowed under the A&R Naxyris LSA. Also, the Company paid Naxyris an upfront fee of $0.4 million at the funding date of the October 2019 Naxyris Loan. After giving effect to the October 2019 Naxyris Loan amount, there is $24.4 million aggregate principal amount of loans outstanding under the A&R Naxyris LSA.
Also, in connection with the entry into the A&R Naxyris LSA, on October 28, 2019 the Company issued to Naxyris a warrant to purchase up to 2.0 million shares of common stock, at an exercise price of $3.87 per share, with an exercise term of two years from issuance (the October 2019 Naxyris Warrant). The warrant had a $3.6 million fair value and a $2.8 million relative fair value after allocating the October 2019 Naxyris Loan proceeds to the $0.5 million fair value of the embedded mandatory redemption feature contained in the October 2019 Naxyris Loan, and allocating on a residual basis, to the relative fair values of the October 2019 Naxyris Loan and the October 2019 Naxyris Warrant. The $2.8 million relative fair value of the October 2019 Naxyris Warrant was recorded as an increase to additional paid in capital and as a loss on debt extinguishment (as discussed below).
Due to changes in key terms of the Naxyris Loan Agreement through the addition of the October 2019 Naxyris Loan, the Company analyzed the before and after cash flows under the August 2019 Naxyris Loan and October 2019 Naxyris Loan in order to determine if these changes result in a modification or extinguishment of the original Naxyris Loan Agreement. Based on the combined before and after cash flows related to the increased principal balance, increased end of term fees and the fair value of new warrants provided to Naxyris, the Company determined that the change in cash flows were significantly different. Consequently, the October 2019 Naxyris Loan was accounting for as a debt extinguishment and new debt issuance. The Company recorded a $9.7 million loss on extinguishment comprised of (i) $4.0 million of unamortized debt discount, net of the $0.3 million fair value of the bifurcated embedded mandatory redemption feature, (ii) $2.9 million of original issue discount and end of term fees and (iii) the $2.8 million fair value of the October 2019 Naxyris Warrant (a non-cash fee paid to the lender).
The October 2019 Naxyris Loan contained a mandatory redemption feature that was not clearly and closely related to the debt host instrument, and thus, required bifurcation and separate accounting as a derivative liability. The embedded feature had an initial fair value of $0.5 million and was recorded as a derivative liability and a debt discount to be amortized to interest expense under the effective interest method over the term of the new debt issuance. See Note 3, “Fair Value Measurement” for information regarding the fair value measurement and subsequent accounting for the embedded mandatory redemption feature. The Company also capitalized $0.4 million of legal fees related to the October 2019 Naxyris Loan as a debt discount.
Schottenfeld September 2019 Credit Agreements
On September 10, 2019, the Company entered into separate credit agreements (the Investor Credit Agreements) with each of Schottenfeld Opportunities Fund II, L.P., Phase Five Partners, LP and Koyote Trading, LLC (the Investors or Schottenfeld Holdings Group LLC) to make available to the Company unsecured credit facilities in an aggregate principal amount of $12.5 million, which the Company borrowed in full on September 10, 2019 and issued to the Investors separate promissory notes in the aggregate principal amount of $12.5 million (the Investor Notes). Each Investor Note (i) accrues interest at a rate of 12% per annum, which is payable quarterly in arrears on each March 31, June 30, September 30 and December 31, beginning December 31, 2019, and (ii) matures on January 1, 2023. The Company may at its option repay the amounts outstanding under the Investor Notes before the maturity date, in whole or in part, at a price equal to 100% of the amount being repaid plus accrued and unpaid interest on such amount to the date of repayment.
The Investor Notes also contained a mandatory redemption feature that was not clearly and closely related to the debt host instrument, and thus, required bifurcation and separate accounting as a derivative liability. The embedded feature had an initial fair value of $0.3 million and was recorded as a derivative liability and a debt discount to be amortized to interest expense under the effective interest method over the term of the Investor Notes. See Note 3, “Fair Value Measurement” for information regarding the fair value measurement and subsequent accounting for the embedded mandatory redemption feature.
In connection with the September 10, 2019 Investor Credit Agreements, the Company issued to the Investors warrants (the September 2019 Investor Warrants) to purchase up to an aggregate of 3.2 million shares of common stock at an exercise price of $3.90 per share, with an exercise term of two years from issuance. The September 2019 Investor Warrants had a $7.9 million fair value which was recorded as a derivative liability and a debt discount to be amortized to interest expense under the effective interest method over the term of the Investor Notes. See Note 3, “Fair Value Measures” for information regarding the fair value measurement and accounting of these liability warrants.
Schottenfeld November 2019 Credit and Security Agreement
On November 14, 2019, the Company entered into a credit and security agreement (the Schottenfeld CSA) with Schottenfeld Opportunities Fund II, L.P. and Phase Five Partners, LP (two investors affiliated with Schottenfeld Group Holdings LLC) to borrow an additional $7.9 million, resulting in net proceeds to the Company of $7.5 million after deduction of a 5% original issue discount, and to grant the Investor Notes a security interest in the collateral granted to the Investors under the Schottenfeld CSA (as described below). The loans accrue interest at 12% per annum, mature on the earlier to occur of (i) the closing of a $50 million or greater financing and (ii) January 15, 2020, and are secured by a perfected security interest in substantially all of the assets of the Company and the Subsidiary Guarantors, junior in payment priority to Foris and Naxyris subject to the Subordination Agreement among Foris, Naxyris and the Investors. In connection therewith, the Company issued to such investors warrants to purchase an aggregate of 2.0 million shares of common stock at an exercise price of $3.87 per share, with an exercise term of 2 years from issuance (the November 2019 Schottenfeld CSA Warrants). In connection with the warrant issuance, the Company will be required to pay the November 2019 Schottenfeld CSA Warrants holders and the September 2019 Investor Warrants holders a fee if the Company issues equity securities in connection with the $50 million or greater financing provision that have an issue, conversion or exercise price of less than $3.90 or $3.87 per share, respectively. In such case, the fee will be the difference between the exercise price of such warrants (i.e., $3.90 or
$3.87) and the issue, conversion or exercise price of the equity securities issued in the $50 million or greater financing, times the total number of warrants issued to such investors in November 2019 and September 2019. See Note 15, “Subsequent Events” for further information regarding the Company’s failure to repay the $7.9 million loan by January 15, 2020.
The November 2019 Schottenfeld CSA Warrants had a $4.0 million fair value which was recorded as a derivative liability and a loss on debt extinguishment (as discussed below). See Note 3, “Fair Value Measures” for information regarding the fair value measurement and accounting of these liability warrants. Also, the Schottenfeld CSA also contained a mandatory redemption feature that was not clearly and closely related to the debt host instrument, and thus, required bifurcation and separate accounting as a derivative liability. The embedded feature had an initial fair value of $0.2 million and was recorded as a derivative liability and a debt discount to be amortized to interest expense under the effective interest method over the term of the Schottenfeld CSA (as discussed below). See Note 3, “Fair Value Measurement” for information regarding the fair value measurement and subsequent accounting for the embedded mandatory redemption feature.
Due to multiple changes in key provisions of Investor Credit Agreements and the Schottenfeld CSA, the Company analyzed the before and after cash flows resulting from the increased principal balance and the fair value of the new November 2019 Schottenfeld CSA Warrants to determine whether these changes result in a modification or extinguishment of the original Schottenfeld and Phase Five notes. Based on the combined before and after cash flows of each note, the change in cash flows was significantly different. Consequently, the Schottenfeld CSA was accounted for as a debt extinguishment and a new debt issuance. The Company recorded an $11.2 million loss upon extinguishment of debt, which was comprised of $6.8 million of unaccreted discount and the balance of the derivative liability recorded in connection with the previous debt instrument, the $4.0 million fair value of the November 2019 Schottenfeld CSA Warrant (as a non-cash fee paid to the lender), and a $0.4 million original issue discount that was netted against the Schottenfeld CSA loan proceeds.
In recording the new debt issuance, the Company also capitalized $0.2 million of legal fees related to the Schottenfeld CSA and the initial fair value of the mandatory redemption feature of $0.2 million was as a debt discount to be amortized to interest expense under the effective interest method over the term of the new debt issuance.
DSM Credit Agreements—Related Party
DSM $25 Million Note
In December 2017, the Company and DSM entered into a credit agreement (the DSM Credit Agreement) to make available to the Company an unsecured credit facility of $25.0 million. On December 28, 2017, the Company borrowed $25.0 million under the DSM Credit Agreement, representing the entire amount available thereunder, and issued a promissory note to DSM in an equal principal amount (the DSM Note). The Company used the proceeds of the amounts borrowed under the DSM Credit Agreement to repay all outstanding principal under a promissory note in the principal amount of $25.0 million issued to Guanfu Holding Co., Ltd. in December 2016 (the Guanfu Note). Given multiple elements in the arrangements with DSM, the Company fair valued the DSM Note to determine the arrangement consideration that should be allocated to the DSM Note. The fair value of the DSM Note was discounted using a Company specific weighted average cost of capital rate that resulted in a debt discount of $8.0 million. The debt discount is being amortized over the loan term using the effective interest method.
The DSM Note (i) is an unsecured obligation of the Company, (ii) matures on December 31, 2021 and (iii) accrues interest from and including December 28, 2017 at 10% per annum, payable quarterly. The DSM Note may be prepaid in full or in part at any time without penalty or premium. The DSM Credit Agreement and the DSM Note contain customary terms, covenants and restrictions, including certain events of default after which the DSM Note may become due and payable immediately.
DSM $8 Million Note
On September 17, 2019, the Company and DSM entered into a credit agreement (the 2019 DSM Credit Agreement) to make available to the Company a secured credit facility in an aggregate principal amount of $8.0 million, to be issued in separate installments of $3.0 million, $3.0 million and $2.0 million, respectively, with each installment being subject to certain closing conditions, including the payment of certain existing obligations of the Company to DSM. On September 17, 2019, the Company borrowed the first installment of $3.0 million under the 2019 DSM Credit Agreement, all of which proceeds were used to pay certain existing obligations of the Company to DSM, and issued to DSM a promissory note in the principal amount of $3.0 million. On September 19, 2019, the Company borrowed the second installment of $3.0 million under the 2019 DSM Credit Agreement, all of which proceeds were used to pay certain existing obligations of the Company to DSM, and issued to DSM a promissory note in the principal amount of $3.0 million. On September 23, 2019, the Company borrowed the final
installment of $2.0 million under the 2019 DSM Credit Agreement, $1.5 million of which proceeds were used to pay certain existing obligations of the Company to DSM, and issued to DSM a promissory note in the principal amount of $2.0 million. The promissory notes issued under the 2019 DSM Credit Agreement (i) mature on August 7, 2022, (ii) accrue interest at a rate of 12.5% per annum from and including the applicable date of issuance, which interest is payable quarterly in arrears on each January 1, April 1, July 1 and October 1, beginning January 1, 2020, and (iii) are secured by a first-priority lien on certain Company intellectual property licensed to DSM. The Company may at its option repay the amounts outstanding under the 2019 DSM Credit Agreement before the maturity date, in whole or in part, at a price equal to 100% of the amount being repaid plus accrued and unpaid interest on such amount to the date of repayment. In addition, the Company is required to repay the amounts outstanding under the 2019 DSM Credit Agreement (i) in an amount equal to the gross cash proceeds, if any, received by the Company upon the exercise by DSM of any of the common stock purchase warrants issued by the Company to DSM on May 11, 2017 or August 7, 2017 (see Note 6, “Stockholders’ Deficit”) and (ii) in full upon the request of DSM at any time following the receipt by the Company of at least $50.0 million of gross cash proceeds from one or more sales of equity securities of the Company on or prior to June 30, 2020. In connection with issuance of the 2019 DSM Credit Agreement, the Company incurred $0.3 million of legal fees which were recorded as a debt discount to be amortized as interest expense under the effective interest method over the term of the 2019 DSM Credit Agreement.
Ginkgo Note, Partnership Agreement and Note Amendment
In November 2017, the Company and Ginkgo Bioworks, Inc. (Ginkgo) entered into a partnership agreement (Ginkgo Partnership Agreement) to replace and supersede the 2016 Ginkgo Collaboration Agreement. Under the Ginkgo Partnership Agreement, the Company and Ginkgo agreed:
•to issue the $12 million November 2017 Ginkgo Note (as defined below), which effectively guarantees Ginkgo $12 million minimum future royalties under the profit margin sharing provisions noted below;
•to pay Ginkgo quarterly fees of $0.8 million (Partnership Payments) for a total of $12.7 million, beginning on December 31, 2018 and ending on September 30, 2022;
•to share profit margins from sales of a certain product to be developed under the Ginkgo Partnership Agreement on a 50/50 basis, subject to certain conditions, provided that net profits will be payable to Ginkgo for any quarterly period to the extent that such net profits exceed the sum of (a) quarterly interest payments due under the November 2017 Ginkgo Note and (b) Partnership Payments due in such quarter;
•to continue to collaborate on limited research and development; and
•to provide each other licenses (with royalties) to specified intellectual property for limited purposes.
The Ginkgo Partnership Agreement provides for an initial term of two years and will automatically renew for successive one-year terms thereafter unless otherwise terminated. The Company does not expect to recognize any future revenue under this arrangement.
The Company recorded the $6.1 million present value of the $12.7 million partnership payments in other liabilities (see Note 2, "Balance Sheet Details"), with the remaining $6.6 million recorded as a debt discount to be recognized as interest expense under the effective interest method over the five-year payment term. The Company also concluded the partnership payment obligation under the Ginkgo Partnership Agreement represents consideration payable to a former customer; and consequently, the present value of the partnership payments should be recorded as a reduction of cumulative revenue recognized to date from Ginkgo in the period the partnership agreement was executed. The Company reached a similar conclusion regarding the $12.0 million Ginkgo Note described below. In total, the Company recorded a $13.1 million reduction in licenses and royalties revenue and $13.1 million in notes payable and other liabilities as of and for the year ended December 31, 2017 upon execution of the Ginkgo Partnership Agreement.
In November 2017, the Company issued an unsecured promissory note in the principal amount of $12.0 million to Ginkgo (the November 2017 Ginkgo Note) in connection with the termination of the Ginkgo Collaboration Agreement and the execution of the Ginkgo Partnership Agreement. The November 2017 Ginkgo Note accrues interest at 10.5% per annum, payable monthly, and has a maturity date of October 19, 2022. The November 2017 Ginkgo Note may be prepaid in full without penalty or premium at any time, provided that certain payments have been made under the Company’s partnership agreement with Ginkgo. The November 2017 Ginkgo Note also contains customary terms, covenants and restrictions, including certain events of default after which the note may become due and payable immediately. The Company recorded the $7.0 million present value of the November 2017 Ginkgo Note as a note payable liability, and the remaining $5.0 million was recorded as a debt discount which is being accreted to interest expense over the loan term using the effective interest method.
On September 29, 2019, in connection with Ginkgo granting certain waivers under the November 2017 Ginkgo Note and the Ginkgo Partnership Agreement, (i) the Company and Ginkgo amended the November 2017 Ginkgo Note to increase the
interest rate from 10.5% per annum to 12% per annum, beginning October 1, 2019, (ii) Ginkgo agreed to waive default interest, defer past due interest and partnership payments under the November 2017 Ginkgo Note and Ginkgo Partnership Agreement until December 15 and (iii) the Company agreed to pay a cash waiver fee of $1.3 million, payable in installments of $0.5 million on December 15, 2019 and $0.8 million on March 31, 2020. The Company accounted for this amendment as a modification and accrued the $1.3 million waiver fee in other current liabilities and a charge to interest expense during the year ended December 31, 2019. See Note 15, “Subsequent Events” for further information regarding the Company’s failure to pay the $5.2 million past due interest, default interest on past due amounts, partnership payments and the $0.5 million waiver fee installment on December 15, 2019.
6% Convertible Notes Due 2021
In December 2018, the Company issued $60.0 million in aggregate principal amount of senior convertible notes (the 6% Convertible Notes Due 2021) for $56.2 million of net proceeds, after deducting offering expenses and placement agent and advisory fees.
The Company elected to account for the 6% Convertible Notes Due 2021 at fair value as of the issuance date. Management believes that the fair value option better reflects the underlying economics of the 6% Convertible Notes Due 2021, which contain multiple embedded derivatives. Under the fair value election, changes in fair value are reported in the consolidated statements of operations as "(Loss) gain from change in fair value of debt" in each reporting period subsequent to the issuance of the 6% Convertible Notes Due 2021.
In May, June and July 2019, the Company exchanged the 6% Convertible Notes Due 2021 for new senior convertible notes and warrants to purchase common stock. Since the Company elected the fair value accounting option for the 6% Convertible Notes and records all changes in fair value through (Loss) gain from change in fair value of debt in the consolidated statement of operations, this series of exchanges was not required to be evaluated for modification or extinguishment accounting treatment. However, the Company considered the issuance of the warrant in connection with these exchanges as compensation to the noteholders for waiving certain covenant violations during the period, and recorded a $5.3 million increase to additional paid in capital and a charge to interest expense for the fair value of the equity-classified May 15, 2019, June 24, 2019 and July 24, 2019 warrants. See Note 6, “Stockholders’ Deficit” for information regarding the fair value measurement and issuance of this warrant.
On November 8, 2019, the Company entered into a Securities Exchange Agreement with certain private investors (the Investors), pursuant to which the Investors purchased the 6% Convertible Notes Due 2021 from the original holder and subsequently exchanged the 6% Convertible Notes Due 2021 with the Company for new 5% Senior Convertible Notes (the Senior Convertible Notes Due 2022) having an aggregate principal amount of $66.0 million. See the Senior Convertible Notes Due 2022 section below for further information on the exchange.
The Company evaluated the Investor’s purchase of the 6% Convertible Notes Due 2021 from the original holder and subsequent exchange with the Company for the Senior Convertible Notes Due 2022 and determined the purchase and exchange met the criteria for extinguishment accounting. The Company recorded a $1.9 million loss of debt extinguishment as of December 31, 2019, determined as follows:
|
|
|
|
|
|
In thousands
|
|
|
Fair value at December 31, 2018
|
$
|
57,918
|
|
Less: principal paid in cash during 2019
|
(13,395)
|
|
Less: principal converted to common stock during 2019
|
(15,000)
|
|
Loss on change in fair value during 2019
|
18,303
|
|
Accrued interest
|
3,168
|
|
Carrying value of registration rights liability
|
5,757
|
|
Net carrying value at extinguishment
|
56,751
|
|
Total reacquisition price
|
58,640
|
|
Loss on debt extinguishment
|
$
|
1,889
|
|
Senior Convertible Notes Due 2022
As discussed above under the 6% Convertible Notes Due 2021 section, on November 8, 2019, the Company entered into a securities exchange agreement with certain private investors (the Investors). The Investors completed the purchase of the Second Exchange Note from the current holder, and on November 15, 2019 the Company exchanged the 6% Convertible Notes Due 2021 held by the Investors for the Senior Convertible Notes Due 2022.
The Senior Convertible Notes Due 2022 are general unsecured obligations of the Company and will mature on September 30, 2022 unless earlier converted or redeemed.
The Senior Convertible Notes Due 2022 are payable in fixed monthly installments of $3.0 million from February 1, 2020 through July 1, 2020 and then $3.4 million monthly thereafter in either cash or, at the Company’s option, subject to the satisfaction of certain equity conditions, in shares of common stock at a discount to the then-current market price, subject to a price floor. The holders have the right, upon notice to the Company, to defer all or any portion of any installment amount to a future installment date. Each installment payment will reduce the principal amount under the Senior Convertible Notes Due 2022 by 90% of the amount of such installment payment.
The Senior Convertible Notes Due 2022 accrue interest at a rate of 5% per annum, and is payable on each installment date. Interest on the Senior Convertible Notes Due 2022 may be paid in either cash or, at the Company’s option, subject to the satisfaction of the equity conditions, shares of common stock at the installment conversion price. Upon the occurrence and during the continuation of an event of default, interest on the Senior Convertible Notes Due 2022 will accrue at a rate of 15% per annum.
The Company may at its option redeem the Senior Convertible Notes Due 2022, in full, at a price equal to 115% of the greater of (A) the principal amount of the Senior Convertible Notes Due 2022 being redeemed and (B) the intrinsic value of the shares of common stock underlying the principal amount of the Senior Convertible Notes Due 2022 being redeemed. In addition, the Company is required to (i) redeem the Senior Convertible Notes Due 2022 in an aggregate amount of $10.0 million following the receipt by the Company of at least $75.0 million of aggregate net cash proceeds from one or more financing transactions, at a price equal to 110% of the amount being redeemed and (ii) redeem the Senior Convertible Notes Due 2022 in an aggregate amount of $10.0 million on December 31, 2019, at a price equal to 110% of the amount being redeemed, in each case unless such redemption is deferred by the holder, and (iii) raise aggregate net cash proceeds of $30 million by December 31, 2019 and an additional $75 million by March 15, 2020 from one or more financing transactions by January 31, 2020. See Note 15, “Subsequent Events” for further information regarding the Company’s failure to redeem $10 million of the Senior Convertible Notes Due 2022 and raise aggregate cash proceeds of $30 million on or by December 31, 2019 and a description of an amendment to certain other redemption provisions in the Senior Convertible Notes Due 2022.
The Senior Convertible Notes Due 2022 are convertible from time to time, at the election of the holders, into shares of common stock at an initial conversion price of $5.00 per share. The conversion price is subject to adjustment in the event of any stock split, reverse stock split, recapitalization, reorganization or similar transaction.
The Senior Convertible Notes Due 2022 contain customary terms and covenants, including (i) a restriction on the Company’s ability to incur additional indebtedness, (ii) covenants related to minimum revenue, minimum liquidity, financing activity and the conversion or exchange of existing indebtedness into equity, (iii) certain events of default, after which the holders may (A) require the Company to redeem all or any portion of their Senior Convertible Notes Due 2022 in cash at a price equal to 115% of the amount being redeemed and (B) convert all or any portion of their Senior Convertible Notes Due 2022 at a discount to the Installment conversion price and (iv) certain other events, after which the holders may convert all or any portion of their Senior Convertible Notes Due 2022 at a discount to the conversion price. See Note 15, “Subsequent Events” for further information regarding the amendment to certain conversion provisions in the Senior Convertible Notes Due 2022.
Notwithstanding the foregoing, the holders do not have the right to convert any portion of a New Note, and the Company does not have the option to pay any amount under the Senior Convertible Notes Due 2022 in shares of common stock, if (a) the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such conversion or payment, as applicable (the Ownership Limitation) or (b) the aggregate number of shares issued with respect to the Senior Convertible Notes Due 2022 (and any other transaction aggregated for such purpose) after giving effect to such conversion or payment, as applicable, would exceed the limitation imposed by Nasdaq Listing Standard Rule 5635(d) (the Exchange Cap), unless Stockholder Approval (as defined below) has been obtained. In the event that (i) the Company is prohibited from issuing any shares of common stock under the Senior Convertible Notes Due 2022 as a result of the Ownership Limitation (other than in connection with a conversion of Senior Convertible Notes Due 2022), the related principal amount of the Senior Convertible Notes Due 2022 shall be deferred to a future installment date as determined by the holder, and (ii) after January 31, 2020, the Company is prohibited from issuing
any shares of common stock under the Senior Convertible Notes Due 2022 as a result of the Exchange Cap, the Company will pay cash in lieu of any shares that would otherwise be deliverable in excess of the Exchange Cap.
Pursuant to the Senior Convertible Notes Due 2022, the Company agreed to use commercially reasonable efforts to obtain from the Company’s stockholders the approval contemplated by Nasdaq Listing Standard Rule 5635(d) with respect to the issuance of shares of common stock upon conversion of, or otherwise pursuant to, the Senior Convertible Notes Due 2022 in excess of the limitation imposed by such rule, including without limitation the issuance of shares of common stock upon conversion of, or otherwise pursuant to, the Senior Convertible Notes Due 2022 in excess of the Exchange Cap (the Stockholder Approval), at an annual or special meeting of stockholders to be held on or prior to January 31, 2020. Pursuant to the Senior Convertible Notes Due 2022, if the Company does not obtain the Stockholder Approval by January 31, 2020, the Company will use best efforts to obtain the Stockholder Approval thereafter. See Note 15, “Subsequent Events” for further information regarding the amendment, forbearance and waiver to certain provisions in the Senior Convertible Notes Due 2022, including the deadline for the Company to seek the Stockholder Approval.
The Company has elected to account for the Senior Convertible Notes Due 2022 at fair value, as of the issuance date. Management believes that the fair value option better reflects the underlying economics of the Senior Convertible Notes Due 2022, which contain multiple embedded derivatives. Under the fair value election, changes in fair value will be reported in the consolidated statements of operations as "Gain (loss) from change in fair value of debt" in each reporting period subsequent to the issuance of the Senior Convertible Notes Due 2022. For the year ended December 31, 2019, the Company recorded a gain of $3.8 million, which is shown as Fair Value Adjustment in the table at the beginning of this Note 4. See Note 3, "Fair Value Measurement" for information about the assumptions that the Company used to measure the fair value of the Senior Convertible Notes Due 2022.
Nikko Loan Agreements and Notes
The loans payable to Nikko Chemicals Co., Ltd. at December 31, 2019 are comprised of the following (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Date Issued
|
Original Loan Amount
|
Balance at December 31, 2019
|
Interest Rate per Annum
|
Maturity Date
|
Nikko $5.0M Note
|
July 29, 2019
|
$
|
5,000
|
|
$
|
5,000
|
|
5.00%
|
December 18, 2020
|
Nikko $4.5M Note
|
December 19, 2019
|
4,500
|
|
4,500
|
|
2.75%
|
January 31, 2020
|
Nikko $3.9M Note
|
December 19, 2016
|
3,900
|
|
2,862
|
|
5.00%
|
December 1, 2029
|
Nikko $1.5M Note B
|
August 3, 2017
|
1,500
|
|
900
|
|
2.75%
|
August 1, 2020
|
Nikko $450K Note
|
December 9, 2019
|
450
|
|
450
|
|
2.75%
|
March 31, 2020
|
Nikko $350K Note
|
November 20, 2019
|
350
|
|
350
|
|
2.75%
|
January 31, 2020
|
Nikko $200K Capex Loan
|
February 1, 2019
|
200
|
|
171
|
|
5.00%
|
January 1, 2026
|
Nikko $500K Note
|
October 31, 2019
|
500
|
|
84
|
|
2.75%
|
January 10, 2020
|
|
|
$
|
16,400
|
|
$
|
14,317
|
|
|
|
Nikko Loan Agreements
On July 29, 2019, the Company and Nikko entered into a loan agreement (the Nikko Loan Agreement) to make available to the Company secured loans in an aggregate principal amount of $5.0 million, to be issued in separate installments of $3.0 million and $2.0 million, respectively. On July 30, 2019, the Company borrowed the first installment of $3.0 million under the Nikko Loan Agreement and received net cash proceeds of $2.8 million, with the remaining $0.2 million being withheld by Nikko as prepayment of the interest payable on such loan through the maturity date. On August 8, 2019, the Company borrowed the remaining $2.0 million available under the Nikko Loan Agreement and received net cash proceeds of $1.9 million, with the remaining $0.1 million being withheld by Nikko as prepayment of the interest payable on such loan through the maturity date. The loans (i) mature on December 18, 2020, (ii) accrue interest at a rate of 5% per annum from and including the applicable loan date through the maturity date, which interest is required to be prepaid in full on the date of the applicable loan, and (iii) are secured by a first-priority lien on 12.8% of the Aprinnova JV interests owned by the Company.
On December 19, 2019, the Company borrowed $4.5 million from Nikko under a second secured loan agreement. The loan (i) matures on January 31, 2020, (ii) accrues interest at a rate of 2.75% per annum, and (iii) is secured by a first-priority lien on 27.2% of the Aprinnova JV interests owned by the Company. See Note 15, “Subsequent Events” for further information regarding the Company’s failure to pay the $4.5 million loan on January 31, 2020.
Nikko Notes
Facility Note: In December 2016, in connection with the Company's formation of its cosmetics joint venture (the Aprinnova JV) with Nikko Chemicals Co., Ltd. (Nikko), Nikko made a loan to the Company in the principal amount of $3.9 million and the Company issued a promissory note (the Nikko Note) to Nikko in an equal principal amount. The proceeds of the Nikko Note were used to satisfy the Company's remaining liabilities related to the Company's purchase of a manufacturing facility in Leland, North Carolina and related assets in December 2016, including liabilities under a promissory note in the principal amount of $3.5 million issued in connection therewith. The Nikko Note (i) accrues interest at 5% per year, (ii) has a term of 13 years, (iii) is payable in equal monthly installments of principal and interest beginning on January 1, 2017 and (iv) is secured by a first-priority lien on 10% of the Aprinnova JV interests owned by the Company. In addition, the Company is required to repay the Nikko Note with any profits distributed to the Company by the Aprinnova JV, beginning with the distributions for the fourth fiscal year of the Aprinnova JV, until the Nikko Note is fully repaid. The Nikko Note may be prepaid in full or in part at any time without penalty or premium. The Nikko Note contains customary terms and provisions, including certain events of default after which the Nikko Note may become due and payable immediately.
Aprinnova JV Working Capital Notes: In February 2017, in connection with the formation of the Aprinnova JV in December 2016, Nikko made a working capital loan to the Aprinnova JV in the principal amount of $1.5 million (the First Aprinnova Note). The First Aprinnova Note was fully repaid in January 2018. In August 2017, Nikko made a second working capital loan to the Aprinnova JV in the principal amount of $1.5 million (the Second Aprinnova Note). The Second Aprinnova Note was payable in full on August 1, 2019, with interest payable quarterly. Both notes accrue interest at 2.75% per annum. Effective July 31, 2019, the Company repaid $500,000 and agreed with Nikko to extend the term of the Second Aprinnova Note to August 1, 2020. Under the terms of the extension, the Company is required to make four quarterly principal payments of $100,000 each beginning November 1, 2019 through May 1, 2020 and a final payment of $700,000 at August 1, 2020 maturity.
Aprinnova JV Palladium Notes: In October, November and December 2019, Nikko advanced Aprinnova JV a total of $1.3 million under three separate promissory notes to purchase a palladium catalyst used in the manufacturing process at the Leland facility. These short-term notes accrue interest at 2.75% per annum and mature between January 10, 2020 and March 31, 2020. As of February 28, 2020, the total $1.3 million of note balances has been fully repaid in cash and are no longer outstanding.
Aprinnova JV CapEx Note: On February 1, 2019, the Aprinnova JV and Nikko agreed to fund Nikko’s $0.2 million share of the joint venture’s 2018 capital expenditures through an unsecured seven-year promissory note (the 2018 CapEx Note). The 2018 CapEx note (i) requires quarterly principal payments of $7,200 beginning April 1, 2019, (ii) accrues 5% simple interest per annum, and (iii) matures on January 1, 2026.
Letters of Credit
In June 2012, the Company entered into a letter of credit agreement for $1.0 million under which it provided a letter of credit to the landlord for its headquarters in Emeryville, California in order to cover the security deposit on the lease. This letter of credit is secured by a certificate of deposit. Accordingly, the Company has $1.0 million of restricted cash, noncurrent in connection with this arrangement as of December 31, 2019 and 2018.
5. Mezzanine Equity
Mezzanine equity at December 31, 2019 and 2018 is comprised of proceeds from common shares sold on May 10, 2016 to the Bill & Melinda Gates Foundation (the Gates Foundation). On April 8, 2016, the Company entered into a Securities Purchase Agreement with the Gates Foundation, pursuant to which the Company agreed to sell and issue 292,398 shares of its common stock to the Gates Foundation in a private placement at a purchase price per share of $17.10, the average of the daily closing price per share of the Company’s common stock on the Nasdaq Stock Market for the twenty consecutive trading days ending on April 7, 2016, for aggregate proceeds to the Company of approximately $5.0 million (the Gates Foundation Investment). The Securities Purchase Agreement includes customary representations, warranties and covenants of the parties.
In connection with the entry into the Securities Purchase Agreement, on April 8, 2016, the Company and the Gates Foundation entered into a Charitable Purposes Letter Agreement, pursuant to which the Company agreed to expend an aggregate amount not less than the amount of the Gates Foundation Investment 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 commencing in 2017. The Company is currently conducting the project. If the Company defaults in its obligation to use the proceeds from the Gates Foundation Investment as set forth above or defaults under certain other commitments in the Charitable Purposes Letter Agreement, the Gates Foundation will have the right to request that the Company redeem, or facilitate the purchase by a third party of, the Gates Foundation Investment shares then held by the Gates Foundation at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the trading day prior to the redemption or purchase, as applicable, or (ii) an amount equal to $17.10 plus a compounded annual return of 10%. As of December 31, 2019, the Company's remaining research and development obligation under this arrangement was $0.4 million.
6. Stockholders’ Deficit
Shares Issuable under Convertible Notes and Convertible Preferred Stock
In connection with various debt transactions (see Note 4, "Debt"), the Company issued certain convertible notes and preferred shares that are convertible into shares of common stock as follows as of December 31, 2019, at any time at the election of each debtholder:
|
|
|
|
|
|
|
Number of Shares Instrument Is Convertible into as of December 31, 2019
|
Senior convertible notes due 2022
|
13,200,000
|
|
2014 Rule 144A convertible notes
|
181,238
|
|
Series D preferred stock (8,280 shares outstanding at December 31, 2019)
|
1,943,661
|
|
|
15,324,899
|
|
2014 Rule 144A Convertible Notes Exchanges
On May 10, 2019, the Company exchanged $13.5 million aggregate principal amount of the 2014 Rule 144A Convertible Notes held by certain non-affiliated investors, including accrued and unpaid interest thereon, for an aggregate of 3.5 million shares of common stock and warrants to purchase an aggregate of 1.4 million shares of common stock at an exercise price of $5.02 per share, with an exercise term of two years from issuance, in a private exchange.
On May 14, 2019, the Company exchanged $5.0 million aggregate principal amount of the 2014 Rule 144A Convertible Notes held by Foris, including accrued and unpaid interest thereon, for 1.1 million shares of common stock and a warrant to purchase up to 0.4 million shares of common stock at an exercise price of $4.56 per share, with an exercise term of two years from issuance, in a private exchange. On August 28, 2019, the Company and Foris agreed to reduce the exercise price of such warrant from $4.56 per share to $3.90 per share. See “August 2019 Foris Warrant Issuance” below for additional information and Note 15, “Subsequent Events” for information regarding the amendment and exercise of the warrants on January 31, 2020.
On May 15, 2019, the Company exchanged $10.0 million aggregate principal amount of the 2014 Rule 144A Convertible Notes held by Maxwell (Mauritius) Pte Ltd for 2.5 million shares of common stock in a private exchange.
The Company issued 7.1 million shares of common stock with a fair value totaling $30.8 million based on the Company's closing stock price at the date of each exchange upon exchange of the 2014 Rule 144A Convertible Notes described above. The Company also issued warrants (collectively, the May 2019 6.50% Note Exchange warrant) to purchase a total of 1.7 million
shares of common stock with a fair value of $3.8 million. The Company concluded the warrants are freestanding instruments that are legally detachable and separately exercisable from the convertible notes and will be classified in equity as the warrants are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrants within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The warrants were measured using the Black-Scholes-Merton option pricing model with the following parameters: stock price $4.27 - $4.54, strike price $4.56 - $5.02, volatility 96%, risk-free interest rate 2.20% - 2.26%, and expected dividend yield 0%. The warrant had a fair value of $5.9 million that was recorded as a loss of debt extinguishment. See Note 4, "Debt" for information about the accounting treatment for this debt exchange and related fair value of the warrant.
The exercise price of the warrants issued in the foregoing exchanges is subject to standard adjustments but does not contain any anti-dilution protection, and the warrants only permit “cashless” or “net” exercise after the six-month anniversary of the exercisability of the applicable warrant, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the applicable warrant. In addition, (i) the exercisability of the warrant issued to Foris is subject to stockholder approval in accordance with Nasdaq rules and regulations, which the Company is seeking at its 2019 annual meeting of stockholders, and (ii) each other warrant provides that the Company may not affect any exercise of such warrant to the extent that, after giving effect to such exercise, the applicable holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding after giving effect to such exercise.
August 2013 Financing Convertible Note Conversion into Equity
On July 8, 2019, Wolverine exchanged $5.1 million principal and accrued and unpaid interest related to its August 2013 Financing Convertible Note for 1.8 million shares of common stock and a warrant (the July 2019 Wolverine Warrant) to purchase 1.1 million shares of common stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance. The common stock had a fair value of $5.9 million or $3.30 per share and the warrant had a fair value of $1.9 million. The Company concluded the warrant is a freestanding instrument that is legally detachable and separately exercisable from the convertible note and will be classified in equity, as the warrant is both indexed to the Company’s own stock and meets the equity classification criteria. As such, the Company will account for the fair value of the warrant within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrant to be reclassified to an asset or liability. The fair value of the warrant was measured using the Black-Scholes-Merton option pricing model, with the following parameters: stock price $3.33, strike price $2.87, volatility 94%, risk-free interest rate 1.88%, and expected dividend yield 0%. The resulting $1.9 million fair value was recorded as a loss of debt extinguishment. See Note 4, “Debt” for additional information regarding the loss on debt extinguishment.
Pre-Delivery Shares Issued with Senior Convertible Notes Due 2022
In connection with the issuance of the Senior Convertible Notes Due 2022 on November 15, 2019, the Company issued 7.5 million shares of common stock (the Pre-Delivery Shares) to the note holders which are freely tradeable, validly issued, fully paid, nonassessable and free from all preemptive or similar rights or liens, for the note holders to sell, trade or hold, subject to certain limitations, for as long as the Senior Convertible Notes Due 2022 are outstanding. The issuance of these shares resulted in no cash proceeds to the Company. However, the Company may elect or be required to apply some or all of the value of the pre-delivered shares to satisfy periodic principal and interest payments or other repayment events. If the Pre-Delivery Shares are used in satisfaction of a payment(s) due under the Senior Convertible Notes Due 2022, the Company must provide additional shares of common stock to the note holders in order to maintain a 7.5 million share balance on deposit with the holder. The Holder will not (A) loan any Pre-Delivery shares to any third party, (B) prior to February 1, 2020 sell or otherwise transfer or dispose of any Pre-Delivery Shares to any unaffiliated third party and (C) on or after February 1, 2020 sell or otherwise transfer or dispose of any Pre-Delivery Shares to any unaffiliated third party if the amount of such sales, transfers or dispositions on any day would exceed 10% of the composite trading volume (as reported on Bloomberg) of the Common Stock on such day. Within ten business days following redemption or repayment of in full the Senior Convertible Notes Due 2022 and the satisfaction or discharge by the Company of all outstanding Company obligations hereunder, the Holder shall deliver 7.5 million shares of the Company’s common stock to the Company.
The Company concluded the Pre-Delivery Shares provision is a freestanding instrument that is legally detachable and separately exercisable from the Senior Convertible Notes Due 2022 and will be classified in equity as the common shares issued is both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the Pre-Delivery Shares within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the shares to be reclassified to an asset or liability. The Company measured the issue date fair value of the Pre-Delivery Shares under an expected borrowing cost approach using a 9.75% annual
borrowing rate over an 18-month estimated repayment term for the Senior Convertible Notes Due 2022. The resulting $4.2 million fair value was recorded in equity as additional paid in capital with an offset to the fair value of the Senior Convertible Notes Due 2022. See Note 3, “Fair Value Measurements” for further information regarding the fair value measurement and accounting for this freestanding instrument.
Series B Preferred Stock Beneficial Ownership Limitation
On October 24, 2019, the Company filed a certificate of amendment (the Certificate of Amendment) to the Certificate of Designation (the Certificate of Designation) relating to the Company’s Series B 17.38% Convertible Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock), with the Secretary of State of Delaware. The Company had originally filed the Certificate of Designation on May 8, 2017, pursuant to which the conversion of the Series B Preferred Stock was subject to a beneficial ownership limitation of 4.99%, or such other percentage as determined by the holder, not to exceed 9.99% of the number of shares of the Company’s common stock outstanding after giving effect to such conversion (the Beneficial Ownership Limitation). In addition, pursuant to the Certificate of Designation, each share of Series B Preferred Stock automatically converted on October 9, 2017, subject to the Beneficial Ownership Limitation.
Pursuant to the Certificate of Amendment, the Beneficial Ownership Limitation was eliminated, permitting the conversion of any outstanding shares of Series B Preferred Stock, the conversion of which was previously prevented by the Beneficial Ownership Limitation. As such, on October 24, 2019, the remaining 6,376.28 shares of Series B Preferred Stock, which were all held by Foris, automatically converted into 1.0 million shares of the Company’s common stock.
April 2019 Private Placements
On April 16, 2019, the Company sold and issued to Foris 6.7 million shares of common stock at a price of $2.87 per share, for aggregate proceeds to the Company of $20.0 million (the Foris Investment), as well as a warrant (the April 2019 Foris Warrant) to purchase up to 5.4 million shares of common stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance, in a private placement, for aggregate cash proceeds to the Company of $20.0 million. The Company evaluated the warrants for derivative liability treatment and concluded that the instruments met the indexation criteria to be accounted for in equity.
On April 26, 2019, the Company sold and issued (i) 2.8 million shares of common stock at a price of $5.12 per share, as well as a warrant (the April 2019 PIPE Warrants) to purchase up to 4.0 million shares of common stock at an exercise price of $5.12 per share, with an exercise term of two years from issuance, to Foris and (ii) an aggregate of 2.0 million shares of common stock at a price of $4.02 per share, as well as warrants (the April 2019 PIPE Warrants) to purchase up to an aggregate of 1.6 million shares of common stock at an exercise price of $5.02 per share, with an exercise term of two years from issuance, to certain other non-affiliated investors, in each case in private, for aggregate cash proceeds to the Company of $15.0 million from Foris and $8.2 million from non-affiliated investors, for a total of $23.2 million. The Company evaluated the warrants for derivative liability treatment and concluded that the instruments met the indexation criteria to be accounted for in equity.
On April 29, 2019, the Company sold and issued (i) 0.9 million shares of common stock at a price of $4.76 per share, as well as warrants (the April 2019 PIPE Warrants) to purchase up to an aggregate of 1.2 million shares of common stock at an exercise price of $4.76 per share, with an exercise term of two years from issuance, to affiliates of Vivo Capital LLC (Vivo), an entity affiliated with director Frank Kung and which owns greater than five percent of our outstanding common stock and has the right to designate one member of the Company’s Board of Directors) and (ii) an aggregate of 0.3 million shares of common stock at a price of $4.02 per share, as well as warrants (the April 2019 PIPE Warrants) to purchase up to an aggregate of 0.3 million shares of common stock at an exercise price of $5.02 per share, with an exercise term of two years from issuance, to certain other non-affiliated investors, in each case in private placements, for aggregate cash proceeds to the Company of $4.5 million from Vivo and $1.3 million from non-affiliated investors, for a total of $5.8 million. The Company evaluated the warrants for derivative liability treatment and concluded that the instruments met the indexation criteria to be accounted for in equity.
On May 3, 2019, the Company sold and issued 1.2 million shares of common stock at a price of $4.02 per share, as well as a warrant (the April 2019 PIPE Warrants) to purchase up to 1.0 million shares of common stock at an exercise price of $5.02 per share, with an exercise term of two years from issuance, to a non-affiliated investor in a private placement, for aggregate cash proceeds to the Company of $5.0 million. The Company evaluated the warrants for derivative liability treatment and concluded that the instruments met the indexation criteria to be accounted for in equity.
The exercise price of the warrants issued in the foregoing private placements is subject to standard adjustments but does not contain any anti-dilution protection, and the warrants only permit “cashless” or “net” exercise after the six-month
anniversary of issuance of the applicable warrant, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the applicable warrant. In addition, in connection with the foregoing private placements, the Company agreed not to effect any exercise or conversion of any Company security, and the investors agreed not to exercise or convert any portion of any Company security, to the extent that after giving effect to such exercise or conversion, the applicable investor, together with its affiliates, would beneficially own in excess of 19.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise or conversion, and the warrant contained a similar limitation. The Company obtained stockholder approval for Foris to exceed such limitation in accordance with Nasdaq rules and regulations at its annual meeting of stockholders on November 19, 2019.
See Note 15, “Subsequent Events” for information regarding the amendment and exercise of certain April 2019 PIPE Warrants on January 31, 2020.
November 2018 DSM Securities Purchase Agreement – Related Party
On November 20, 2018, the Company issued 1,643,991 shares of common stock (the DSM Shares) at $3.68 per share to DSM in a private placement pursuant to a securities purchase agreement, dated November 19, 2018, between the Company and DSM (the DSM SPA), in consideration of certain agreements of DSM set forth in the Supply Agreement Amendment described in Note 9, "Revenue Recognition". The Company also agreed to pay DSM the difference between the DSM SPA purchase price of $4.41 and the closing share price of the Company's common stock on March 28, 2019, multiplied by 1,643,991 million. At inception, the Company recorded a $1.2 million derivative liability for the difference between $4.41 and the Company’s closing stock price on November 20, 2018. At December 31, 2018 fair value based on the Company’s closing stock price was $1.8 million, resulting in a $0.6 million loss from change in fair value of derivative instruments for the year ended December 31, 2018. At March 28, 2019, the Company's stock price was $2.10, and the Company owed DSM $3.8 million in connection with this agreement. Pursuant to the DSM SPA, the Company agreed to file a registration statement providing for the resale by DSM of the DSM Shares and to use commercially reasonable efforts to (i) cause such registration statement to become effective within 181 days following the date of the DSM SPA and (ii) keep such registration statement effective until DSM does not own any DSM Shares or the DSM Shares are eligible for resale under Rule 144 without regard to volume limitations. See Note 10, "Related Party Transactions" for additional information about the accounting for this transaction and other November 2018 transactions with DSM. In April 2019, in connection with the assignment by the Company of its rights under the Value Sharing Agreement (see Note 9, "Revenue Recognition"), the Company satisfied its obligation under the Supply Agreement Amendment relating to the difference between $4.41 and the price of the Company’s common stock on March 28, 2019.
Warrants
The Company issues warrants in certain debt and equity transactions in order to facilitate raising equity capital or reduce borrowing costs. In connection with various debt and equity transactions (see Note 4, "Debt" and below), the Company has issued warrants exercisable for shares of common stock. The following table summarizes warrant activity for the year ended December 31, 2019:
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction
|
Year Issued
|
Expiration Date
|
Number Outstanding as of December 31, 2018
|
Additional Warrants Issued
|
Exercises
|
Expiration
|
Exercise Price per Share of Warrants Exercised
|
|
|
Number Outstanding as of December 31, 2019
|
Exercise Price per Share as of December 31, 2019
|
Foris LSA warrants
|
2019
|
August 14, 2021
|
—
|
|
3,438,829
|
|
—
|
|
—
|
|
$
|
—
|
|
|
3,438,829
|
|
$2.87
|
November 2019 Foris warrant
|
2019
|
November 27, 2021
|
—
|
|
1,000,000
|
|
—
|
|
—
|
|
$
|
—
|
|
|
1,000,000
|
|
$3.87
|
August 2019 Foris warrant
|
2019
|
August 28, 2021
|
—
|
|
4,871,795
|
|
—
|
|
—
|
|
$
|
—
|
|
|
4,871,795
|
|
$3.90
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April 2019 PIPE warrants
|
2019
|
April 6, 2021, April 29, 2021 and May 3, 2021
|
—
|
|
8,084,770
|
|
—
|
|
—
|
|
$
|
—
|
|
|
8,084,770
|
|
$3.90/$4.76/$5.02
|
April 2019 Foris warrant
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2019
|
April 16, 2021
|
—
|
|
5,424,804
|
|
—
|
|
—
|
|
$
|
—
|
|
|
5,424,804
|
|
$2.87
|
September and November 2019 Investor Credit Agreement warrants
|
2019
|
September 10, 2021 and November 14, 2021
|
—
|
|
5,233,551
|
|
—
|
|
—
|
|
$
|
—
|
|
|
5,233,551
|
|
$3.87/$3.90
|
Naxyris LSA warrants
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2019
|
October 28, 2021
|
—
|
|
2,000,000
|
|
—
|
|
—
|
|
$
|
—
|
|
|
2,000,000
|
|
$2.87
|
October 2019 Naxyris warrant
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2019
|
October 28, 2021
|
—
|
|
2,000,000
|
|
—
|
|
—
|
|
$
|
—
|
|
|
2,000,000
|
|
$3.87
|
May-June 2019 6% Note Exchange warrants
|
2019
|
May 15, 2021 and June 24, 2021
|
—
|
|
2,181,818
|
|
—
|
|
—
|
|
$
|
—
|
|
|
2,181,818
|
|
$2.87/$5.12
|
May 2019 6.50% Note Exchange warrants
|
2019
|
May 10, 2021 and May 14, 2021
|
—
|
|
1,744,241
|
|
—
|
|
—
|
|
$
|
—
|
|
|
1,744,241
|
|
$3.90/$5.02
|
July 2019 Wolverine warrant
|
2019
|
July 8, 2021
|
—
|
|
1,080,000
|
|
—
|
|
—
|
|
$
|
—
|
|
|
1,080,000
|
|
$2.87
|
August 2018 warrant exercise agreements
|
2018
|
May 17, 2020 and May 20, 2020
|
12,097,164
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
12,097,164
|
|
$2.87/$7.52
|
April 2018 warrant exercise agreements
|
2018
|
July 12, 2019
|
3,616,174
|
|
—
|
|
—
|
|
(3,616,174)
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
May 2017 cash warrants
|
2017
|
July 10, 2022
|
6,244,820
|
|
—
|
|
(166,664)
|
|
—
|
|
$
|
2.87000
|
|
|
6,078,156
|
|
$2.87
|
August 2017 cash warrants
|
2017
|
August 7, 2022
|
3,968,116
|
|
—
|
|
—
|
|
—
|
|
$
|
0.00015
|
|
|
3,968,116
|
|
$2.87
|
May 2017 dilution warrants
|
2017
|
July 10, 2022
|
47,978
|
|
4,795,924
|
|
(1,758,009)
|
|
—
|
|
$
|
0.00015
|
|
|
3,085,893
|
|
$0.0015
|
August 2017 dilution warrants
|
2017
|
May 23, 2023
|
—
|
|
3,028,983
|
|
—
|
|
—
|
|
$
|
—
|
|
|
3,028,983
|
|
$0.0001
|
February 2016 related party private placement
|
2016
|
February 12, 2021
|
171,429
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
171,429
|
|
$0.15
|
July 2015 related party debt exchange
|
2015
|
July 29, 2020 and July 29, 2025
|
133,334
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
133,334
|
|
$0.15
|
July 2015 private placement
|
2015
|
July 29, 2020
|
81,197
|
|
—
|
|
(8,547)
|
|
—
|
|
$
|
0.15000
|
|
|
72,650
|
|
$0.15
|
July 2015 related party debt exchange
|
2015
|
July 29, 2020
|
58,690
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
58,690
|
|
$0.15
|
July 2015 related party debt exchange
|
2015
|
July 29, 2020
|
471,204
|
|
245,558
|
|
(716,762)
|
|
—
|
|
$
|
0.15000
|
|
|
—
|
|
$
|
—
|
|
Other
|
2011
|
December 23, 2021
|
1,406
|
|
—
|
|
—
|
|
—
|
|
$
|
—
|
|
|
1,406
|
|
$160.05
|
|
|
|
26,891,512
|
|
45,130,273
|
|
(2,649,982)
|
|
(3,616,174)
|
|
$
|
0.22166
|
|
|
65,755,629
|
|
|
|
For information regarding warrants issued or exercised subsequent to December 31, 2019, see Note 15, “Subsequent Events”.
Due to certain down-round adjustments to other equity-related instruments during the year ended December 31, 2019, approximately 8.1 million shares became available under the May 2017 and August 2017 dilution warrants and the Temasek Funding Warrant (July 2015 related party debt exchange warrant in the table above). Approximately 2.6 million shares were exercised under the May 2017 cash and dilution warrants and the Temasek Funding Warrant during the year ended December 31, 2019 and resulted in zero proceeds to the Company. Also, a portion of the warrant exercises occurring during 2019 was net share settled, and as a result only 2.5 million shares were legally issued upon exercise of warrants during the year ended December 31, 2019.
Warrant Issuances, Exercises and Modifications in the Year Ended December 31, 2019
July 2019 Foris Credit Agreement Warrant Modification
In connection with the entry into the July Foris Credit Agreement on July 10, 2019 (see Note 4, “Debt”), the Company and Foris amended a warrant to purchase up to 4.9 million shares of common stock issued to Foris on August 17, 2018 to reduce the exercise price of such warrant from $7.52 per share to $2.87 per share. The warrant modification was measured on a before and after modification basis using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.21, strike price $2.87, volatility 124%, risk-free interest rate 1.82%, term 0.9 years, and expected dividend yield 0%. The warrant had an incremental fair value of $4.0 million, which was accounted for as an increase to additional paid in capital and a debt discount to the $16 million July Foris Notes. See Note 4, “Debt” for additional information regarding the debt discount recorded in connection with the modification of the warrant.
6% Convertible Note Exchange Warrants and Modification
In connection with the May 15, 2019 and June 24, 2019 6% Convertible Note Exchanges (see Note 4, “Debt”), the Company issued warrants (the May-June 2019 6% Note Exchange Warrants) to purchase up to 2.0 million and 0.2 million shares of common stock, respectively, at an exercise price of $5.12 per share, with an exercise term of two years from issuance.
The exercise price of the warrant is subject to standard adjustments but does not contain any anti-dilution protection, and the warrant only permit “cashless” or “net” exercise after the six-month anniversary of issuance, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the warrant. The holders may not exercise the warrants, and the Company may not affect any exercise of the warrants, to the extent that, after giving effect to such exercise, the applicable holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of common stock outstanding after giving effect to such exercise.
The Company concluded the warrants are freestanding instruments that are legally detachable and separately exercisable from the convertible notes and should be classified in equity as the warrants are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrants within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The fair value of the warrants totaled $4.4 million and were measured using the Black-Scholes-Merton option pricing model with the following parameters: 94% - 96% volatility, 1.72% - 2.16% risk-free interest rate, $3.55 - $4.39 issuance-date stock price, term 2.0 years, and 0% expected dividend yield. The Company concluded that the $4.4 million fair value of the equity-classified May 15, 2019 and June 24, 2019 warrants should be recorded as an increase to additional paid in capital and a charge to interest expense in the statement of operations at the date of issuance. See Note 4, “Debt” for additional information regarding the accounting for the fair value of these warrants.
Further, on July 24, 2019, Company exchanged the May 15, 2019 warrant to purchase up to 2.0 million shares of common stock, for a new warrant to purchase up to 2.0 million shares of common stock at an exercise price of $2.87 per share, with an exercise term of two years from May 15, 2019. The exchange warrant has substantially identical terms as the original warrant issued on May 15, 2019, except that the exercise price was reduced from $5.12 to $2.87 per share. The warrant modification was measured on a before and after modification basis using the Black-Scholes-Merton option pricing model with the following parameters: strike price $2.87, volatility 93%, risk-free interest rate 1.86%, term 1.8 years, and expected dividend yield 0%; and resulted in $0.9 million of incremental fair value. The Company concluded that the increase in the fair value of the exchange warrant should be recorded as an increase to additional paid in capital and a charge to interest expense in the statement of operations at the date of modification. See Note 4, “Debt” for additional information regarding the charge to interest expense in connection with the fair value of this warrant.
Foris LSA Warrant Issuances
In connection with the entry into the LSA Amendment and Waiver (see Note 4, “Debt”), on August 14, 2019 the Company issued to Foris a warrant (the Foris LSA Warrant) to purchase up to 1.4 million shares of Common Stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance. The exercise price of the warrant is subject to standard adjustments but does not contain any anti-dilution protection, and the warrant only permit “cashless” or “net” exercise after the six-month anniversary of issuance, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the warrant. Pursuant to the terms of the warrant, Foris may not exercise the LSA Warrant to the extent that, after giving effect to such exercise, Foris, together with its affiliates, would beneficially own in excess of 19.99% of the number of shares of common stock outstanding after giving effect to such exercise, unless the Company has obtained stockholder approval to exceed such limit in accordance with Nasdaq rules and regulations, which the Company obtained at its 2019 annual meeting of stockholders on November 19, 2019.
The Company concluded the warrant is a freestanding instrument that is legally detachable and separately exercisable from the LSA Amendment and Waiver and will be classified in equity as the warrant is both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrant within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The warrant was measured using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.59, strike price $2.87, volatility 94%, risk-free interest rate 1.58%, term 2.0 years, and expected dividend yield 0%. The warrant had a fair value of $2.9 million which was recorded as an increase to additional paid in capital and as a debt discount to be amortized to interest expense under the effective interest method over the remaining term of the LSA. See Note 4, “Debt” for further information regarding the accounting treatment for the fair value of this warrant.
In connection with October 2019 LSA Amendment (see Note 4, “Debt”), on October 10, 2019, the Company issued a warrant (the October 2019 Foris LSA Warrant) to purchase 2.0 million shares of common stock, at an exercise price of $2.87 per share, with an exercise term of two years from issuance. Also, in connection with additional borrowings under the October 28, 2019 A&R LSA, on November 27, 2019, the Company issued a warrant (the November 2019 Foris Warrant) to purchase 1.0 million shares of common stock, at an exercise price of $3.87 per share, with an exercise term of two years from issuance. The exercise price of the warrants are subject to standard adjustments but do not contain any anti-dilution protection, and the
warrants only permit “cashless” or “net” exercise after the six-month anniversary of issuance, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the warrants. In addition, Foris may not exercise the warrants to the extent that, after giving effect to such exercise, Foris, together with its affiliates, would beneficially own in excess of 19.99% of the number of shares of common stock outstanding after giving effect to such exercise, unless the Company has obtained stockholder approval to exceed such limit in accordance with Nasdaq rules and regulations, which the Company obtained at its 2019 annual meeting of stockholders on November 19, 2019.
The Company concluded the warrants are freestanding instruments that are legally detachable and separately exercisable from the October 2019 LSA Amendment and A&R LSA and will be classified in equity as the warrants are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrants within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The warrants were measured using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.65 and $4.00, strike price $2.87 and $3.87, volatility 94%, risk-free interest rate 1.63% and expected dividend yield 0%. The October 2019 Foris LSA Warrant had a fair value of $4.1 million and was recorded as an increase to additional paid in capital and as a loss on debt extinguishment as a non-cash fee paid to the lender. The November 2019 Foris Warrant had a fair value of $2.1 million and was recorded as an increase to additional paid in capital and additional debt discount to be amortized over the remaining term of the A&R LSA. See Note 4, “Debt” for further information regarding the accounting treatment for the fair value of each warrant. See Note 15, “Subsequent Events” for information regarding the amendment and exercise of the October 2019 Foris LSA Warrant on January 31, 2020.
Naxyris LSA Warrant Issuances
In connection with the entry into the Naxyris Loan Agreement (see Note 4, “Debt”), on August 14, 2019 the Company issued to Naxyris a warrant (the Naxyris LSA Warrant) to purchase up to 2.0 million shares of the Company’s common stock at an exercise price of $2.87 per share, with an exercise term of two years from issuance. The exercise price of the warrant is subject to standard adjustments and permits “cashless” or “net” exercise any time after issuance.
The Company concluded the warrant is a freestanding instrument that is legally detachable and separately exercisable from the Naxyris Loan Facility and will be classified in equity as the warrant is both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrant within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The warrant was measured using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.59, strike price $2.87, volatility 94%, risk-free interest rate 1.58%, term 2.0 years, and expected dividend yield 0%. The warrant had a $4.0 million fair value and a $3.0 million relative fair value after allocating the Naxyris Loan Facility proceeds to the fair value of an embedded mandatory redemption feature contained in the Naxyris Loan Facility. The $3.0 million relative fair value of the Naxyris LSA Warrant was recorded as an increase to additional paid in capital and a debt discount to be amortized to interest expense under the effective interest method over the remaining term of the LSA. See Note 4, “Debt” for further information regarding the accounting treatment for the relative fair value of this warrant.
Also, in connection with the entry into the A&R Naxyris LSA, on October 28, 2019 the Company issued to Naxyris a warrant (the October 2019 Naxyris Warrant) to purchase up to 2.0 million shares of common stock, at an exercise price of $3.87 per share, with an exercise term of two years from issuance. The exercise price of the warrant is subject to standard adjustments and permits “cashless” or “net” exercise any time after issuance.
The Company concluded the warrant is a freestanding instrument that is legally detachable and separately exercisable from the Naxyris Loan Facility and will be classified in equity as the warrant is both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrant within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The warrant was measured using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.69, strike price $3.87, volatility 94%, risk-free interest rate 1.64%, term 2.0 years, and expected dividend yield 0%. The warrant had a $3.6 million fair value and a $2.8 million relative fair value after allocating the October 2019 Naxyris Loan proceeds to the fair value of the embedded mandatory redemption feature contained in the October 2019 Naxyris Loan. The $2.8 million relative fair value of the October 2019 Naxyris Warrant was recorded as an increase to additional paid in capital and as a loss on debt extinguishment as a non-cash fee paid to the lender. See Note 4, “Debt” for further information regarding the accounting treatment for the relative fair value of this warrant.
August 2019 Foris Warrant Issuance
In connection with the entry into the August 2019 Foris Credit Agreement (see Note 4, “Debt”), on August 28, 2019 the Company issued to Foris a warrant (the August 2019 Foris Warrant) to purchase up to 4.9 million shares of Common Stock at an exercise price of $3.90 per share, with an exercise term of two years from issuance. The exercise price of the warrant is subject to standard adjustments but does not contain any anti-dilution protection, and the warrant only permits “cashless” or “net” exercise after the six-month anniversary of issuance, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the warrant. In addition, Foris may not exercise the warrant to the extent that, after giving effect to such exercise, Foris, together with its affiliates, would beneficially own in excess of 19.99% of the number of shares of common stock outstanding after giving effect to such exercise, unless the Company has obtained stockholder approval to exceed such limit in accordance with Nasdaq rules and regulations, which the Company obtained at its 2019 annual meeting of stockholders on November 19, 2019.
The Company concluded the warrant is a freestanding instrument that is legally detachable and separately exercisable from the Foris $19 Million Note and will be classified in equity as the warrant is both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company will account for the fair value of the warrant within equity and will not subsequently remeasure to fair value at each reporting period, unless new events trigger a requirement for the warrants to be reclassified to an asset or liability. The warrant was measured using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.67, strike price $3.90, volatility 94%, risk-free interest rate 1.50%, term 2.0 years, and expected dividend yield 0%. The warrant had a $8.7 million fair value and a $5.2 million relative fair value after allocating the Foris $19 Million Note proceeds to the fair value of an embedded mandatory redemption feature contained in the Foris $19 Million Note. See Note 4, “Debt” for further information regarding the accounting treatment for the relative fair value of this warrant.
Also, on August 28, 2019 in connection with the entry into the August 2019 Foris Credit Agreement, the Company and Foris amended the warrant to purchase up to 3.9 million shares of common stock issued to Foris on April 26, 2019 to reduce the exercise price of such warrant from $5.12 per share to $3.90 per share, and amended the warrant to purchase up to 0.4 million shares of common stock issued to Foris on May 14, 2019 to reduce the exercise price of such warrant from $4.56 per share to $3.90 per share (see above under “Private Placements” for more information regarding these warrants). The warrant modifications were measured on a before and after modification basis using the Black-Scholes-Merton option pricing model with the following parameters: stock price $3.67, strike price $3.90, volatility 98% - 100%, risk-free interest rate 1.50%, term 1.7 years, and expected dividend yield 0%, resulting in $1.1 million of incremental fair value, which was accounted for as an increase to additional paid in capital and a debt discount to the Foris $19 Million Note. See Note 4, “Debt” for additional information regarding the debt discount recorded in connection with the modification of these warrants. See Note 15, “Subsequent Events” for information regarding the amendment and exercise of the August 2019 Foris Warrant on January 31, 2020.
September and November 2019 Investor Credit Agreements Warrants Issuances
In connection with the entry into the Investor Credit Agreements (see Note 4, “Debt”), on September 10, 2019, the Company issued to the Investors warrants (the Investor Warrants) to purchase up to an aggregate of 3.2 million shares of common stock at an exercise price of $3.90 per share, with an exercise term of two years from issuance. The exercise price of the warrants is subject to standard adjustments but does not contain any anti-dilution protection, and the warrants only permit “cashless” or “net” exercise after the six-month anniversary of issuance of the applicable warrant, and only to the extent that there is not an effective registration statement covering the resale of the shares of common stock underlying the applicable warrant. In addition, no Investor may exercise its warrant to the extent that, after giving effect to such exercise, such Investor, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of common stock outstanding after giving effect to such exercise. In addition, the Company agreed to file a registration statement providing for the resale by the Investors of the shares of common stock underlying the warrants with the SEC within 60 days following the date of the issuance of the warrants and to use commercially reasonable efforts to (i) cause such registration statement to become effective within 120 days following the date of the issuance of the warrants and (ii) keep such registration statement effective until the Investors no longer beneficially own any such shares of common stock or such shares of common stock are eligible for resale under Rule 144 under the Securities Act without regard to volume limitations. If the Company fails to file the registration statement by the filing deadline or the registration statement is not declared effective by the effectiveness deadline, or the Company fails to maintain the effectiveness of the registration statement as required by the warrants, then the exercise price of the warrants will be reduced by 10%, and by an additional 5% if such failure continues for longer than 90 days, subject to an exercise price floor of $3.31 per share, provided that upon the cure by the Company of such failure, the exercise price of the warrants will revert to $3.90 per share.
In connection with the November 2019 Schottenfeld CSA, on November 14, 2019, the Company warrants (the November 2019 Schottenfeld CSA Warrants) to purchase an aggregate of 2.0 million shares of common stock at an exercise price of $3.87 per share, with an exercise term of 2 years from issuance. In connection with the warrant issuance, the Company will be
required to pay the November 2019 Schottenfeld CSA Warrants holders and the Investor Warrants holders a fee if the Company issues equity securities in connection with the $50 million or greater financing provision that have an issue, conversion or exercise price of less than $3.90 or $3.87 per share, respectively. In such case, the fee will be the difference between the exercise price of such warrants (i.e., $3.90 or $3.87) and the issue, conversion or exercise price of the equity securities issued in the $50 million or greater financing, times the total number of warrants issued to such investors in November 2019 and September 2019. See Note 15, “Subsequent Events” for information regarding the amendment of the Investor Warrants and the November 2019 Schottenfeld CSA Warrants on February 28, 2020.
The Company concluded the Investor Warrants and the November 2019 Schottenfeld CSA Warrants are freestanding instruments that are legally detachable and separately exercisable from the underlying debt host instruments and should be classified and accounted for as a liability as the warrants contain certain price and share count adjustment protection, and other modification protection provisions that cause the warrants to fail the fixed-for-fixed criterion, and thus, are not considered indexed to the Company’s stock. Accordingly, the Company has accounted for the Investor Warrants and November 2019 Schottenfeld CSA Warrants as a liability and will subsequently remeasure to fair value at each reporting period with changes in fair value recorded in the statement of operations. The warrants were measured using the Black-Scholes-Merton option pricing model with the following parameters as of the September 10, 2019 and November 14, 2019 issuance dates: stock price $4.56 and $3.89, strike price $3.90 and $3.87, volatility 94% and 95%, risk-free interest rate 1.67% and 1.58%, term 2 years, and expected dividend yield 0%. The warrants had an initial fair value of $7.9 million and $4.0 million, respectively and were recorded as derivative liabilities with an offset to either debt discount or loss on debt extinguishment (as a non-cash fee paid to the lender). See Note 3, “Fair Value Measurements” for information regarding the subsequent fair value measurement for this liability classified warrant and see Note 4, “Debt” for further information regarding the initial accounting treatment of the offsetting debt discount or loss on debt extinguishment.
Standstill Agreement
In connection with the September 10, 2019 entry into the Investor Credit Agreements discussed in Note 4, “Debt” and the issuance of the Investor Warrants discussed in the "September and November 2019 Investor Credit Agreements Warrants Issuances " section above, the Company and the Investors entered into a Standstill Agreement (the Investor Standstill Agreement), pursuant to which the Investors agreed that, until the earliest to occur of (i) the Investors no longer beneficially owning any shares underlying the warrants, (ii) the Company entering into a definitive agreement involving the direct or indirect acquisition of all or a majority of the Company’s equity securities or all or substantially all of the Company’s assets or (iii) a person or group, with the prior approval of the Company’s Board of Directors (the Board), commencing a tender offer for all or a majority of the Company's equity securities, neither the Investors nor any of their respective affiliates (together, the Investor Group) will (without the prior written consent of the Board), among other things, (a) acquire any loans, debt securities, equity securities, or assets of the Company or any of its subsidiaries, or rights or options with respect thereto, except that the Investor Group shall be permitted to (y) purchase the shares underlying the warrants pursuant to the exercise of the warrants and (z) acquire beneficial ownership of up to 6.99% of the Company's common stock, or (b) make any proposal, public announcement, solicitation or offer with respect to, or otherwise solicit, seek or offer to effect, or instigate, encourage, or assist any third party with respect to: (1) any business combination, merger, tender offer, exchange offer, or similar transaction involving the Company or any of its subsidiaries; (2) any restructuring, recapitalization, liquidation, or similar transaction involving the Company or any of its subsidiaries; (3) any acquisition of any of the Company’s loans, debt securities, equity securities or assets, or rights or options with respect thereto; or (4) any proposal to seek representation on the Board or otherwise seek to control or influence the management, Board, or policies of the Company, in each case subject to certain exceptions.
May 2017 Warrants
In May 2017, the Company issued 14,768,380 shares of common stock in the aggregate to certain investors (collectively, the May 2017 Cash Warrants). The exercise price of the May 2017 Cash Warrants is subject to standard adjustments as well as full-ratchet anti-dilution protection for any issuance by the Company of equity or equity-linked securities during the three-year period following the issuance of such warrants at a per share price less than the then-current exercise price of the May 2017 Cash Warrants, subject to certain exceptions. As of December 31, 2019, the exercise prices of the May 2017 Cash Warrants were $2.87 per share, and 6,078,156 of May 2017 Cash Warrants were unexercised.
In addition to the May 2017 Cash Warrants, the Company issued to each investor a warrant, with an exercise price of $0.0015 per share (collectively, the May 2017 Dilution Warrants), to purchase a number of shares of common stock sufficient to provide the investor with full-ratchet anti-dilution protection for any issuance by the Company of equity or equity-linked securities during the May 2017 Dilution Period at a per share price less than $2.87. As of December 31, 2019, the May 2017 Dilution Warrants were exercisable for an aggregate of 3,085,893 shares.
The May 2017 Warrants each have a term of five years from the date such warrants initially became exercisable on July 10, 2017. The May 2017 Cash Warrants are freestanding financial instruments and upon adoption of ASU 2017-11 on January 1, 2019 are no longer accounted for as derivative liabilities, but are classified in equity as the warrants are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company reclassified the derivative balance at December 31, 2018 to equity at the January 1, 2019 adoption date.
August 2017 DSM Offering – Related Party
On August 7, 2017, the Company issued and sold the following securities to DSM in a private placement (August 2017 DSM Offering):
•25,000 shares of Series B Preferred Stock (August 2017 DSM Series B Preferred Stock) at a price of $1,000 per share;
•a warrant to purchase 3,968,116 shares of common stock at an initial exercise price of $6.30 per share expiring in five years (August 2017 DSM Cash Warrant); and
•the August 2017 DSM Dilution Warrant (as described below).
Net proceeds to the Company were $25.9 million after payment of offering expenses and the allocation of total fair value received to the elements in the arrangement.
The exercise price of the August 2017 DSM Cash Warrant is subject to standard adjustments as well as full-ratchet anti-dilution protection for any issuance by the Company of equity or equity-linked securities during the three-year period following August 7, 2017 (DSM Dilution Period) at a per share price less than the then-current exercise price of the August 2017 DSM Cash Warrant, subject to certain exceptions. As of December 31, 2019, the exercise price of the August 2017 DSM Cash Warrant was $2.87 per share, and 3,968,116 of May 2017 Cash Warrants were unexercised. The August 2017 DSM Dilution Warrants are freestanding financial instruments and upon adoption of ASU 2017-11 on January 1, 2019 are no longer accounted for as derivative liabilities, but are classified in equity as the warrants are both indexed to the Company’s own stock and meet the equity classification criteria. As such, the Company reclassified the derivative balance at December 31, 2018 to equity at the January 1, 2019 adoption date.
The August 2017 DSM Dilution Warrant allows DSM to purchase a number of shares of common stock sufficient to provide DSM with full-ratchet anti-dilution protection for any issuance by the Company of equity or equity-linked securities during the DSM Dilution Period at a per share price less than $2.87. The August 2017 DSM Dilution Warrant expires five years from the date it is initially exercisable.
In connection with the August 2017 DSM Offering, the Company and DSM also entered into an amendment to the stockholder agreement dated May 11, 2017 (DSM Stockholder Agreement) between the Company and DSM (Amended and Restated DSM Stockholder Agreement). Under the DSM Stockholder Agreement, DSM was granted the right to designate one director selected by DSM, subject to certain restrictions and a minimum beneficial ownership level of 4.5%, to the Board. Furthermore, DSM has the right to purchase additional shares of capital stock of the Company in connection with a sale of equity or equity-linked securities by the Company in a capital raising transaction for cash, subject to certain exceptions, to maintain its proportionate ownership percentage in the Company. Pursuant to the DSM Stockholder Agreement, DSM agreed not to sell or transfer any of the Series B Preferred Stock or warrants purchased by DSM, or any shares of common stock issuable upon conversion or exercise thereof, other than to its affiliates, without the consent of the Company through May 2018 and to any competitor of the Company thereafter. DSM also agreed that, subject to certain exceptions, until three months after there is no DSM director on the Board, DSM will not, without the prior consent of the Board, acquire common stock or rights to acquire common stock that would result in DSM beneficially owning more than 33% of the Company’s outstanding voting securities at the time of acquisition. The Amended and Restated DSM Stockholder Agreement provides that (i) DSM has the right to designate a second director to the Board, subject to certain restrictions and a minimum beneficial ownership level of 10%, and (ii) the shares of common stock issuable upon conversion or exercise of the securities purchased by DSM in the August 2017 DSM Offering are (a) entitled to the registration rights provided for in the DSM Stockholder Agreement and (b) subject to the transfer restrictions set forth in the DSM Stockholder Agreement.
August 2017 Vivo Offering – Related Party
On August 3, 2017, the Company issued and sold 12,958 shares of Series D Preferred Stock at a price of $1,000 per share along with other securities to Vivo in a private placement (August 2017 Vivo Offering), resulting in net proceeds to the Company of $24.8 million after payment of offering expenses. In the third quarter of 2018 Vivo converted 4,678 shares of August 2017 Offerings Series D Preferred Stock and the Company recognized a $6.8 million deemed dividend for the
unamortized discounts created from the allocation of proceeds, as a reduction to Additional Paid in Capital and increasing net loss attributable to Amyris, Inc. common stockholders. At December 31, 2019 and 2018, 8,280 shares of Series D Preferred Stock were outstanding. The conversion of the Series D Preferred Stock is subject to a beneficial ownership limitation of 9.99% (August 2017 Vivo Offering Beneficial Ownership Limitation), which limitation may be waived by the holders on 61 days’ prior notice.
Each share of Series D Preferred Stock has a stated value of $1,000 and, subject to the August 2017 Vivo Offering Beneficial Ownership Limitation, is convertible at any time, at the option of the holders, into common stock at a conversion price of $4.26 per share. The Series D Conversion Rate is subject to adjustment in the event of any dividends or distributions of the common stock, or any stock split, reverse stock split, recapitalization, reorganization or similar transaction.
Prior to declaring any dividend or other distribution of its assets to holders of common stock, the Company shall first declare a dividend per share on the Series D Preferred Stock equal to $0.0001 per share. In addition, the Series D Preferred Stock will be entitled to participate with the common stock on an as-converted basis with respect to any dividends or other distributions to holders of common stock. There were no dividends declared as of December 31, 2019 or 2018.
Unless and until converted into common stock in accordance with its terms, the Series D Preferred Stock has no voting rights, other than as required by law or with respect to matters specifically affecting the Series D Preferred Stock. The Series D Preferred Stock is classified as permanent equity, as the Company controls all actions or events required to settle the optional conversion feature in shares.
In the event of a Fundamental Transaction, the holders of the Series D Preferred Stock will have the right to receive the consideration receivable as a result of such Fundamental Transaction by a holder of the number of shares of common stock for which the Series D Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to whether such Series D Preferred Stock is convertible at such time), which amount shall be paid pari passu with all holders of common stock. A Fundamental Transaction is defined in the Certificate of Designation of Preferences, Rights and Limitations relating to the Series D Preferred Stock as any of the following: (i) merger with or consolidation into another legal entity; (ii) sale, lease, license, assignment, transfer or other disposition of all or substantially all of the Company’s assets in one or a series of related transactions; (iii) purchase offer, tender offer or exchange offer of the Company’s common stock pursuant to which holders of the Company’s common stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding common stock; (iv) reclassification, reorganization or recapitalization of the Company’s stock; or (v) stock or share purchase agreement that results in another party acquiring more than 50% of the Company’s outstanding shares of common stock.
Upon any liquidation, dissolution or winding-up of the Company, the holders of the Series D Preferred Stock shall be entitled to receive out of the assets of the Company the same amount that a holder of common stock would receive if the Series D Preferred Stock were fully converted to common stock immediately prior to such liquidation, dissolution or winding-up (without regard to whether such Series D Preferred Stock is convertible at such time), which amount shall be paid pari passu with all holders of common stock.
In connection with the August 2017 Vivo Offering, the Company and Vivo also entered into a Stockholder Agreement (Vivo Stockholder Agreement) setting forth certain rights and obligations of Vivo and the Company. Pursuant to the Vivo Stockholder Agreement, Vivo will have the right, subject to certain restrictions and a minimum beneficial ownership level of 4.5%, to (i) designate one director selected by Vivo to the Board and (ii) appoint a representative to attend all Board meetings in a nonvoting observer capacity and to receive copies of all materials provided to directors, subject to certain exceptions. Furthermore, Vivo will have the right to purchase additional shares of capital stock of the Company in connection with a sale of equity or equity-linked securities by the Company in a capital raising transaction for cash, subject to certain exceptions, to maintain its proportionate ownership percentage in the Company. Vivo agreed not to sell or transfer any of the shares of common stock, Series D Preferred Stock or warrants purchased by Vivo in the August 2017 Vivo Offering, or any shares of common stock issuable upon conversion or exercise thereof, other than to its affiliates, without the consent of the Company through August 2018 and to any competitor of the Company thereafter. Vivo also agreed that, subject to certain exceptions, until the later of (i) three years from the closing of the August 2017 Vivo Offering and (ii) three months after there is no Vivo director on the Board, Vivo will not, without the prior consent of the Board, acquire common stock or rights to acquire common stock that would result in Vivo beneficially owning more than 33% of the Company’s outstanding voting securities at the time of acquisition. Under the Vivo Stockholder Agreement, the Company agreed to use its commercially reasonable efforts to register, via one or more registration statements filed with the SEC under the Securities Act, the shares of common stock purchased in the August 2017 Vivo Offering as well as the shares of common stock issuable upon conversion or exercise of the Series D Preferred Stock and warrants purchased by Vivo in the August 2017 Vivo Offering.
For information regarding issuances of equity securities subsequent to December 31, 2019, see Note 15, “Subsequent Events”.
Right of First Investment to Certain Investors
In connection with investments in the Company has granted certain investors, including Vivo and DSM, a right of first investment if the Company proposes to sell securities in certain financing transactions. With these rights, such investors may subscribe for a portion of any such new financing and require the Company to comply with certain notice periods, which could discourage other investors from participating in, or cause delays in its ability to close, such a financing.
7. Net Loss per Share Attributable to Common Stockholders
The Company computes net loss per share in accordance with ASC 260, “Earnings per Share.” Basic net loss per share of common stock is computed by dividing the Company’s net loss attributable to Amyris, Inc. common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock units, convertible preferred stock, convertible promissory notes and common stock warrants, using the treasury stock method or the as converted method, as applicable. For the year ended December 31, 2018, basic net loss per share was the same as diluted net loss per share because the inclusion of all potentially dilutive securities outstanding was anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss were the same for those years.
The Company follows the two-class method when computing net loss per common share when shares are issued that meet the definition of participating securities. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The two-class method also requires losses for the period to be allocated between common stock and participating securities based on their respective rights if the participating security contractually participates in losses. The Company’s convertible preferred stock are participating securities as they contractually entitle the holders of such shares to participate in dividends and contractually require the holders of such shares to participate in the Company’s losses.
The following table presents the calculation of basic and diluted net loss per share of common stock attributable to Amyris, Inc. common stockholders:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands, except shares and per share amounts)
|
2019
|
2018
|
Numerator:
|
|
|
|
|
Net loss attributable to Amyris, Inc.
|
$
|
(242,767)
|
|
$
|
(230,235)
|
|
Less deemed dividend to preferred shareholder on issuance and modification of common stock warrants
|
(34,964)
|
|
—
|
|
Less deemed dividend related to proceeds discount upon conversion of Series D preferred stock
|
—
|
|
(6,852)
|
|
Add: losses allocated to participating securities
|
7,380
|
|
13,991
|
|
Net loss attributable to Amyris, Inc. common stockholders, basic
|
(270,351)
|
|
(223,096)
|
|
Adjustment to losses allocated to participating securities
|
137
|
|
—
|
|
Gain from change in fair value of derivative instruments
|
(4,963)
|
|
—
|
|
Net loss attributable to Amyris, Inc. common stockholders, diluted
|
$
|
(275,177)
|
|
$
|
(223,096)
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic
|
101,370,632
|
|
60,405,910
|
|
Basic loss per share
|
$
|
(2.67)
|
|
$
|
(3.69)
|
|
|
|
|
|
|
Weighted-average shares of common stock outstanding
|
101,370,632
|
|
60,405,910
|
|
Effect of dilutive common stock warrants
|
(74,057)
|
|
—
|
|
Weighted-average common stock equivalents used in computing net income (loss) per share of common stock, diluted
|
101,296,575
|
|
60,405,910
|
|
Diluted loss per share
|
$
|
(2.72)
|
|
$
|
(3.69)
|
|
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
2019
|
2018
|
Period-end common stock warrants
|
59,204,650
|
|
25,986,370
|
|
Convertible promissory notes(1)
|
13,381,238
|
|
13,703,162
|
|
Period-end stock options to purchase common stock
|
5,620,419
|
|
5,392,269
|
|
Period-end restricted stock units
|
5,782,651
|
|
5,294,848
|
|
Period-end preferred shares on an as-converted basis
|
1,943,661
|
|
2,955,732
|
|
Total potentially dilutive securities excluded from computation of diluted net loss per share
|
85,932,619
|
|
53,332,381
|
|
______________
(1) The potentially dilutive effect of convertible promissory notes was computed based on conversion ratios in effect at the respective year-end. A portion of the convertible promissory notes issued carries a provision for a reduction in conversion price under certain circumstances, which could potentially increase the dilutive shares outstanding. Another portion of the convertible promissory notes issued carries a provision for an increase in the conversion rate under certain circumstances, which could also potentially increase the dilutive shares outstanding.
8. Commitments and Contingencies
Guarantor Arrangements
The Company has agreements whereby it indemnifies its executive officers and directors for certain events or occurrences while the executive officer or director is serving in his or her official capacity. The indemnification period remains enforceable for the executive officer's or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future payments. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company had no liabilities recorded for these agreements as of December 31, 2019 and 2018.
The Foris LSA debt facility (see Note 4, "Debt") is collateralized by first-priority liens on substantially all of the Company's assets, including Company intellectual property, other than certain Company intellectual property licensed to DSM and the Company's shares of Aprinnova. Certain of the Company’s subsidiaries have guaranteed the Company’s obligations under the Foris LSA.
The obligations of the Company under the Naxyris note (see Note 4, "Debt") are (i) guaranteed by the Subsidiary Guarantors and (ii) secured by a perfected security interest in substantially all of the assets of the Company and the Subsidiary Guarantors (the Collateral), junior in payment priority to Foris subject to certain limitations and exceptions, as well as the terms of the Intercreditor Agreement.
The Nikko debt instruments are collateralized as follows:
•Nikko $3.9 million note: first-priority lien on 10.0% of the Aprinnova JV interests owned by the Company
•Nikko $5.0 million note: first-priority lien on 12.8% of shares of Aprinnova
•Nikko $4.5 million note: first-priority lien on 27.2% of shares of Aprinnova
The promissory notes issued under the 2019 DSM Credit Agreement (see Note 4, "Debt") are secured by a first-priority lien on certain Company intellectual property licensed to DSM.
The obligations of the Company under the Investor Notes and the Schottenfeld CSA (see Note 4, "Debt" and Note 15, “Subsequent Events”) are secured by a perfected security interest in substantially all of the assets of the Company and the Subsidiary Guarantors, junior in payment priority to Foris and Naxyris subject to the Subordination Agreement among Foris, Naxyris and the Investors.
Other Matters
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but will only be recorded when one or more future events occur or fail to occur. The Company's management assesses such contingent liabilities, and such assessment inherently involves an exercise of judgement. In assessing loss contingencies related to legal proceedings that are pending against and by the Company or unasserted claims that may result in such proceedings, the Company's management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company's financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be reasonably estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed. Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
On April 3, 2019, a securities class action complaint was filed against Amyris and our CEO, John G. Melo, and former CFO (and current Chief Business Officer), Kathleen Valiasek, in the U.S. District Court for the Northern District of California. The complaint seeks unspecified damages on behalf of a purported class that would comprise all persons and entities that purchased or otherwise acquired our securities between March 15, 2018 and March 19, 2019. The complaint, which was amended by the lead plaintiff on September 13, 2019, alleges securities law violations based on statements and omissions made by the Company during such period. On October 25, 2019, the defendants filed a motion to dismiss the securities class action
complaint. The hearing on such motion to dismiss was held on February 18, 2020 and we are awaiting a ruling from the Court. Subsequent to the filing of the securities class action complaint described above, on June 21, 2019 and October 1, 2019, respectively, two separate purported shareholder derivative complaints were filed in the U.S. District Court for the Northern District of California (Bonner v. Doerr, et al., and Carlson v. Doerr, et al.) based on similar allegations to those made in the securities class action complaint described above and named the Company and certain of the Company’s current and former officers and directors as defendants. The derivative lawsuits sought to recover, on the Company’s behalf, unspecified damages purportedly sustained by the Company in connection with allegedly misleading statements and omissions made in connection with the Company’s securities filings. The derivative lawsuits were dismissed on October 18, 2019 (Bonner) and December 10, 2019 (Carlson), without prejudice. We believe the securities class action complaint lacks merit, and intend to continue to defend ourselves vigorously. Given the early stage of these proceedings, it is not yet possible to reliably determine any potential liability that could result from these matters.
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.
9. Revenue Recognition
Disaggregation of Revenue
The following tables present revenue by primary geographical market, based on the location of the customer, as well as by major product and service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
2018
|
|
|
|
Years Ended December 31,
(In thousands)
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
TOTAL
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
TOTAL
|
Europe
|
$
|
10,092
|
|
$
|
54,043
|
|
$
|
6,674
|
|
$
|
70,809
|
|
|
|
$
|
7,576
|
|
$
|
7,658
|
|
$
|
14,172
|
|
$
|
29,406
|
|
United States
|
34,295
|
|
—
|
|
24,376
|
|
58,671
|
|
|
|
16,292
|
|
—
|
|
9,948
|
|
26,240
|
|
Asia
|
11,503
|
|
—
|
|
7,477
|
|
18,980
|
|
|
|
8,664
|
|
—
|
|
(2,333)
|
|
6,331
|
|
Brazil
|
3,612
|
|
—
|
|
115
|
|
3,727
|
|
|
|
381
|
|
—
|
|
561
|
|
942
|
|
Other
|
370
|
|
—
|
|
—
|
|
370
|
|
|
|
685
|
|
—
|
|
—
|
|
685
|
|
|
$
|
59,872
|
|
$
|
54,043
|
|
$
|
38,642
|
|
$
|
152,557
|
|
|
|
$
|
33,598
|
|
$
|
7,658
|
|
$
|
22,348
|
|
$
|
63,604
|
|
Significant Revenue Agreements
For the years ended December 31, 2019 and 2018, the Company recognized revenue in connection with significant revenue agreements and from all other customers as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
2018
|
|
|
|
Years Ended December 31,
(In thousands)
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
TOTAL
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
TOTAL
|
Revenue from significant revenue agreements with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSM (related party)
|
$
|
10
|
|
$
|
49,051
|
|
$
|
4,120
|
|
$
|
53,181
|
|
|
|
$
|
18
|
|
$
|
5,958
|
|
$
|
4,735
|
|
$
|
10,711
|
|
Firmenich
|
8,591
|
|
4,992
|
|
1,413
|
|
14,996
|
|
|
|
3,727
|
|
1,700
|
|
5,717
|
|
11,144
|
|
Lavvan
|
—
|
|
—
|
|
18,342
|
|
18,342
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Givaudan
|
7,477
|
|
—
|
|
1,500
|
|
8,977
|
|
|
|
4,078
|
|
—
|
|
4,358
|
|
8,436
|
|
DARPA
|
—
|
|
—
|
|
5,504
|
|
5,504
|
|
|
|
—
|
|
—
|
|
8,436
|
|
8,436
|
|
Subtotal revenue from significant revenue agreements
|
16,078
|
|
54,043
|
|
30,879
|
|
101,000
|
|
|
|
7,823
|
|
7,658
|
|
23,246
|
|
38,727
|
|
Revenue from all other customers
|
43,794
|
|
—
|
|
7,763
|
|
51,557
|
|
|
|
25,775
|
|
—
|
|
(898)
|
|
24,877
|
|
Total revenue from all customers
|
$
|
59,872
|
|
$
|
54,043
|
|
$
|
38,642
|
|
$
|
152,557
|
|
|
$
|
33,598
|
|
$
|
7,658
|
|
$
|
22,348
|
|
$
|
63,604
|
|
Cannabinoid Agreement
On May 2, 2019, the Company consummated a research, collaboration and license agreement (the Cannabinoid Agreement) with LAVVAN, Inc., a newly formed investment-backed company (Lavvan), for up to $300 million to develop, manufacture and commercialize cannabinoids, subject to certain closing conditions. Under the agreement, the Company would perform research and development activities and Lavvan would be responsible for the manufacturing and commercialization of the cannabinoids developed under the agreement. The Cannabinoid Agreement is being principally funded on a milestone basis, with the Company also entitled to receive certain supplementary research and development funding from Lavvan. The Company could receive aggregate funding of up to $300 million over the term of the Cannabinoid Agreement if all of the milestones are achieved. Additionally, the Cannabinoid Agreement provides for profit share to the Company on Lavvan's gross profit margin once products are commercialized; these payments will be due for the next 20 years. On May 2, 2019, the parties consummated the transactions contemplated by the Cannabinoid Agreement, including the formation of a special purpose entity to hold certain intellectual property created during the collaboration (the Cannabinoid Collaboration IP), the licensing of certain Company intellectual property to Lavvan, the licensing of the Cannabinoid Collaboration IP to the Company and Lavvan, and the granting by the Company to Lavvan of a lien on the Company background intellectual property being licensed to Lavvan under the Cannabinoid Agreement, which lien would be subordinated to the lien on such intellectual property under the Foris LSA (see Note 4, “Debt”).
The Cannabinoid Agreement is accounted for as a revenue contract under ASC 606, with the total transaction price estimated and updated on a quarterly basis, subject to the variable consideration constraint guidance in ASC 606 using the most likely outcome method to estimate the variable consideration associated with the identified performance obligations. The Company concluded the agreement contained a single performance obligation of research and development services provided
continuously over time. The Company estimated the total unconstrained transaction price to be $145 million, based on a high probability of achieving certain underlying milestones. As of December 31, 2019, the Company has constrained $181.0 million of variable consideration related to milestones that have not met the criteria under ASC 606 necessary to be included in the transaction price. The Company concluded that the performance obligation is delivered over time and that revenue recognition is based on an input measure of progress of hours incurred compared to total estimated hours to be incurred (i.e., proportional performance). Estimates of variable consideration are updated quarterly, with cumulative adjustments to revenue recorded as necessary. The Company recognized $18.3 million of collaboration revenue under the Cannabinoid Agreement for the year ended December 31, 2019 based on proportional performance delivered to date. At December 31, 2019, $8.3 million of the collaboration revenues recognized in the year ended December 31, 2019 were recorded as a contract asset. See the "Contract Assets and Liabilities" section below for further information regarding this contract asset.
Firmenich Agreements
In July 2017, the Company and Firmenich entered into the Firmenich Collaboration Agreement Agreement (for the development and commercialization of multiple renewable flavors and fragrances molecules), pursuant to which the parties agreed to exclude certain molecules from the scope of the agreement and to amend certain terms connected with the supply and use of such molecules when commercially produced. In addition, the parties agreed to (i) fix at a 70/30 basis (70% for Firmenich) the ratio at which the parties will share profit margins from sales of two molecules; (ii) set at a 70/30 basis (70% for Firmenich) the ratio at which the parties will share profit margins from sales of a distinct form of compound until Firmenich receives $15.0 million more than the Company in the aggregate from such sales, after which time the parties will share the profit margins 50/50 and (iii) a maximum Company cost of a compound where a specified purchase volume is satisfied, and alternative production and margin share arrangements in the event such Company cost cap is not achieved.
In August 2018, the Company and Firmenich entered into the Firmenich Amended and Restated Supply Agreement, which incorporates all previous amendments and new changes and supersedes the September 2014 supply agreement. With this Amended and Restated Supply Agreement, the parties agreed on the molecules to be supplied under the agreement and the commercial specifications of these products, and made some adjustments to the pricing of the molecules.
Pursuant to the Firmenich Collaboration Agreement, the Company agreed to pay a one-time success bonus to Firmenich of up to $2.5 million if certain commercialization targets are met. Such targets have not yet been met as of December 31, 2019. The one-time success bonus will expire upon termination of the Firmenich Collaboration Agreement, which has an initial term of 10 years and will automatically renew at the end of such term (and at the end of any extension) for an additional 3-year term unless otherwise terminated. At December 31, 2019, the Company had a $0.7 million liability associated with this one-time success bonus that has been recorded as a reduction to the associated collaboration revenue.
Givaudan Agreements
In September 2018, Amyris and Givaudan, entered into a Collaboration Agreement for the development and commercialization of molecules for use and sale in the cosmetics and flavors markets (collectively the “Collaboration Markets”). Under Collaboration Agreement, the parties will collaborate to develop, produce and commercialize. Under the agreement, the Company granted Givaudan exclusive access to specified intellectual property for the development and commercialization of such molecules in the Collaboration Markets in exchange for research and development funding. Funding, including payment terms, will be based on milestones and milestone-based payments, to be mutually agreed upon by the parties on a project by project basis. The Company is currently working on development and commercialization of two significant molecules. The Company also manufactures and supplies a certain compound that was developed by the Company under a prior (expired) collaboration agreement with Givaudan. The supply agreement was entered into in September 2018 and has a five-year term with successive one-year renewals until terminated by either party.
Following the research and development phase of a project, if Givaudan elects to proceed with commercialization, a supply agreement will be negotiated for each compound. The significant terms for each supply agreement are set forth in the Collaboration Agreement including the price at which the molecules are to be supplied. The price for each compound will be negotiated and agreed upon by both parties at a future time. Under the Collaboration Agreement, following commercial development of the agreed upon compound, the Company will manufacture the compound and Givaudan will perform any required downstream polishing, distribution, sales and marketing. The collaboration work and supply of the molecules is exclusively limited to the Cosmetics Actives Market and the Flavors Market.
DSM July and September 2017 Collaboration and Licensing Agreements
In July and September 2017, the Company entered into three separate collaboration agreements with DSM (DSM Collaboration Agreements) to jointly develop three new molecules in the Health & Wellness (DSM Ingredients) market using the Company’s technology, which the Company would produce and DSM would commercialize. Pursuant to the DSM Collaboration Agreements, DSM will, subject to certain conditions, provide funding for the development of the DSM Ingredients and, upon commercialization, the parties would enter into supply agreements whereby DSM would purchase the applicable DSM Ingredients from the Company at prices agreed by the parties. The development services will be directed by a joint steering committee with equal representation by DSM and the Company. In addition, the parties will share profit margin from DSM’s sales of products that incorporate the DSM Ingredients subject to the DSM Collaboration Agreements.
In connection with the entry into the DSM Collaboration Agreements, the Company and DSM also entered into certain license arrangements (DSM License Agreements) providing DSM with certain rights to use the technology underlying the development of the DSM Ingredients to produce and sell products incorporating the DSM Ingredients. Under the DSM License Agreements, DSM paid the Company $9.0 million for a worldwide, exclusive, perpetual, royalty-free license to produce and sell products incorporating one of the DSM Ingredients in the Health & Wellness field.
December 2017 DSM Agreements
In December 2017, the Company entered into a series of agreements with DSM (December 2017 DSM Agreements) which are described below. The December 2017 DSM Agreements were evaluated as a combined transaction for accounting purposes in conjunction with the sales of the Brotas 1 facility discussed more fully in Note 10, "Related Party Transactions" and Note 12, "Divestiture".
DSM November 2017 Intellectual Property License Agreement
In November 2017, in connection with the Company's divestiture of its Brotas, Brazil production facility (see Note 12, "Divestiture"), the Company and DSM entered into a license agreement covering certain intellectual property of the Company useful in the performance of certain commercial supply agreements assigned by the Company to DSM relating to products currently manufactured at the Brotas facility (DSM November 2017 Intellectual Property License Agreement). In December 2017, DSM paid the Company an upfront license fee of $27.5 million. In accounting for the Divestiture with DSM, a multiple-element arrangement, the license of intellectual property to DSM was identified as revenue deliverable with standalone value and qualified as a separate unit of accounting. The Company performed an analysis to determine the fair value for of the license, and allocated the non-contingent consideration based on the relative fair value. The Company determined that the license had been fully delivered, and, as such, license revenue of $54.6 million was recognized for the period ended December 31. 2017.
On November 19, 2018, the Company and DSM entered into a letter agreement (November 2018 DSM Letter Agreement), pursuant to which the Company agreed (i) to cause the removal of certain existing liens on intellectual property owned by the Company and licensed to DSM and (ii) if such liens were not removed prior to December 15, 2018, to issue to DSM shares of the Company’s common stock with a value equal to $5.0 million. On December 14, 2018, the Company entered into an amendment to the GACP Term Loan Facility to remove such lien, and the November 2018 DSM Letter Agreement was thereby terminated.
DSM Value Sharing Agreement
In December 2017, in conjunction with the Company's divestiture of its Brotas, Brazil production facility (see Note 12, "Divestiture" and Note 10, "Related Party Transactions"), the Company and DSM entered into a value sharing agreement (Value Sharing Agreement), pursuant to which DSM agreed to make certain royalty payments to the Company representing a portion of the profit on the sale of products produced using farnesene purchased under the Nenter Supply Agreement realized by Nenter and paid to DSM in accordance with the Nenter Supply Agreement. In addition, pursuant to the Value Sharing Agreement, DSM agreed to guarantee certain minimum annual royalty payments totaling $33.1 million over the first three calendar years of the Value Sharing Agreement, subject to future offsets in the event that the royalty payments to which the Company would otherwise have been entitled under the Value Sharing Agreement for such years fall below certain milestones. The nonrefundable minimum annual royalty payments were determined to be fixed and determinable and were included as part of the total arrangement consideration subject to allocation in the December 2017 multiple-element divestiture transaction with DSM. At closing, DSM paid the Company a nonrefundable royalty payment of $15.0 million under the Value Sharing Agreement and paid two additional future nonrefundable minimum annual royalty payments totaling $18.1 million related to 2019 and 2020 royalties. In June 2018, the Company received the 2019 non-refundable minimum royalty payment of $9.3 million (net of a $0.7 million early payment discount) and in March 2019, the Company received the 2020 payment of
$7.4 million (net of a $0.7 million early payment discount). During 2018, the Company and DSM amended the Value Sharing Agreement to (i) provide for the use of estimates in calculating quarterly royalty payments (subject to true-up), (ii) modify how the guaranteed minimum annual royalty payment for 2018 will be offset against value payments accruing during 2018 and (iii) accelerate the minimum annual royalty payment for 2019 from December 31, 2018 to June 30, 2018 in exchange for a fee of $750,000. For the year ended December 31, 2018, the Company recognized $7.9 million of revenue in connection with the DSM Value Sharing Agreement.
In April 2019, the Company assigned to DSM, and DSM assumed, all of the Company’s rights and obligations under the December 2017 DSM Value Sharing Agreement, as amended, for aggregate consideration to the Company of $57.0 million, which included $7.4 million received on March 29, 2019 for the third and final annual royalty payment due under the original agreement. On April 16, 2019, the Company received net cash of $21.7 million, with the remaining $27.9 million used by the Company to offset past due trade payables (including interest) under the 2017 Supply Agreement (discussed below), the obligation under the November 2018 Securities Purchase Agreement, and manufacturing capacity fees under the provisions of Amendment No. 1 to the 2017 Supply Agreement (see Note 10, "Related Party Transactions" for a description of these agreements).
The original Value Sharing Agreement was accounted for as a single performance obligation in connection with a license with fixed and determinable consideration and variable consideration that was accounted for pursuant to the sales-based royalty scope exception. The April 16, 2019 assignment of the December 2017 DSM Value Sharing Agreement was accounted for as a contract modification under ASC 606, resulting in additional fixed and determinable consideration of $37.1 million and variable consideration of $12.5 million in the form of a stand-ready obligation to refund some or all of the $12.5 million consideration if certain criteria outlined in the assignment agreement are not met by December 2021. The Company periodically updates its estimate of amounts to be retained and reduces the refund liability and records additional license and royalty revenue as the criteria are met. The effect of the contract modification on the transaction price, and on the Company’s measure of progress toward complete satisfaction of the performance obligation was recognized as an adjustment to revenue at the date of the contract modification on a cumulative catch-up basis. As a result, the Company recognized $37.1 million of license and royalty in the second quarter of 2019, due to fully satisfying the performance obligation at the modification date.The Company also recognized an additional $3.6 million of previously deferred royalty revenue under the December 2017 DSM Value Sharing Agreement, as the remaining underlying performance obligation was fully satisfied through the April 16, 2019 assignment of the agreement to DSM. The Company recorded an additional $8.8 million of license and royalty revenue in the fourth quarter of 2019 related to a change in the estimated refund liability.
DSM Performance Agreement
In December 2017, in connection with the Company's divestiture of its Brotas, Brazil production facility (see Note 12, "Divestiture"), the Company and DSM entered into a performance agreement (Performance Agreement), pursuant to which the Company will provide certain research and development services to DSM relating to the development of the technology underlying the farnesene-related products to be manufactured at the Brotas facility in exchange for related funding, including certain bonus payments in the event that specific performance metrics are achieved. The Company will record the bonus payments as earned revenue upon the transfer of the developed technology to DSM. If the Company does not meet the established metrics under the Performance Agreement, the Company will be required to pay $1.8 million to DSM. The Performance Agreement will expire in December 2020, subject to the right of each of the parties to terminate for uncured material breach by the other party or in the event the other party is subject to bankruptcy proceedings, liquidation, dissolution or similar proceedings or other specified events.
DSM December 2017 Supply Agreement and November 2018 Supply Agreement Amendment
On November 19, 2018, the Company and DSM entered into an amendment (Supply Agreement Amendment) to the supply agreement, dated December 28, 2017 (Supply Agreement), by and between the Company and DSM. Under the Supply Agreement, DSM agreed to manufacture and supply to the Company certain products useful in the Company’s business, at prices and on production and delivery terms and specifications set forth in the Supply Agreement, which prices are based upon DSM’s manufacturing cost plus an agreed margin. The Supply Agreement originally provided that it would expire (i) with respect to non-farnesene related products, on the date that the Company’s planned new specialty ingredients manufacturing facility in Brazil is fully operational and meets its production targets, but in any event no later than December 31, 2021 and (ii) with respect to farnesene related products, on December 28, 2037, subject in each case to earlier termination in certain circumstances. Pursuant to the Supply Agreement Amendment, (i) the outside expiration date of the Supply Agreement with respect to non-farnesene related products was extended to December 31, 2022, with specified pricing terms added for products manufactured during 2022, (ii) DSM committed to produce certain non-farnesene related products for the Company for two months of each calendar year during the term of the Supply Agreement and (iii) the Company agreed to (A) pay DSM a cash
fee totaling $15.5 million, payable in installments during 2018 and 2019, (B) issue 1,643,991 shares of the Company's common stock to DSM, and (C) pay DSM a cash fee of $7.3 million, payable on or before March 29, 2019, plus, if the closing price of the Common Stock on the trading day immediately preceding the date of such payment is less than $4.41 per share, an amount equal to such deficiency multiplied by 1,643,991.
In addition, on April 16, 2019 the Company and DSM entered into amendments to the 2017 Supply Agreement and the 2017 Performance Agreement, as well as the Quota Purchase Agreement relating to the December 2017 sale of Amyris Brasil to DSM (see Note 12, “Divestiture”), pursuant to which (i) DSM agreed to reduce certain manufacturing costs and fees paid by the Company related to the production of farnesene under the Supply Agreement through 2021, as well as remove the priority of certain customers over the Company with respect to production capacity at the Brotas, Brazil facility, (ii) the Company agreed to provide DSM rights to conduct certain process and downstream recovery improvements under the Performance Agreement at facilities other than the Brotas, Brazil facility in exchange for DSM providing the Company with a license to such improvements and (iii) the Company released DSM from its obligation to provide manufacturing and support services under the Quota Purchase Agreement in connection with the Company’s planned new manufacturing facility, which is no longer to be located at the Brotas, Brazil location.
DARPA Technology Investment Agreement
In September 2015, the Company entered into a technology investment agreement (TIA) with The Defense Advanced Research Projects Agency (DARPA), under which the Company, with the assistance of specialized subcontractors, is working to create new research and development tools and technologies for strain engineering and scale-up activities. The agreement is being funded by DARPA on a milestone basis. Under the TIA, the Company and its subcontractors could collectively receive DARPA funding of up to $35.0 million over the program’s four year term if all of the program’s milestones are achieved. In conjunction with DARPA’s funding, the Company and its subcontractors are obligated to collectively contribute approximately $15.5 million toward the program over its four year term (primarily by providing specified labor and/or purchasing certain equipment). For the DARPA agreement, the Company recognizes revenue using an output-based measure of progress of the milestones completed relative to remaining milestones, once acknowledged by DARPA.
Contract Assets and Liabilities
When a contract results in revenue being recognized in excess of the amount the Company has invoiced or has the right to invoice to the customer, a contract asset is recognized. Contract assets are transferred to accounts receivable, net when the rights to the consideration become unconditional.
Contract liabilities consist of payments received from customers, or such consideration that is contractually due, in advance of providing the product or performing services such that control has not passed to the customer.
Trade receivables related to revenue from contracts with customers are included in accounts receivable on the consolidated balance sheets, net of the allowance for doubtful accounts. Trade receivables 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, and for which the Company has the unconditional right to receive payment.
Contract Balances
The following table provides information about accounts receivable and contract liabilities from contracts with customers:
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Accounts receivable, net
|
$
|
16,322
|
|
$
|
16,003
|
|
Accounts receivable - related party, net
|
$
|
3,868
|
|
$
|
1,349
|
|
Accounts receivable, unbilled - related party
|
$
|
—
|
|
$
|
8,021
|
|
Contract assets
|
$
|
8,485
|
|
$
|
—
|
|
Contract assets, noncurrent - related party
|
$
|
1,203
|
|
$
|
1,203
|
|
Contract liabilities
|
$
|
1,353
|
|
$
|
8,236
|
|
Contract liabilities, noncurrent(1)
|
$
|
1,449
|
|
$
|
1,587
|
|
______________
(1)The balances in contract liabilities, noncurrent are included in other noncurrent liabilities on the consolidated balance sheets.
Unbilled receivables relate to the Company’s right to consideration from DSM for (i) minimum future royalties and (ii) a material right arising from a customer option for a future transfer of technology. The Company’s right to cash receipt for these minimum royalty amounts occurs on or before December 31, 2019, and the right to cash receipt for the customer option occurs on or before December 31, 2020.
Contract liabilities, current decreased by $6.9 million at December 31, 2019 resulting from collaboration and royalty amounts recognized as revenue during the year ended December 31, 2019 that was included in contract liabilities 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 December 31, 2019.
|
|
|
|
|
|
(In thousands)
|
As of December 31, 2019
|
2020
|
$
|
56,719
|
|
2021
|
52,313
|
|
2022
|
30,483
|
|
2023 and thereafter
|
—
|
|
Total from all customers
|
$
|
139,515
|
|
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, $181.0 million of estimated future revenue is excluded from the table above, as that amount represents constrained variable consideration.
10. Related Party Transactions
Related Party Equity
See Note 6, "Stockholders' Deficit" for details of these related party equity transactions:
•November 2018 DSM Securities Purchase Agreement
•August 2017 DSM Offering
Related Party Debt
See Note 4, "Debt" for details of these related party debt transactions:
•DSM Note (also see Note 12, "Divestiture")
•2014 Rule 144A Convertible Notes
•August 2013 Financing Convertible Notes
•Foris LSA
•Foris $19 million Note
•Naxyris LSA
Related party debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
2018
|
|
|
|
December 31,
(in thousands)
|
Principal
|
|
Unaccreted Debt Discount
|
|
|
Net
|
|
Principal
|
|
Unaccreted Debt Discount
|
|
|
Net
|
DSM notes
|
$
|
33,000
|
|
$
|
(4,621)
|
|
|
$
|
28,379
|
|
|
|
$
|
25,000
|
|
$
|
(6,311)
|
|
|
$
|
18,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foris
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foris notes
|
115,351
|
|
(9,516)
|
|
|
105,835
|
|
|
—
|
|
—
|
|
|
—
|
|
2014 Rule 144A convertible notes
|
—
|
|
—
|
|
|
—
|
|
|
5,000
|
|
(181)
|
|
|
4,819
|
|
|
115,351
|
|
(9,516)
|
|
|
105,835
|
|
|
5,000
|
|
(181)
|
|
|
4,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Naxyris note
|
24,437
|
|
(822)
|
|
|
23,615
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temasek 2014 Rule 144A convertible note
|
—
|
|
—
|
|
|
—
|
|
|
10,000
|
|
(435)
|
|
|
9,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2014 Rule 144A convertible note
|
10,178
|
|
—
|
|
|
10,178
|
|
|
|
9,705
|
|
(422)
|
|
|
9,283
|
|
|
$
|
182,966
|
|
$
|
(14,959)
|
|
|
$
|
168,007
|
|
|
$
|
49,705
|
|
$
|
(7,349)
|
|
|
$
|
42,356
|
|
The fair value of the derivative liabilities related to the related party Foris $19 million note, Foris LSA and Naxyris note as of December 31, 2019 and 2018 was $2.6 million and $0.0 million, respectively. The Company recognized losses from change in the fair value of these and previous debt-related derivative liabilities of $0.1 million and $8.5 million for the years ended December 31, 2019 and 2018, respectively; see Note 3, "Fair Value Measurement".
At December 31, 2018, Temasek was no longer a related party. However, the Company and Temasek were related parties when they entered into the 2014 Rule 144A convertible notes transaction, for which terms remained unchanged since the borrowing date.
Related Party Revenue
The Company recognized revenue from related parties and from all other customers as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
2018
|
|
|
|
Years Ended December 31,
(In thousands)
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
TOTAL
|
|
Renewable Products
|
Licenses and Royalties
|
Grants and Collaborations
|
TOTAL
|
Revenue from related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DSM
|
$
|
10
|
|
$
|
49,051
|
|
$
|
4,120
|
|
$
|
53,181
|
|
|
|
$
|
18
|
|
$
|
5,958
|
|
$
|
4,735
|
|
$
|
10,711
|
|
Total
|
46
|
|
—
|
|
—
|
|
46
|
|
|
|
342
|
|
—
|
|
—
|
|
342
|
|
Novvi
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Subtotal revenue from related parties
|
56
|
|
49,051
|
|
4,120
|
|
53,227
|
|
|
|
360
|
|
5,958
|
|
4,735
|
|
11,053
|
|
Revenue from all other customers
|
59,816
|
|
4,992
|
|
34,522
|
|
99,330
|
|
|
|
33,238
|
|
1,700
|
|
17,613
|
|
52,551
|
|
Total revenue from all customers
|
$
|
59,872
|
|
$
|
54,043
|
|
$
|
38,642
|
|
$
|
152,557
|
|
|
$
|
33,598
|
|
$
|
7,658
|
|
$
|
22,348
|
|
$
|
63,604
|
|
See Note 9, "Revenue Recognition" for details of the Company's revenue agreements with DSM.
Related Party Accounts Receivable
Related party accounts receivable was as follows:
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
DSM
|
$
|
3,868
|
|
$
|
1,071
|
|
Novvi
|
—
|
|
188
|
|
Total
|
—
|
|
90
|
|
Related party accounts receivable, net
|
$
|
3,868
|
|
$
|
1,349
|
|
In addition to the amounts shown above, there were the following amounts on the consolidated balance sheet at December 31, 2019 and December 31, 2018, respectively:
•$0 and $8.0 million of unbilled receivables from DSM, in Accounts receivable, unbilled - related party;
•$1.2 million of unbilled receivables from DSM in Contract assets, noncurrent - related party; and
•$3.3 million and $4.3 million of contingent consideration receivable from DSM in Other assets.
Related Party Accounts Payable and Accrued Liabilities
Amounts due to DSM were as follows:
•Accounts payable and accrued and other current liabilities of $14.0 million and $2.1 million at December 31, 2019 and 2018, respectively; and
•Other noncurrent liabilities of $3.8 million and $3.6 million at December 31, 2019 and 2018, respectively.
Related Party DSM Transactions
The Company is party to the following significant agreements (and related amendments) with related party DSM:
|
|
|
|
|
|
|
|
|
Related to
|
Agreement
|
For Additional Information, See the Note Indicated
|
Debt
|
DSM Credit Agreement
|
4. Debt
|
Debt
|
2019 DSM Credit Agreement
|
4. Debt
|
Divestiture
|
November 2017 Quota Purchase Agreement
|
12. Divestiture
|
|
Divestiture
|
December 2017 DSM Transition Services Agreement
|
12. Divestiture
|
|
Equity
|
August 2017 DSM Offering
|
6. Stockholders' Deficit
|
|
Equity
|
November 2018 DSM Securities Purchase Agreement
|
6. Stockholders' Deficit
|
|
Revenue
|
July and September 2017 Collaboration and Licensing Agreements
|
9. Revenue Recognition
|
|
Revenue
|
December 2017 DSM Supply Agreement
|
9. Revenue Recognition
|
|
Revenue
|
December 2017 DSM Value Sharing Agreement, as amended
|
9. Revenue Recognition
|
|
Revenue
|
December 2017 DSM Performance Agreement
|
9. Revenue Recognition
|
|
Revenue
|
November 2017 Intellectual Property License Agreement
|
9. Revenue Recognition
|
|
Revenue
|
November 2018 Supply Agreement Amendment
|
9. Revenue Recognition
|
|
Concurrent with the sale of Amyris Brasil in December 2017, the Company and DSM entered into a series of commercial agreements including (i) a license agreement to DSM of its farnesene product for DSM to use in the Vitamin E and lubricant markets; (ii) a royalty agreement that DSM will pay the Company specified royalties representing a portion of the profit on the sale of Vitamin E produced from farnesene under the Nenter Supply Agreement assigned to DSM; (iii) a performance agreement, which provides an option for DSM to elect a technology transfer upon the achievement of certain development milestones associated with the optimization of farnesene strains; and (iv) a transition services agreement for the Company to provide finance, legal, logistics, and human resource services to support the Brotas facility under DSM ownership for a six-month period with a DSM option to extend for six additional months. See Note 12, “Divestiture” for further information regarding the sale of Amyris Brasil and the related commercial agreements. In addition, the Company entered into a credit agreement with DSM under which the Company borrowed $25 million; see Note 4, "Debt" for additional information.
In November 2018, the Company amended the supply agreement with DSM to secure capacity at the Brotas 1 facility for production of its alternative sweetener product through 2022. See Note 9, “Revenue Recognition” for information regarding the November 2018 Supply Agreement Amendment and the November 2018 DSM Securities Purchase Agreement. The Company also entered into other transactions with DSM in November 2018 which resulted in the Company (i) evaluating this series of November 2018 transactions and considering other certain transactions with DSM in 2018 as a combined arrangement, and (ii) determining and allocating the fair value to each element. The other transactions entered into concurrently with the November 2018 Supply Agreement Amendment and November 2018 DSM Securities Purchase Agreement included an agreement to finalize the working capital adjustments related to the Brotas 1 facility sale in December 2017 and an amendment to reduce the exercise price of the Cash Warrant issued to DSM in the August 2017 DSM Offering and to provide a waiver for any potential claims arising from failure to obtain consent prior to amending the exercise price of the August 2017 Vivo Cash Warrant in the August 2017 Warrant transaction.
The contractual consideration transferred to DSM under the combined arrangement was $34.7 million. The Company performed an analysis to determine the fair value of the elements and allocated the resulting $33.3 million total fair value as follows: (i) $24.4 million to the manufacturing capacity, (ii) $6.8 million to the legal settlement and related consent waiver and (iii) $2.1 million to the working capital adjustment. See Note 3, “Fair Value Measurement” for information related to this fair
value allocation. The $1.4 million excess consideration transferred above the combined arrangement’s fair value was recorded as a reduction of royalty revenues in the year ended December 31, 2018. Of the $24.4 million fair value allocated to the manufacturing capacity, $3.3 million was recorded as deferred cost of products sold during 2018. Also, the Company paid an additional $14.1 million in manufacturing capacity fees during 2019, which were recorded as additional deferred cost of products sold. The remaining $7.0 million manufacturing capacity fees will be recorded as deferred cost of products sold in the period the additional payments are made to DSM. The deferred cost of products sold asset will be expensed on a units of production basis as products are sold over the five-year term of the supply agreement. On a quarterly basis, the Company evaluates its future production volumes for its sweetener product and adjusts the unit cost to be expensed over the remaining estimated production volume. The $6.8 million of fair value allocated to the legal settlement and related consent waiver was recorded as legal settlement expense for the year ended December 31, 2018. The $2.1 million of fair value allocated to the working capital adjustment was recorded as a loss on divestiture for the year ended December 31, 2018. The contractual consideration transferred to DSM exceeded the fair value of the elements received by $1.4 million and this excess was recorded as a reduction of licenses and royalties revenues in the three months ended December 31, 2018.
Related Party Joint Venture
In December 2016, the Company, Nikko Chemicals Co., Ltd. an existing commercial partner of the Company, and Nippon Surfactant Industries Co., Ltd., an affiliate of Nikko (collectively, Nikko) entered into a joint venture (the Aprinnova JV Agreement) pursuant to which the Company contributed certain assets, including certain intellectual property and other commercial assets relating to its business-to-business cosmetic ingredients business (the Aprinnova JV Business), as well as its Leland production facility. The Company also agreed to provide the Aprinnova JV with exclusive (to the extent not already granted to a third party), royalty-free licenses to certain of the Company's intellectual property necessary to make and sell products associated with the Aprinnova JV Business (the Aprinnova JV Products). Nikko purchased their 50% interest in the Aprinnova JV in exchange for the following payments to the Company: (i) an initial payment of $10.0 million and (ii) the profits, if any, distributed to Nikko in cash as members of the Aprinnova JV during the three-year period from 2017 to 2019, up to a maximum of $10.0 million.
The Aprinnova JV operates in accordance with the Aprinnova Operating Agreement under which the Aprinnova JV is managed by a Board of Directors consisting of four directors: two appointed by the Company and two appointed by Nikko. In addition, Nikko has the right to designate the Chief Executive Officer of the Aprinnova JV from among the directors and the Company has the right to designate the Chief Financial Officer. The Company determined that it has the power to direct the activities of the Aprinnova JV that most significantly impact its economic performance because of its (i) significant control and ongoing involvement in operational decision making, (ii) guarantee of production costs for certain Aprinnova JV products, as discussed below, and (iii) control over key supply agreements, operational and administrative personnel and other production inputs. The Company has concluded that the Aprinnova JV is a variable-interest entity (VIE) under the provisions of ASC 810, Consolidation, and that the Company has a controlling financial interest and is the VIE's primary beneficiary. As a result, the Company accounts for its investment in the Aprinnova JV on a consolidation basis in accordance with ASC 810.
Under the Aprinnova Operating Agreement, profits from the operations of the Aprinnova JV, if any, are distributed as follows: (i) first, to the Company and Nikko (the Members) in proportion to their respective unreturned capital contribution balances, until each Member’s unreturned capital contribution balance equals zero and (ii) second, to the Members in proportion to their respective interests. In addition, any future capital contributions will be made by the Company and Nikko on an equal (50%/50%) basis each time, unless otherwise mutually agreed. For the year ended December 31, 2019, a $0.3 million distribution was made to Nikko and was recorded as a decrease in noncontrolling interest.
Pursuant to the Aprinnova JV Agreement, the Company and Nikko agreed to make initial working capital loans to the Aprinnova JV in the amounts of $0.5 million and $1.5 million, respectively, and again in 2019 with additional loans of $0.2 million each. Also in 2019, Nikko provided the Aprinnova JV with $1.2 million of short-term loans to purchase certain manufacturing supplies. These loans are described in more detail in Note 4, “Debt”. In addition, the Company agreed to guarantee a maximum production cost for squalane and hemisqualane to be produced by the Aprinnova JV and to bear any cost of production above such guaranteed costs.
In connection with the contribution of the Leland Facility by the Company to the Aprinnova JV, at the closing of the formation of the Aprinnova JV, Nikko made a loan to the Company in the principal amount of $3.9 million, and the Company in consideration therefore issued a promissory note to Nikko in an equal principal amount, as described in more detail in Note 4, “Debt” under “Nikko Note.”
The following presents the carrying amounts of the Aprinnova JV’s assets and liabilities included in the accompanying consolidated balance sheets. Assets presented below are restricted for settlement of the Aprinnova JV's obligations and all liabilities presented below can only be settled using the Aprinnova JV resources.
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Assets
|
$
|
17,390
|
|
$
|
12,904
|
|
Liabilities
|
$
|
3,690
|
|
$
|
2,364
|
|
The Aprinnova JV's assets and liabilities are primarily comprised of inventory, property, plant and equipment, accounts payable and debt, which are classified in the same categories in the Company's consolidated balance sheets.
Office Sublease
The Company subleases certain office space to Novvi, for which the Company charged Novvi $0.6 million and $0.6 million for the years ended December 31, 2019 and 2018, respectively.
See Note 15, “Subsequent Events” for information regarding related party transactions subsequent to December 31, 2019.
11. Stock-based Compensation
Stock-based Compensation Expense Related to All Plans
Stock-based compensation expense related to all employee stock compensation plans, including options, restricted stock units and ESPP, was as follows:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands)
|
2019
|
2018
|
Research and development
|
$
|
2,900
|
|
$
|
1,797
|
|
Sales, general and administrative
|
9,654
|
|
7,393
|
|
Total stock-based compensation expense
|
$
|
12,554
|
|
$
|
9,190
|
|
Plans
2010 Equity Incentive Plan
The Company's 2010 Equity Incentive Plan (2010 Equity Plan) became effective on September 27, 2010 and will terminate in 2020. The 2010 Equity Plan provides for the granting of common stock options, restricted stock awards, stock bonuses, stock appreciation rights, restricted stock units (RSUs) and performance awards. It allows for time-based or performance-based vesting for the awards. Options granted under the 2010 Equity Plan may be either incentive stock options (ISOs) or non-statutory stock options (NSOs). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, non-employee directors and consultants. The Company will be able to issue no more than 2,000,000 shares pursuant to the grant of ISOs under the 2010 Equity Plan. Options under the 2010 Equity Plan may be granted for periods of up to ten years. All options issued to date have had a ten-year life. Under the plan, the exercise price of any ISOs and NSOs may not be less than 100% of the fair market value of the shares on the date of grant. The exercise price of any ISOs and NSOs granted to a 10% stockholder may not be less than 110% of the fair value of the underlying stock on the date of grant. The options and RSUs granted to-date generally vest over three to five years.
As of December 31, 2019 and 2018, options were outstanding to purchase 5,589,315 and 5,339,214 shares, respectively, of the Company's common stock granted under the 2010 Equity Plan, with weighted-average exercise prices per share of $8.89 and $9.62, respectively. In addition, as of December 31, 2019 and 2018, restricted stock units representing the right to receive 5,782,651 and 5,294,803 shares, respectively, of the Company's common stock granted under the 2010 Equity Plan were
outstanding. As of December 31, 2019 and 2018, 3,815,625 and 2,359,750 shares, respectively, of the Company’s common stock remained available for future awards that may be granted under the 2010 Equity Plan.
The number of shares reserved for issuance under the 2010 Equity Plan increases automatically on January 1 of each year starting with January 1, 2011, by a number of shares equal to 5% of the Company’s total outstanding shares as of the immediately preceding December 31. However, the Company’s Board of Directors or the Leadership Development and Compensation Committee of the Board of Directors retains the discretion to reduce the amount of the increase in any particular year.
In May 2018, shareholders approved amendments to the 2010 Equity Plan to (i) increase the number of shares of common stock available for grant and issuance thereunder by 9.0 million shares and (ii) increase the annual per-participant award limit thereunder to 4.0 million shares. Subsequent to the amendments, the total number of shares available for grant was 9,280,000, not including the annual evergreen increases.
2005 Stock Option/Stock Issuance Plan
In 2005, the Company established its 2005 Stock Option/Stock Issuance Plan (2005 Plan) which provided for the granting of common stock options, restricted stock units, restricted stock and stock purchase rights awards to employees and consultants of the Company. The 2005 Plan allowed for time-based or performance-based vesting for the awards. Options granted under the 2005 Plan were ISOs or NSOs. ISOs were granted only to Company employees (including officers and directors who are also employees). NSOs were granted to Company employees, non-employee directors, and consultants.
All options issued under the 2005 Plan had a ten-year life. The exercise prices of ISOs and NSOs granted under the 2005 Plan were not less than 100% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. The exercise price of an ISO and NSO granted to a 10% stockholder could not be less than 110% of the estimated fair value of the underlying stock on the date of grant as determined by the Board. The options generally vested over 5 years.
As of December 31, 2019 and 2018, options to purchase 31,104 and 52,389 shares, respectively, of the Company’s common stock granted under the 2005 Plan remained outstanding, and as a result of the adoption of the 2010 Equity Plan discussed above, zero shares of the Company’s common stock remained available for future awards issuance under the 2005 Plan. The options outstanding under the 2005 Plan as of December 31, 2019 and 2018 had a weighted-average exercise price per share of $259.19 and $185.93, respectively.
2010 Employee Stock Purchase Plan
The 2010 Employee Stock Purchase Plan (2010 ESPP) became effective on September 27, 2010. The 2010 ESPP is designed to enable eligible employees to purchase shares of the Company’s common stock at a discount. Offering periods under the 2010 ESPP generally commence on each May 16 and November 16, with each offering period lasting for one year and consisting of two six-month purchase periods. The purchase price for shares of common stock under the 2010 ESPP is the lesser of 85% of the fair market value of the Company’s common stock on the first day of the applicable offering period or the last day of each purchase period. During the life of the 2010 ESPP, the number of shares reserved for issuance increases automatically on January 1 of each year, starting with January 1, 2011, by a number of shares equal to 1% of the Company’s total outstanding shares as of the immediately preceding December 31. However, the Company’s Board of Directors or the Leadership Development and Compensation Committee of the Board of Directors retains the discretion to reduce the amount of the increase in any particular year. In May 2018, shareholders approved an amendment to the 2010 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. No more than 1,666,666 shares of the Company’s common stock may be issued under the 2010 ESPP and no other shares may be added to this plan without the approval of the Company’s stockholders.
2018 CEO Performance-based Stock Options
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 over the next four years as of December 31, 2019, The Company utilized a Monte Carlo simulation to estimate the grant date fair value of each tranche of the award which totaled $5.1 million. For the years ended December 31, 2019 and 2018, the Company recognized $0 and $0.7 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:
|
|
|
|
|
|
Stock Option Award with Performance and Market Vesting Conditions:
|
|
Fair value of the Company’s common stock on grant date
|
$
|
5.08
|
|
Expected volatility
|
70
|
%
|
Risk-free interest rate
|
2.75
|
%
|
Dividend yield
|
0.0
|
%
|
Stock Option Activity
Stock option activity is summarized as follows:
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
2019
|
2018
|
Options granted
|
530,140
|
|
4,337,119
|
|
Weighted-average grant-date fair value per share
|
$
|
3.83
|
|
$
|
5.18
|
|
Compensation expense related to stock options (in millions)
|
$
|
2.0
|
|
$
|
2.6
|
|
Unrecognized compensation costs as of December 31 (in millions)
|
$
|
4.5
|
|
$
|
8.5
|
|
The Company expects to recognize the December 31, 2019 balance of unrecognized costs over a weighted-average period of 3.8 years. Future option grants will increase the amount of compensation expense to be recorded in these periods.
Stock-based compensation expense for stock options and employee stock purchase plan rights is estimated at the grant date and offering date, respectively, based on the fair-value using the Black-Scholes-Merton option pricing model. The fair value of employee stock options is amortized on a ratable basis over the requisite service period of the awards. The fair value of employee stock options and employee stock purchase plan rights was estimated using the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
2019
|
2018
|
Expected dividend yield
|
—%
|
|
—%
|
|
Risk-free interest rate
|
1.8%
|
|
2.8%
|
|
Expected term (in years)
|
6.9
|
6.9
|
Expected volatility
|
84%
|
|
80%
|
|
The expected life of options is based primarily on historical share option exercise experience of the employees for options granted by the Company. All options are treated as a single group in the determination of expected life, as the Company does not currently expect substantially different exercise or post-vesting termination behavior among the employee population. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant. Expected volatility is based on the historical volatility of the Company's common stock. The Company has no history or expectation of paying dividends on common stock.
Stock-based compensation expense associated with options is based on awards ultimately expected to vest. At the time of an option grant, the Company estimates the expected future rate of forfeitures based on historical experience. These estimates are revised, if necessary, in subsequent periods if actual forfeiture rates differ from those estimates. If the actual forfeiture rate
is lower than estimated the Company will record additional expense and if the actual forfeiture is higher than estimated the Company will record a recovery of prior expense.
The Company’s stock option activity and related information for the year ended December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Stock Options
|
Weighted-
average
Exercise
Price
|
Weighted-average
Remaining
Contractual
Life
(in years)
|
Aggregate
Intrinsic
Value
(in thousands)
|
Outstanding - December 31, 2018
|
5,390,270
|
|
$
|
11.55
|
|
8.5
|
$
|
29
|
|
Options granted
|
530,140
|
|
$
|
3.83
|
|
|
|
|
Options exercised
|
(7,445)
|
|
$
|
3.60
|
|
|
|
|
Options forfeited or expired
|
(292,546)
|
|
$
|
17.18
|
|
|
|
|
Outstanding - December 31, 2019
|
5,620,419
|
|
$
|
10.27
|
|
7.8
|
$
|
24
|
|
Vested or expected to vest after December 31, 2019
|
5,037,260
|
|
$
|
10.88
|
|
7.7
|
$
|
23
|
|
Exercisable at December 31, 2019
|
1,314,113
|
|
$
|
27.46
|
|
6.1
|
$
|
10
|
|
The aggregate intrinsic value of options exercised under all option plans was $0 and $0.2 million for the years ended December 31, 2019 and 2018, respectively, determined as of the date of option exercise.
Restricted Stock Units Activity and Expense
During the years ended December 31, 2019 and 2018, 2,996,660 and 5,452,664 RSUs, respectively, were granted with weighted-average service-inception date fair value per unit of $3.96 and $5.36, respectively. The Company recognized RSU-related stock-based compensation expense of $10.2 million and $6.4 million, respectively, for the years ended December 31, 2019 and 2018. As of December 31, 2019 and 2018, unrecognized RSU-related compensation costs totaled $22.3 million and $23.8 million, respectively.
Stock-based compensation expense for RSUs is measured based on the closing fair market value of the Company's common stock on the date of grant.
The Company’s RSU and restricted stock activity and related information for the year ended December 31, 2019 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Restricted Stock Units
|
Weighted-average Grant-date
Fair Value
|
Weighted-average Remaining Contractual Life
(in years)
|
Outstanding - December 31, 2018
|
5,294,803
|
|
$
|
5.50
|
|
1.4
|
Awarded
|
2,996,660
|
|
$
|
3.96
|
|
|
Vested
|
(1,891,931)
|
|
$
|
5.51
|
|
|
Forfeited
|
(616,881)
|
|
$
|
4.84
|
|
|
Outstanding - December 31, 2019
|
5,782,651
|
|
$
|
4.77
|
|
1.7
|
Vested or expected to vest after December 31, 2019
|
5,338,558
|
|
$
|
4.78
|
|
1.6
|
ESPP Activity and Expense
During the years ended December 31, 2019 and 2018, 318,490 and 246,230 shares, respectively, of the Company's common stock were purchased under the 2010 ESPP. At December 31, 2019 and 2018, 263,797 and 199,463 shares, respectively, of the Company’s common stock remained reserved for issuance under the 2010 ESPP.
During the years ended December 31, 2019 and 2018, the Company also recognized ESPP-related stock-based compensation expense of $0.4 million and $0.2 million, respectively.
12. Divestiture
On December 28, 2017, the Company completed the sale of its subsidiary Amyris Brasil Ltda. (Amyris Brasil), which operated the Company’s production facility located in Brotas, Brazil, to DSM and concurrently entered into a series of commercial agreements and a credit agreement with DSM. At closing, the Company received $33.0 million in contractual cash consideration for the capital stock of Amyris Brasil, which was subject to certain post-closing working capital adjustments; and reimbursements contingent upon DSM’s utilization of certain Brazilian tax benefits it acquired with its purchase of Amyris Brasil. The Company used $12.6 million of the cash proceeds received to repay certain indebtedness of Amyris Brasil. The total fair value of the contractual consideration received by the Company for Amyris Brasil was $56.9 million and resulted in a pretax gain of $5.7 million from continuing operations. In November 2018, the Company paid DSM $1.8 million related to the final post-closing working capital adjustment. In connection with the payment, $1.8 million was recorded as a loss on divestiture in the 2018 consolidated statement of operations, in the line captioned "(Loss) gain on divestiture".
Concurrent with the sale of Amyris Brasil, the Company and DSM entered into a series of commercial agreements including (i) a license agreement to DSM of its farnesene product for DSM to use in the Vitamin E and lubricant markets; (ii) a royalty agreement, pursuant to which DSM agreed to pay the Company specified royalties representing a portion of the profit on the sale of Vitamin E produced from farnesene sold under the Nenter Supply Agreement assigned to DSM; (iii) a performance agreement for the Company to perform research and development to optimize farnesene for production and sale of farnesene products; and (iv) a transition services agreement for the Company to provide finance, legal, logistics, and human resource services to support the Brotas facility under DSM ownership for a six-month period with a DSM option to extend for six additional months (see Note 9, “Revenue Recognition” for additional information). At closing, DSM paid the Company a $27.5 million nonrefundable license fee and a $15.0 million nonrefundable royalty payment, and agreed to pay two additional future nonrefundable minimum annual royalty payments totaling $18.1 million for 2019 and 2020 royalties. These future payments were determined to be fixed and determinable with a fair value of $17.8 million and were included as part of the total consideration subject to allocation in the December 2017 multiple-element divestiture transaction with DSM. In June 2018, the Company received the 2019 non-refundable minimum royalty payment of $9.3 million (net of a $0.7 million early payment discount) and in March 2019, the Company received the 2020 payment of $7.4 million (net of a $0.7 million early payment discount). See Note 9, “Revenue Recognition” and Note 10, "Related Party Transactions" for a full listing and details of agreements entered into with DSM. Additionally, the Company and DSM entered into a $25.0 million credit agreement that the Company used to repay all outstanding amounts under the Guanfu Note; see Note 4, “Debt” for additional information.
The Company accounted for the sale of Amyris Brasil as a sale of a business for proceeds of $54.8 million. The agreements entered into concurrently with the sale of Amyris Brasil including the license agreement, royalty agreement, performance agreement, transition services agreement, and credit agreement contain various elements and, as such, are deemed to be an arrangement with multiple deliverables as defined under U.S. GAAP. The Company performed an analysis to determine the fair value for all elements in the agreements with DSM and separated the elements between the non-revenue and revenue elements. After allocating the total fair value of the non-revenue elements from the fixed and determinable consideration received, the Company allocated the remaining fixed and determinable consideration to the revenue elements based on relative fair value. As such, the Company recognized $54.7 million of license revenue and $2.1 million of deferred revenue related to the performance option and transition services agreements with DSM as of December 31, 2017.
13. Income Taxes
The components of loss before income taxes are as follows:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands)
|
2019
|
2018
|
United States
|
$
|
(227,614)
|
|
$
|
(218,109)
|
|
Foreign
|
(14,524)
|
|
(12,125)
|
|
Loss before income taxes
|
$
|
(242,138)
|
|
$
|
(230,234)
|
|
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
(In thousands)
|
2019
|
2018
|
Current:
|
|
|
|
|
Federal
|
$
|
621
|
|
$
|
—
|
|
State
|
—
|
|
—
|
|
Foreign
|
8
|
|
—
|
|
Total current provision
|
629
|
|
—
|
|
Deferred:
|
|
|
|
|
Federal
|
—
|
|
—
|
|
State
|
—
|
|
—
|
|
Foreign
|
—
|
|
—
|
|
Total deferred benefit
|
—
|
|
—
|
|
Total provision for income taxes
|
$
|
629
|
|
$
|
—
|
|
A reconciliation between the statutory federal income tax and the Company’s effective tax rates as a percentage of loss before income taxes is as follows:
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
2019
|
2018
|
Statutory tax rate
|
(21.0)
|
%
|
(21.0)
|
%
|
Federal R&D credit
|
(0.7)
|
%
|
(0.6)
|
%
|
Derivative liability
|
4.7
|
%
|
4.3
|
%
|
Nondeductible interest
|
1.0
|
%
|
1.0
|
%
|
Other
|
2.4
|
%
|
(0.1)
|
%
|
Foreign losses
|
0.9
|
%
|
0.9
|
%
|
Change in valuation allowance
|
13.0
|
%
|
15.5
|
%
|
Effective income tax rate
|
0.3
|
%
|
—
|
%
|
Temporary differences and carryforwards that gave rise to significant portions of deferred taxes are as follows:
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
Net operating loss carryforwards
|
$
|
88,513
|
|
$
|
57,921
|
|
Property, plant and equipment
|
8,239
|
|
9,269
|
|
Research and development credits
|
15,002
|
|
12,046
|
|
Foreign tax credit
|
—
|
|
—
|
|
Accruals and reserves
|
13,934
|
|
8,526
|
|
Stock-based compensation
|
6,164
|
|
6,496
|
|
Disallowed interest carryforward
|
7,072
|
|
2,359
|
|
Capitalized research and development costs
|
21,723
|
|
27,888
|
|
Intangible and others
|
2,503
|
|
3,114
|
|
Equity investments
|
304
|
|
156
|
|
Total deferred tax assets
|
163,454
|
|
127,775
|
|
Operating leases right-of-use assets
|
(2,643)
|
|
—
|
|
Debt discount and derivatives
|
(7,176)
|
|
(3,750)
|
|
Total deferred tax liabilities
|
(9,819)
|
|
(3,750)
|
|
Net deferred tax assets prior to valuation allowance
|
153,635
|
|
124,025
|
|
Less: valuation allowance
|
(153,635)
|
|
(124,025)
|
|
Net deferred tax assets
|
$
|
—
|
|
$
|
—
|
|
Activity in the deferred tax assets valuation allowance is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Balance at Beginning of Year
|
Additions
|
Reductions / Charges
|
Balance at End of Year
|
Deferred tax assets valuation allowance:
|
|
|
|
|
Year ended December 31, 2019
|
$
|
124,025
|
|
$
|
29,610
|
|
$
|
—
|
|
$
|
153,635
|
|
Year ended December 31, 2018
|
$
|
81,086
|
|
$
|
42,939
|
|
$
|
—
|
|
$
|
124,025
|
|
Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. Based on the weight of available evidence, especially the uncertainties surrounding the realization of deferred tax assets through future taxable income, the Company believes that it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its net deferred tax assets as of December 31, 2019 and 2018. The valuation allowance increased by $42.9 million during the year ended December 31, 2018 and increased by $29.6 million during the year ended December 31, 2019.
As of December 31, 2019, the Company had federal net operating loss carryforwards of approximately $411.3 million and state net operating loss carryforwards $158.1 million, available to reduce future taxable income, if any. The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 (IRC Section 382). Events that may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. During the year ended December 31, 2019, the Company experienced a cumulative ownership change of greater than 50%. As such, net operating losses generated prior to that change are subject to an annual limitation on their use. Due to the limitations imposed, the Company wrote-off $396.5 million of federal NOL carryover and $90.6 million of state NOL carryover that is expected to expire before it can be utilized. Additionally, the Company wrote-off $14.4 million of its historical federal research and development credit carryovers as a result of the limitations. As of December 31, 2019, the Company had foreign net operating loss carryovers of approximately $22.0 million.
As of December 31, 2019, the Company had federal research and development credit carryforwards of $3.3 million and California research and development credit carryforwards of $15.2 million.
If not utilized, the federal net operating loss carryforward will begin expiring in 2034, and the California net operating loss carryforward will begin expiring in 2031. The federal research and development credit carryforwards will expire starting in 2037 if not utilized. The California research and development credit carryforwards can be carried forward indefinitely.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
(In thousands)
|
|
|
Balance at December 31, 2017
|
$
|
28,833
|
|
Increases in tax positions for prior period
|
55
|
|
Increases in tax positions during current period
|
1,239
|
|
Balance at December 31, 2018
|
30,127
|
|
Increases in tax positions for prior period
|
—
|
|
Increases in tax positions during current period
|
1,411
|
|
Balance at December 31, 2019
|
$
|
31,538
|
|
The Company’s policy is to include interest and penalties related to unrecognized tax benefits within the provision for taxes. The Company accrued $0.6 million and $0 for interest as of December 31, 2019 and 2018, respectively.
None of the unrecognized tax benefits, if recognized, would affect the effective income tax rate for any of the above years due to the valuation allowance that currently offsets deferred tax assets. The Company does not anticipate that the total amount of unrecognized income tax benefits will significantly increase or decrease in the next 12 months.
The Company’s primary tax jurisdiction is the United States. For United States federal and state tax purposes, returns for tax years 2006 and forward remain open and subject to tax examination by the appropriate federal or state taxing authorities. Brazil tax years 2011 and forward remain open and subject to examination.
As of December 31, 2019, the U.S. Internal Revenue Service (the IRS) has completed its audit of the Company for tax year 2008 and concluded that there were no adjustments resulting from the audit. While the statutes are closed for tax year 2008, the U.S. federal tax carryforwards (net operating losses and tax credits) may be adjusted by the IRS in the year in which the carryforward is utilized.
14. Geographical Information
The chief operating decision maker is the Company's Chief Executive Officer, who makes resource allocation decisions and assesses performance based on financial information presented on a consolidated basis. There are no segment managers who are held accountable by the chief operating decision maker, or anyone else, for operations, operating results, and planning for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable segment and operating segment structure.
Revenue
Revenue by geography, based on each customer's location, is shown in Note 9, "Revenue Recognition".
Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
December 31,
(In thousands)
|
2019
|
2018
|
United States
|
$
|
13,799
|
|
$
|
10,404
|
|
Brazil
|
14,277
|
|
6,447
|
|
Europe
|
854
|
|
198
|
|
|
$
|
28,930
|
|
$
|
17,049
|
|
15. Subsequent Events
Warrants Exercises for Cash
On January 13, 2020 Foris Ventures, LLC (Foris), an entity affiliated with director John Doerr and which beneficially owns greater than 5% of the Company’s outstanding common stock, delivered to the Company an irrevocable notice of cash exercise with respect to a warrant to purchase 4,877,386 shares of the Company’s common stock at an exercise price of $2.87 per share, pursuant to a warrant issued by the Company on August 17, 2018. On January 14, 2020, the Company received approximately $14.0 million from Foris in connection with the warrant exercise representing 4,877,386 shares of common stock.
On March 11, 2020 Foris provided to the Company a notice of cash exercise to purchase 5,226,481 shares of the Company’s common stock at an exercise price of $2.87 per share, pursuant to the PIPE Rights (discussed in the January 2020 Private Placement section below) issued by the Company on January 31, 2020. On March 12, 2020, the Company received approximately $15.0 million from Foris in connection with the PIPE Rights exercise.
Exchange of Senior Convertible Notes Due 2022
On January 14, 2020, the Company completed the exchange, pursuant to separate exchange agreements (the Exchange Agreements) with certain private investors (the Holders), of the Company’s Senior Convertible Notes Due 2022 (or the Prior Notes) for (i) new senior convertible notes in an aggregate principal amount of $51 million (the New Notes or New Senior Convertible Notes due 2022), (ii) an aggregate of 2,742,160 shares of Common Stock (the Exchange Shares), (iii) rights (the Rights) to acquire up to an aggregate of 2,484,321 shares of Common Stock, (iv) warrants (the Warrants) to purchase up to an aggregate of 3,000,000 shares of Common Stock (the Warrant Shares) at an exercise price of $3.25 per share, with an exercise term of two years from issuance, (v) accrued and unpaid interest on the Senior Convertible Notes Due 2022 (payable on or prior to January 31, 2020) and (vi) cash fees in an aggregate amount of $1.0 million (payable on or prior to January 31, 2020).
The New Notes have substantially similar terms as the Prior Notes, except that (i) the Company would not be required to redeem the New Notes in an aggregate principal amount of $10 million on December 31, 2019, (ii) the Company would only be required to redeem the New Notes in an aggregate amount of $10 million following the receipt by the Company of at least $80 million of aggregate net cash proceeds from one or more financing transactions, and at a price of 107% of the amount being redeemed, (iii) the financing activity requirement was reduced such that the Company would only be required to raise aggregate net cash proceeds of $50 million from one or more financing transactions by January 31, 2020, (iv) the Company would have until January 31, 2020 to comply with certain covenants related to the repayment, conversion or exchange into equity or amendment of certain outstanding indebtedness of the Company, and (v) the deadline for the Company to seek the Stockholder Approval would be extended from January 31, 2020 to March 15, 2020.
On February 18, 2020, the Company and the Holders entered into separate waiver and forbearance agreements, (the W&F Agreements), pursuant to which the Holders agreed to, for 60 days following the date of the W&F Agreement, except in case of early termination of the W&F Agreement or, solely with respect to the Stockholder Approval if the other defaults described below have been cured on or prior to the date that is 60 days following the date of the W&F Agreement, until May 31, 2020 (the W&F Period), and in each case subject to certain conditions to effectiveness contained in the W&F Agreement, (i) forbear from exercising certain of their rights and remedies with respect to certain defaults by the Company, including, but not limited to, the Company's failure, on or before January 31, 2020, (A) to receive aggregated net cash proceeds of not less than $50 million from one or more financing transactions, (B) to repay in full or convert into equity all indebtedness outstanding under the Schottenfeld September Credit Agreement and the Schottenfeld November Credit and Security Agreement or amend all such indebtedness outstanding to fit within the definition of permitted indebtedness of the New Notes, and certain other events of default, and (ii) waive any event of default for (A) violations of the minimum liquidity covenant since December 31, 2019 and (B) failure to obtain the Stockholder Approval prior to March 15, 2020.
In addition, pursuant to the W&F Agreements, the Company and the Holders agreed that (i) the New Note amortization payment due on March 1, 2020 (the Amortization Payment) shall be in the aggregate amount of $10.0 million (split proportionally among the Holders) and that the Company shall elect to pay such amortization payment in shares of Common Stock in accordance with the terms of the New Note, provided however, that: (A) the Amortization Stock Payment Price (as defined in the New Note) shall be $3.00, (B) the Amortization Share Payment Period (as defined in the New Note) with respect to the Amortization Payment will end on April 30, 2020 rather than March 31, 2020; and (C) in the event that Holder does not elect to receive the full Amortization Share Amount (as defined in the New Note) during such Amortization Share Payment Period, then the Amortization Payment shall be automatically reduced by the portion of such Amortization Payment not received by the Holder, (ii) there shall be no amortization payment due on April 1, 2020, and (iii) the amortization payment due on May 1, 2020 shall be in the aggregate amount of $8.9 million (split proportionally among the Holders).
On February 24, 2020, a Holder of the Rights notified the Company about the exercise of the Rights for the issuance of an aggregate of 2,484,321 shares of common stock, which were issued by the Company according to the terms of the Senior Convertible Notes Due 2022.
January 2020 Warrant Amendments and Exercises, Debt Equitization and PIPE
As described below in further detail, on January 31, 2020, the Company completed a series of transactions that resulted in the Company (i) receiving $28.3 million in cash, (ii) reducing its aggregate debt principal by $60.0 million and accrued interest by approximately $10.0 million, (iii) issuing an aggregate of (A) 25,326,095 shares of common stock as a result of the exercise of outstanding warrants, and (B) 13,989,973 new shares of common stock in private placements, and (iv) issuing rights to purchase an aggregate of 18,649,961 shares of common stock, at an exercise price of $2.87 per share, for an exercise term of 12 months.
Warrant Amendments
On January 31, 2020, the Company entered into separate warrant amendment agreements (the Warrant Amendments) with Foris and certain other holders (the Warrant Holders) of the Company’s outstanding warrants to purchase shares of the Company’s common stock, pursuant to which the exercise price of certain warrants (the Amended Warrants) held by the Warrant Holders totaling 1.2 million shares and Foris totaling 10.2 million shares was reduced to $2.87 per share upon the exercise of the Amended Warrant.
Warrant Exercises by Certain Holders
In connection with the entry into the Warrant Amendments, on January 31, 2020 the Warrant Holders delivered to the Company irrevocable notices of cash exercise with respect to their Amended Warrants, representing an aggregate of 1,160,929 shares of Common Stock (the Warrant Amendment Shares), and the Company issued to the Holders rights to purchase an aggregate of 1,160,929 shares of Common Stock, at an exercise price of $2.87 per share, for an exercise term of twelve months
from the January 31, 2020 issuance (the Rights). The Company received net proceeds of $3.3 million from the exercise of the Amended Warrants and issued to the Holders the Warrant Amendment Shares.
Warrant Exercise, Common Stock Purchase and Debt Equitization by Foris – Related Party
On January 31, 2020, the Company and Foris entered into a warrant exercise agreement (the Exercise Agreement) pursuant to which (i) Foris (A) exercised all of its then outstanding common stock purchase warrants (the Foris Warrants), totaling 19,287,780 shares of Common Stock (the Foris Warrant Shares), at a weighted average exercise price of approximately $2.84 per share (following the Warrant Amendments noted above) for an aggregate exercise price of $54.8 million (the Exercise Price), and (B) purchased 5,279,171 shares of Common Stock (the Foris Shares), at $2.87 per share for a total purchase price of $15.2 million (Purchase Price), (ii) Foris paid the Exercise Price and the Purchase Price through the cancellation of $70 million of principal and accrued interest owed by the Company to Foris under the Foris $19 million Note and the Foris LSA (as discussed in Note 4, "Debt") and (iii) the Company issued to Foris the Foris Shares and an additional right to purchase 8,778,230 shares of Common Stock at a purchase price of $2.87 per share, for a period of 12 months from the Exercise Agreement.
January 2020 Private Placement
On January 31, 2020 the Company entered into separate Security Purchase Agreements (the Purchase Agreements) with certain accredited investors (the Investors), including Foris, for the issuance and sale of an aggregate of 8,710,802 shares of Common Stock (the PIPE Shares) and rights to purchase an aggregate of 8,710,802 shares of Common Stock (the PIPE Rights) at a purchase price of $2.87 per share, for a period of 12 months for an aggregate purchase price of $25 million.
Evergreen Shares for 2010 Equity Incentive Plan and 2010 Employee Stock Purchase Plan
In February 2020, the Company's Board of Directors (the Board) approved increases to the number of shares available for issuance under the Company's 2010 Equity Incentive Plan (the Equity Plan) and 2010 Employee Stock Purchase Plan (the Purchase Plan). These shares in connection with the Equity Plan represented an automatic annual increase in the number of shares available for grant and issuance under the Equity Plan of 5,887,133 shares and under the Purchase Plan of 588,713 shares. These increases correspond to approximately 5.0% and 0.5%, respectively, of the total outstanding shares of the Company’s common stock as of December 31, 2019. These automatic increases are effective as of January 1, 2020.
Schottenfeld Forbearance Agreement
The Company and Schottenfeld Opportunities Fund II, L.P. (Schottenfeld) and certain of its affiliates (collectively, the Lenders) are parties (i) to certain Credit Agreements, each dated September 10, 2019 (collectively, the September Credit Agreements) and (ii) to a Credit and Security Agreement, dated November 14, 2019 (the CSA, and collectively with the September Credit Agreements, the Credit Agreements), pursuant to which the Company issued to the Lenders certain notes (the September Notes and the November Notes, respectively, and collectively, the Schottenfeld Notes) and warrants (the September Warrants and the November Warrants, respectively, and collectively, the Shottenfeld Warrants) to purchase shares (the Warrant Shares) of the Company’s common stock. See Not 4, “Debt” for further information.
On February 28, 2020, the Company entered into a forbearance agreement with the Lenders, pursuant to which the Lenders would forbear, for 60 days from the date of the Forbearance Agreement, unless terminated earlier (the Forbearance Period), to exercise certain rights under the Credit Agreement as a result of the Company’s defaults under the Credit Agreements and related Schottenfeld Notes, including the failure of the Company to (i) to pay all principal and accrued interest on the November Notes at the maturity date, (ii) the failure to pay on or before December 31, 2019, all accrued and unpaid interest through December 31, 2019 on the September Notes, and (iii) the failure, on or before December 15, 2019, to convert or exchange at least $60 million, but not less than 100%, of certain junior outstanding indebtedness into equity in the Company, and certain other events of default. Under the forbearance agreement the Company agreed to (i) pay a late fee of 5% on any obligations under the November Notes not paid in full on or before the last day of the Forbearance Period; (ii) pay on or prior to the earliest to occur of April 19, 2020 or the last day of the Forbearance Period, (A) all interest due pursuant to the November Notes and the September Notes, plus all interest accruing on such unpaid interest, plus all interest accrued on account of the November Notes and the September Notes from the date of the Forbearance Agreement through the date of such payment, and (B) a forbearance fee in the amount of $150,000; (iii) pay, upon signature of the Forbearance Agreement, $150,000 as a partial payment of the interest that has accrued pursuant to the November Notes and the September Notes as of the date of the Forbearance Agreement; (iv) amended the Schottenfeld Warrants to (A) reduce the exercise price of each Schottenfeld Warrant to $2.87 per share, and (B) with respect to the November Warrants, extend the deadline to register the Warrant Shares for resale by the holders thereof.
Ginkgo Waiver Agreement
On March 11, 2020, the Company and Ginkgo Bioworks, Inc. (Ginkgo) entered into a Waiver Agreement and Amendment to Partnership Agreement (the Ginkgo Waiver), pursuant to the terms of (i) the Ginkgo promissory note dated October 20, 2017, issued by the Company to Ginkgo (as amended, the Ginkgo Note), (ii) the Ginkgo Partnership Agreement, dated October 20, 2017, by and between the Company and Ginkgo, and (iii) the Waiver Agreement and Amendment to Ginkgo Note, dated September 29, 2019, by and between the Company and Ginkgo.
Ginkgo agreed to (i) waive the Company’s failure (a) to pay past due interest and partnership payments, including interest thereon of $6.7 million, and (b) to comply with a reporting covenant prior to March 31, 2020, (iii) to make a prior waiver fee payment of $0.5 million on December 15, 2019, (ii) waive any cross defaults due to events of default under other debt obligations by the Company, and (iii) amend payments on the Ginkgo Partnership Agreement beginning on March 31, 2020 to a monthly payment of $0.5 million through and including October 31, 2021.
Total Note Extension Agreement
On March 11, 2020, the Company and Total Raffinage Chimie (Total) entered into a Senior Convertible Note Maturity Extension Agreement that resulted in the reissuance of the December 20, 2019 promissory note under which the Company owed Total $10.2 million plus accrued interest. Under the terms of the Senior Convertible Note Maturity Extension Agreement, the Company paid Total $1.5 million to satisfy all accrued but unpaid interest and to reduce the principal balance of the reissued note by $1.1 million. The reissued note has (i) a maturity date of March 31, 2020, (ii) a $9.1 million principal amount due, (iii) accrues interest at a rate of 12.0% per annum maturity date and (iv) terms substantially identical to the December 20, 2019 promissory note.
Nikko Amendment to Loan Agreement
On March 12, 2020, the Company and Nikko Chemicals Co. Ltd. (Nikko), entered into an amendment to the Loan Agreement dated December 19, 2019, under which the Company borrowed $4.5 million from Nikko (the Nikko Loan). Under the terms of the amendment, the Company paid Nikko $0.5 million to reduce the principal balance of the Loan Agreement to $4.0 million, the maturity date of the amended Loan Agreement was extended to March 31, 2020, with an increase in the interest rate to 8.0% per annum, and other terms substantially identical to the December 19, 2019 Nikko Loan.
Selected Quarterly Financial Data
Not applicable for smaller reporting companies.