UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 2
(Mark One)
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
or
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
Commission File Number: 001-36030
Marrone Bio Innovations, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 20-5137161 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
7780-420 Brier Creek Parkway, Raleigh, NC 27617
(Address of principal executive offices and zip code)
(530) 750-2800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.00001 par value | MBII | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2021, the last day of the registrant’s most recently completed second quarter, the aggregate market value of the registrant’s voting and non-voting common stock held by non-affiliates was $105,751,347 based upon the closing price of the common stock as reported on the Nasdaq Capital Market. This calculation excludes the shares of common stock held by each officer, director and holder of 5% or more of the outstanding common stock as of June 30, 2021. This calculation does not reflect a determination that such persons are affiliates for any other purposes.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Shares Outstanding at March 25, 2022 | |
| Common Stock, $0.00001 par value |
DOCUMENTS INCORPORATED BY REFERENCE
None.
| Auditor Firm Id: 688 | Auditor Name: Marcum, LLP | Auditor Location: San Francisco, CA |
EXPLANATORY NOTE
Marrone Bio Innovations, Inc. (the “Company,” “we,” or “our”) filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Original Filing”) with the Securities and Exchange Commission (the “SEC”) on March 30, 2022. The Company filed the Amendment No. 1 to the Original Form 10-K solely for the purpose of providing the Part III information (the “First Amendment”). The Company is now filing this Amendment No. 2 to the Original Form 10-K (the “Second Amendment”) solely to correct errors in (i) the report titled “Report of Independent Registered Public Accounting Firm” contained in Part II, Item 8 “Consolidated Financial Statements and Supplementary Data” of the Form 10-K (the “Audit Report”) and (ii) Exhibit 23.1 “Independent Registered Public Accounting Firm’s Consent” (the “Consent”). The original Audit Report and original Consent had omitted the conformed signature of the independent registered public accounting firm.
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have included the entire text of Item 8 of the Form 10-K in this Second Amendment. However, there have been no changes made to the text of such item other than the changes stated in the immediately preceding paragraph. As required by Rule 12b-15 under the Exchange Act, new certifications by our principal executive officer and principal financial officer are being filed as Exhibits 31.1, 31.2 and 32.1 to this Second Amendment.
Except as expressly set forth above, this Amendment does not, and does not purport to, amend, update, or restate the information in the remainder of the Original Filing or reflect any events that have occurred after the date of the Original Filing. Accordingly, this Second Amendment should be read in conjunction with the Original Filing.
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TABLE OF CONTENTS
| Page | ||
| PART II. | ||
| Item 8. | Financial Statements and Supplementary Data | 4 |
| PART IV. | ||
| Item 15. | Exhibits, Financial Statement Schedules | 44 |
| SIGNATURES | 49 | |
| 3 |
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| 4 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Marrone Bio Innovations, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Marrone Bio Innovations, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s 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.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
1. Valuation of Goodwill
Description of the Matter
As discussed in Note 2 to the consolidated financial statements, the Company tests goodwill for impairment annually (or under certain circumstances, more frequently) at the reporting unit level using either a qualitative or quantitative approach. Under the quantitative approach to test for goodwill impairment, the Company compares the fair value of a reporting unit to its carrying amount, including goodwill. Generally, the Company estimates the fair value of its reporting unit using a combination of a discounted cash flows analysis and market-based valuation methodologies.
Auditing the Company’s quantitative goodwill impairment tests involved subjective auditor judgment due to the significant estimation required in management’s determination of the fair value of the reporting unit. The significant estimation was primarily due to the sensitivity of the underlying assumptions including changes in the weighted average cost of capital, projected revenue growth rates and EBITDA margins. These assumptions relate to the expected future operating performance of the Company’s reporting unit, are forward-looking, and are sensitive to and affected by economic, industry and company-specific qualitative factors.
How We Addressed the Matter in Our Audit
To test the estimated fair value of the Company’s reporting unit, we performed audit procedures that included, among others, assessing the valuation methodologies used by the Company, involving our valuation specialists to assist in testing the significant assumptions discussed above, and testing the completeness and accuracy of the underlying data the Company used in its valuation analyses. For example, we compared the significant assumptions used by management to current industry, market and economic trends, the historical results of the reporting unit, and other relevant factors. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions used in the annual impairment test to evaluate the change in the fair value of the reporting unit resulting from changes in the significant assumptions.
2. Fair Value of Contingent Consideration
Description of the Matter
As discussed in note 2 to the consolidated financial statements, the Company’s acquisition-related purchase price contingent consideration liability, which is estimated using Monte Carlo simulation of a geometric Brownian motion model based upon the Company’s estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2022 to 2023 and is remeasured to its estimated fair value at each reporting period, with changes in fair value recorded in the consolidated statements of operations.
Auditing the valuation of the acquisition-related contingent consideration liability was complex and highly judgmental due to the significant estimation required in determining the fair value. In particular, the fair value estimate was sensitive to significant assumptions such as the Company’s estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2022 to 2023, future industry, market or economic conditions, and are forward-looking and inherently uncertain.
How We Addressed the Matter in Our Audit
To evaluate the estimated fair value of the contingent consideration liability, we performed audit procedures that included, among others, assessing the terms of the arrangement, evaluating the methodology used, and testing the significant assumptions discussed above used by the Company in its analysis. We involved our valuation specialists to assist in the evaluation of the significant assumptions and methodology used by the Company. We also compared the significant assumptions to current industry, market and economic trends.
| /s/ Marcum LLP | |
|
Marcum LLP |
|
| We have served as the Company’s auditor since 2018 | |
| San Francisco, CA | |
| March 30, 2022 |
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MARRONE BIO INNOVATIONS, INC.
Consolidated Balance Sheets
(In Thousands, Except Par Value)
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 19,623 | $ | 15,841 | ||||
| Accounts receivable | 13,211 | 10,113 | ||||||
| Inventories | 8,633 | 6,618 | ||||||
| Prepaid expenses and other current assets | 1,211 | 1,688 | ||||||
| Total current assets | 42,678 | 34,260 | ||||||
| Property, plant and equipment, net | 12,676 | 12,565 | ||||||
| Right of use assets, net | 3,637 | 3,760 | ||||||
| Intangible assets, net | 19,011 | 21,383 | ||||||
| Goodwill | 6,740 | 6,740 | ||||||
| Restricted cash | 1,560 | 1,560 | ||||||
| Other assets | 754 | 929 | ||||||
| Total assets | $ | 87,056 | $ | 81,197 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,687 | $ | 1,895 | ||||
| Accrued liabilities | 14,851 | 11,650 | ||||||
| Deferred revenue, current portion | 360 | 374 | ||||||
| Lease liability, current portion | 1,381 | 1,008 | ||||||
| Debt, current portion, net | 25,909 | 9,301 | ||||||
| Total current liabilities | 45,188 | 24,228 | ||||||
| Deferred revenue, less current portion | 1,165 | 1,628 | ||||||
| Lease liability, less current portion | 2,511 | 3,050 | ||||||
| Debt, less current portion, net | 7,691 | 11,479 | ||||||
| Debt due to related parties | - | 7,300 | ||||||
| Other liabilities | 848 | 2,102 | ||||||
| Total liabilities | 57,403 | 49,787 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock: $ par value; shares authorized and shares issued or outstanding at December 31, 2021 and 2020 | ||||||||
| Common stock: $ par value; shares authorized, and shares issued and outstanding as of December 31, 2021 and 2020, respectively | 1 | 1 | ||||||
| Additional paid in capital | 387,023 | 372,226 | ||||||
| Accumulated deficit | (357,371 | ) | (340,817 | ) | ||||
| Total stockholders’ equity | 29,653 | 31,410 | ||||||
| Total liabilities and stockholders’ equity | $ | 87,056 | $ | 81,197 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
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MARRONE BIO INNOVATIONS, INC.
Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Revenues: | ||||||||
| Product | $ | 43,812 | $ | 37,915 | ||||
| License | 498 | 459 | ||||||
| Total revenues | 44,310 | 38,374 | ||||||
| Cost of product revenues | 17,064 | 15,505 | ||||||
| Gross profit | 27,246 | 22,869 | ||||||
| Operating Expenses: | ||||||||
| Research, development and patent | 12,077 | 11,330 | ||||||
| Selling, general and administrative | 30,573 | 28,734 | ||||||
| Total operating expenses | 42,650 | 40,064 | ||||||
| Loss from operations | (15,404 | ) | (17,195 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (1,570 | ) | (1,443 | ) | ||||
| Loss on modification of warrants | - | (72 | ) | |||||
| Loss on issuance of new warrants | (1,391 | ) | ||||||
| Change in fair value of contingent consideration | 639 | (445 | ) | |||||
| Other income, net | (174 | ) | 407 | |||||
| Total other expense, net | (1,105 | ) | (2,944 | ) | ||||
| Net loss before income taxes | (16,509 | ) | (20,139 | ) | ||||
| Income tax expense | (45 | ) | (29 | ) | ||||
| Net Loss | $ | (16,554 | ) | $ | (20,168 | ) | ||
| Basic and diluted net loss per common share: | $ | (0.09 | ) | $ | (0.14 | ) | ||
| Weighted-average shares outstanding used in computing basic and diluted net loss per common share: | 174,832 | 148,892 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
MARRONE BIO INNOVATIONS, INC.
Consolidated Statements Stockholders’ Equity
(In Thousands)
| COMMON STOCK | ADDITIONAL PAID IN | ACCUMULATED | TOTAL STOCKHOLDERS’ | |||||||||||||||||
| SHARES | AMOUNT | CAPITAL | DEFICIT | EQUITY | ||||||||||||||||
| Balance at January 1, 2020 | 139,526 | $ | 1 | $ | 344,206 | $ | (320,649 | ) | $ | 23,558 | ||||||||||
| Net loss | — | (20,168 | ) | (20,168 | ) | |||||||||||||||
| Net settlement of options | 100 | 108 | 108 | |||||||||||||||||
| Share-based compensation | — | 3,595 | 3,595 | |||||||||||||||||
| Employee stock purchase plan | 268 | 254 | 254 | |||||||||||||||||
| Settlement of restricted stock units | 657 | |||||||||||||||||||
| Issuance of restricted stock units in lieu of bonus payments | — | 632 | 632 | |||||||||||||||||
| Financing costs | — | (104 | ) | (104 | ) | |||||||||||||||
| Exercise of warrants | 26,927 | 22,072 | 22,072 | |||||||||||||||||
| Modification of existing warrants | — | 1,463 | 1,463 | |||||||||||||||||
| Balance at December 31, 2020 | 167,478 | $ | 1 | $ | 372,226 | $ | (340,817 | ) | $ | 31,410 | ||||||||||
| Net loss | — | (16,554 | ) | (16,554 | ) | |||||||||||||||
| Net settlement of options | 79 | 87 | 87 | |||||||||||||||||
| Share-based compensation | — | 3,351 | 3,351 | |||||||||||||||||
| Employee stock purchase plan | 312 | 287 | 287 | |||||||||||||||||
| Settlement of restricted stock units | 1,195 | - | ||||||||||||||||||
| Issuance and settlement of restricted stock units in lieu of bonus payments, net | 188 | 348 | 348 | |||||||||||||||||
| Exercise of warrants | 12,414 | 9,720 | 9,720 | |||||||||||||||||
| Issuance of common stock in settlement of contingent consideration | 558 | 1,004 | 1,004 | |||||||||||||||||
| Balance at December 31, 2021 | 182,224 | $ | 1 | $ | 387,023 | $ | (357,371 | ) | $ | 29,653 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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MARRONE BIO INNOVATIONS, INC.
Consolidated Statements of Cash Flows
(In Thousands)
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (16,554 | ) | $ | (20,168 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 3,531 | 3,558 | ||||||
| Gain on disposal of equipment | (9 | ) | ||||||
| Change in inventory reserves | (35 | ) | (139 | ) | ||||
| Right of use assets amortization | 1,036 | 807 | ||||||
| Share-based compensation | 3,351 | 3,595 | ||||||
| Non-cash interest expense | 179 | 226 | ||||||
| Loss on modification of warrants | 72 | |||||||
| Loss on issuance of new warrants | 1,391 | |||||||
| Change in fair value of contingent consideration | (639 | ) | 445 | |||||
| Net changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (3,098 | ) | (4,188 | ) | ||||
| Inventories | (1,980 | ) | 1,670 | |||||
| Prepaid Expenses and other assets | 652 | (219 | ) | |||||
| Accounts payable | 585 | (1,409 | ) | |||||
| Accrued and other liabilities | 4,718 | (148 | ) | |||||
| Lease Liability | (1,079 | ) | (825 | ) | ||||
| Deferred revenue | (628 | ) | (618 | ) | ||||
| Net cash used in operating activities | (9,961 | ) | (15,959 | ) | ||||
| Cash flows from investing activities | ||||||||
| Payment of consideration in connection with previous asset purchase | (750 | ) | (1,240 | ) | ||||
| Purchases of property, plant and equipment | (1,093 | ) | (559 | ) | ||||
| Proceeds from sale of equipment | 2 | |||||||
| Net cash used in investing activities | (1,843 | ) | (1,797 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of debt | - | 202 | ||||||
| Proceeds from secured borrowings | 43,340 | 40,127 | ||||||
| Repayment in secured borrowings | (37,476 | ) | (34,790 | ) | ||||
| Repayment of debt | (372 | ) | (524 | ) | ||||
| Exercise of stock options | 108 | |||||||
| Equity offering costs | (104 | ) | ||||||
| Net settlement of options | 87 | |||||||
| Proceeds from employee stock purchase plan | 287 | 254 | ||||||
| Exercise of warrants | 9,720 | 22,072 | ||||||
| Net cash provided by financing activities | 15,586 | 27,345 | ||||||
| Net increase in cash and cash equivalents and restricted cash | 3,782 | 9,589 | ||||||
| Cash and cash equivalents and restricted cash, beginning of period | 17,401 | 7,812 | ||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 21,183 | $ | 17,401 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | 1,383 | $ | 1,166 | ||||
| Cash paid for income taxes | $ | 92 | $ | |||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Property, plant and equipment included in accounts payable and accrued liabilities | $ | 207 | $ | 44 | ||||
| Right of use assets (non-cash) acquired | $ | 913 | $ | |||||
| Conversion of accrued liabilities into equity associated with the granting of restricted stock units | $ | 348 | $ | 632 | ||||
| Contingent consideration milestone settled in common shares | 1,004 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 9 |
MARRONE BIO INNOVATIONS, INC.
Notes to Consolidated Financial Statements
December 31, 2021
1. Summary of Business, Basis of Presentation
Marrone Bio Innovations, Inc. (the “Company”), formerly Marrone Organic Innovations, Inc., was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. In September 2019, the Company closed its acquisition of Pro Farm Technologies OY, a Finnish limited company, which consisted of Pro Farm Technologies OY and its five subsidiaries Pro Farm International Oy (Finland), Pro Farm OU (Estonia), Pro Farm Technologies Comercio de Insumos Agricolas do Brasil ltda. (Brazil – 99% controlling interest), Pro Farm Inc. (Delaware), and Glinatur SA (Uruguay) (collectively “Pro Farm”). As a result of the acquisition, Pro Farm became a wholly-owned subsidiary of the Company. On December 31, 2019, Pro Farm Russia, LLC was formed as a subsidiary under Pro Farm Technologies OY. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC) for Form 10-K and include all of the information and disclosures required by accounting principles generally accepted in the United States of America (GAAP) for financial reporting. Certain amounts in the prior periods’ financial statements and related footnote disclosures have been reclassified to conform to the current presentation with no impact on previously reported net income or stockholders’ equity.
The Company makes biological crop protection, plant health and nutrition products. The Company targets the major markets that use conventional chemical products, including certain agricultural markets where its biological products are used as alternatives for, or mixed with, conventional chemical products. The Company also targets new markets for which (i) there are no available conventional chemical products or (ii) the use of conventional chemical products may not be desirable or permissible either because of health and environmental concerns (including for organically certified crops) or because the development of pest resistance has reduced the efficacy of conventional chemical products. The Company delivers EPA-approved and registered biological crop protection products and other biological products that address the global demand for effective, safe and environmentally responsible products.
Going Concern, Liquidity, and Management Plans
The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue to operate, although there is substantial doubt about its ability to continue as a going concern for 12 months after the issuance of these consolidated financial statements. This assessment contemplates the realization of assets and the settlement of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from the Company’s substantial doubt about its ability to continue as a going concern.
The Company has a limited number of commercialized products and has incurred significant losses since inception, and expects to continue to incur losses for the foreseeable future. The Company’s historical operating results, including prior periods of negative use of operating cash flows and debt maturities due within the 12 months of the balance sheet date indicate that substantial doubt exists related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these consolidated financial statements. As of December 31, 2021, the Company had a working capital deficit of $2,510,000, including cash and cash equivalents of $19,623,000. In addition, as of December 31, 2021, the Company had consolidated short-term and long-term debt of $33,600,000, for which the underlying debt agreements contain various financial and non-financial covenants, and certain material adverse change clauses. As of December 31, 2021, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements. (Refer to Notes 8 of these consolidated financial statements)
| 10 |
If the Company breaches covenants contained within the debt agreements or if the material adverse change clauses are triggered, the entire unpaid principal and interest balances would be due and payable upon demand. Without entering into a continuation of its current waiver, which expires March 31, 2023, entering into strategic agreements that include significant cash payments upfront, significantly increasing revenues from sales or raising additional capital through the issuance of equity, the Company expects it will exceed its current ratio and maximum debt-to-worth requirement under the June 2014 Secured Promissory Note with Five Star Bank. Further, a violation of a covenant in one debt agreement will cause the Company to be in violation of certain covenants under each of its other debt agreements. Breach of covenants included in the Company’s debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances, will have a material adverse effect upon the Company and would likely require the Company to seek to renegotiate these debt arrangements with the lenders. If such negotiations are unsuccessful, the Company may be required to seek protection from creditors through bankruptcy proceedings. The Company’s inability to maintain compliance with its debt covenants could have a negative impact on the Company’s financial condition and ability to continue as a going concern.
The June 2014 Secured Promissory Note contains a material adverse change clause that could be invoked by the lender as a result of the uncertainty related to the Company’s ability to continue as a going concern. If the lender were to declare an event of default, the entire amount of borrowings related to all debt agreements at that time would have to be reclassified as current in the consolidated financial statements. The lender has waived its right to deem recurring losses, liquidity, going concern, and financial condition a material adverse change through March 31, 2023. As a result, the long-term portion of the June 2014 Secured Promissory Note has not been reclassified to current in these consolidated financial statements as of December 31, 2021.
The Company believes that its existing cash and cash equivalents of $8,793,000 at March 25, 2022, together with expected revenues, expected future extension of debt maturities, equity financings and cost management will be sufficient to fund operations as currently planned through one year from the date of the issuance of these consolidated financial statements. The Company anticipates securing additional sources of cash through equity and/or debt financings, or through other sources of financing, consistent with historic results. However, the Company cannot predict, with certainty, the outcome of its actions to grow revenues, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. Further, the Company may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, and general capital expenditures.
Although the Company recognizes that it will likely need to raise additional funds in the future, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will not be unfavorable. Any future equity financing may result in dilution to existing stockholders and any debt financing may include additional restrictive covenants. Any failure to obtain additional financing or to achieve the revenue growth necessary to fund the Company with cash flows from operations will have a material adverse effect upon the Company and will likely result in a substantial reduction in the scope of the Company’s operations and impact the Company’s ability to achieve its planned business objectives. The actions discussed above cannot be considered to mitigate the substantial doubt raised by its historical operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these consolidated financial statements.
2. Significant Accounting Policies
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company believes that the assumptions and estimates associated with the Company’s forecast used in its going concern, goodwill and contingent consideration assessments, revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize for those transactions with variable considerations and inventory valuation, have the greatest potential impact on the consolidated financial statements. Therefore, the Company considers these estimates to be its significant estimates.
| 11 |
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and debt. The Company deposits its cash and cash equivalents with high credit quality domestic financial institutions with locations in the U.S and globally. Such deposits may exceed federal deposit insurance or foreign deposit guarantee funds limits. The Company believes the financial risks associated with these financial instruments are minimal.
The Company’s customer base is dispersed across many different geographic areas, and currently most customers are pest management distributors in the U.S. Generally, receivables are due up to 120 days from the invoice date and are considered past due after this date, although the Company may offer extended terms from time to time.
During the years ended December 31, 2021 and 2020, 22% and 24%, respectively, of the Company’s revenues were generated from international customers. The Company’s international customers were concentrated in the European Union.
The Company’s principal sources of revenues were its Grandevo, Regalia, UBP ST, and Venerate product lines for the years ended December 31, 2021 and 2020, accounting for 77% and 85%, respectively, of the Company’s total revenues.
Customers to which 10% or more of the Company’s total revenues are attributable for any one of the periods presented consist of the following:
| CUSTOMER | ||||||||||||
| A | B | C | ||||||||||
| Twelve months ended December 31, | ||||||||||||
| 2021 | 20 | % | 14 | % | 14 | % | ||||||
| 2020 | 22 | % | 13 | % | 13 | % | ||||||
Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either December 31, 2021 or 2020, consist of the following:
| CUSTOMER | ||||||||||||||||
| A | B | C | D | |||||||||||||
| December 31, 2021 | 39 | % | 13 | % | 10 | % | 1 | % | ||||||||
| December 31, 2020 | 49 | % | 4 | % | % | 14 | % | |||||||||
Concentrations of Supplier Dependence
The active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 to 12 months of knotweed extract on hand at any given time, but an unexpected disruption in supply, including disruptions resulting from the COVID-19 pandemic, could have an effect on Regalia supply and revenues. Although the Company has identified additional sources of raw knotweed, there can be no assurance that the Company will continue to be able to obtain dried extract from China at a competitive price.
| 12 |
The Company continues to rely on third parties to formulate Grandevo into spray-dried powders, for the majority of its Venerate and Majestene/Zelto products and all of its production of Stargus and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, may adversely affect its ability to satisfy demand and meet delivery obligations, as well as to develop and commercialize new products, on a timely and competitive basis. The Company has not entered into any long-term manufacturing or supply agreements for any of its products, and it may need to enter into additional agreements for the commercial development, manufacturing and sale of its products. There can be no assurance that it can do so on favorable terms, if at all.
Pro Farm products are currently partially sourced by suppliers from one manufacturing plant in Russia, in which the Company owns a 12% interest. The Company plans for enough inventory on hand to meets its revenue forecasts for 12 months at any given time, but an unexpected disruption in supply, including related to COVID-19, could have an adverse effect on the supply and revenues related to the subsidiary. Although the Company has identified additional manufacturers who are capable suppling the products, there can be no assurance that the Company will continue to be able to obtain products at a competitive price.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents consist of cash on deposit, money market funds and certificates of deposit accounts with U.S. and global financial institutions. The Company is exposed to credit risk in the event of default by financial institutions to the extent that cash and cash equivalents balances with financial institutions are in excess of amounts that are insured including for amounts held at U.S. by the Federal Deposit Insurance Corporation and in Finland by the Deposit Guarantee Fund. The Company has not experienced any losses on these deposits. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Cash and cash equivalents | $ | 19,623 | $ | 15,841 | ||||
| Restricted cash, less current portion | 1,560 | 1,560 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 21,183 | $ | 17,401 | ||||
Restricted Cash
The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its June 2014 Secured Promissory Note (refer to Note 8 of the consolidated financial statements).
Accounts Receivable
The carrying value of the Company’s receivables represents their estimated net realizable values. The Company generally does not require collateral and estimates any required allowance for doubtful accounts based on historical collection trends, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is recorded accordingly. Past-due receivable balances are written-off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due. During the years ended December 31, 2021 and 2020, the Company did not have any material receivables balances written off. As of December 31, 2021 and 2020, the Company had $58,000 and no allowance for doubtful accounts, respectively.
| 13 |
Inventories
Inventories are stated at the lower of cost or market value (net realizable value or replacement cost) and include the cost of material and external and internal labor and manufacturing costs. Cost is determined on the first-in, first-out basis. The Company provides for inventory reserves when conditions indicate that the selling price may be less than cost due to physical deterioration, obsolescence, changes in price levels or other factors. Additionally, the Company provides reserves for excess and slow-moving inventory on hand that is not expected to be sold to reduce the carrying amount of excess and slow-moving inventory to its estimated net realizable value. The reserves are based upon estimates about future demand from the Company’s customers and distributors and market conditions.
Inventories, net consist of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | 3,311 | $ | 2,487 | ||||
| Work in progress | 671 | 987 | ||||||
| Finished goods | 4,651 | 3,144 | ||||||
| $ | 8,633 | $ | 6,618 | |||||
During the year ended December 31, 2021, the Company recorded, as a component of cost of product revenues, adjustments to inventory reserves of $422,000 due to quantities on hand that may not be used or sold prior to expiration, and an adjustment of $578,000 as a result of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity.
During the year ended December 31, 2020, the Company recorded, as a component of cost of product revenues, adjustments to inventory reserves of $387,000 due to quantities on hand that may not be used or sold prior to expiration, and an adjustment of $1,770,000 as a result of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity.
Right of Use Assets and Lease Liabilities
The Company determines if an arrangement includes a lease at the inception of the agreement and the right-of-use asset and lease liability is determined at the lease commencement date and is based on the present value of estimated lease payments. The Company’s lease agreements contain both fixed and variable lease payments, none of which are based on a rate or an index. Fixed lease payments are included in the determination of the right-of-use asset and lease liability. Variable lease payments that are not based on a rate or index are expensed when incurred. The present value of estimated lease payments is determined utilizing the rate implicit in the lease agreement if that rate can be determined. If the implicit rate cannot be determined, the present value of estimated lease payments is determined utilizing the Company’s incremental borrowing rate. The incremental borrowing rate is determined at the lease commencement date and is estimated utilizing similar or collateralized borrowing instruments adjusted for the terms of leasing arrangement as necessary. Some of the leases include an option to renew that can extend the lease term. For those leases which are reasonably certain to be renewed, the Company included the renewal period in the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Impairment of Long-Lived Assets
Impairment losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount by which the carrying value of the asset or asset group exceeds its estimated fair value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives. The Company generally uses the following estimated useful lives for each asset category:
| ASSET CATEGORY | ESTIMATED USEFUL LIFE | |
| Building | 30 years | |
| Computer equipment | 2-3 years | |
| Machinery and equipment | 3-20 years | |
| Office equipment | 3-5 years | |
| Furniture | 3-5 years | |
| Leasehold improvements | Shorter of lease term or useful life | |
| Software | 3 years |
Maintenance, repairs and minor renewals are expensed as incurred. Expenditures that substantially increase an asset’s useful life are capitalized. The Company did not recognize any amounts related to impairment for the years ended December 31, 2021 and 2020.
Intangible Assets
Intangible assets are acquired individually or as part of a group at fair value. Intangible assets with definitive lives are amortized over the useful life of the intangible asset, which is the period over which the asset is expected to contribute directly or indirectly to the entity’s future cash flows.
| ASSET CATEGORY | ESTIMATED USEFUL LIFE | |
| Customer Relationship | 15 years | |
| Developed Technology | 10 years | |
| Tradenames | 10-15 years | |
| Non-compete | 6 years | |
| In Process Research and Development | 11 years |
| 14 |
The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company’s intangible assets include customer relationships, patents, trademarks, and in process research and development. The Company has not recorded impairment to intangible assets for the years ended December 31, 2021 and 2020.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The Company assesses goodwill in accordance with Accounting Standards Codification 350, Intangibles – Goodwill and other (“ASC 350”) by first assessing through a qualitative analysis whether events and circumstances lead to the conclusion that a quantitative analysis is required. For the quantitative test, the review for impairment of goodwill is based on a combination of income-based and market-based approaches.
Under the income-based approach, the Company determines fair value using a discounted cash flow approach that requires significant judgment with respect to revenue and profitability growth rates, based upon annual budgets and longer-range strategic plans, and the selection of an appropriate discount rates. Under the market-based approach, the Company determines fair value by comparing reporting units to similar businesses or guideline companies whose securities are actively traded in public markets.
Fair value estimates employed in our annual impairment review of goodwill were determined using models involving several assumptions. Changes in assumptions could materially impact fair value estimates. Assumptions critical to the Company’s fair value estimates were: (i) discount rates; (ii) projected future revenues and profitability used in the reporting unit; and (iii) projected long-term growth rates used in the derivation of terminal year values. These and other assumptions are impacted by economic conditions and expectations of management and may change in the future based on period specific facts and circumstances. While the Company believes the assumptions used to estimate future cash flows are reasonable, there can be no assurance that the expected future cash flows will be realized. As a result, impairment charges that possibly would have been recognized in earlier periods may not be recognized until later periods if actual results deviate unfavorably from earlier estimates. The use of different assumptions would increase or decrease discounted cash flows or earnings projections and, therefore, could change impairment determinations.
For the year ended December 31, 2021, the Company completed a quantitative assessment which did not result in an impairment charge.
Fair Value
Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
| 15 |
ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:
| ● | Level 1—Quoted prices in active markets for identical assets or liabilities. | |
| ● | Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. |
The change in fair value for the reporting period was driven by the result of the unobservable fair value model, a Monte Carlo simulation in a risk-neutral framework assuming Geometric Browning Motion. The most significant input to the model was the estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2022 – 2023. The following represents other inputs used in determining the fair value of the contingent consideration liability:
| DECEMBER 30, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Discount Rate | 14.9 | % | 15.5 | % | ||||
| Volatility | 47.0 | % | 45.8 | % | ||||
| Credit spread | 6.1 | % | 9.0 | % | ||||
| Risk-free rate | 0.7 | % | 0.2 | % | ||||
Discount Rate. Discount rate is based on an adjusted weighted cost of capital contribution considering an estimated operational leverage ratio and a risk-free rate, each determined by publicly traded peer group median except the risk-free rate.
Estimated Volatility Factor. Volatility factor is based on the adjusted weighted cost of capital, operating asset volatility, operating leverage ratio and risk-free interest rate, each determined by publicly traded peer group median except the risk-free rate.
Credit Spread. Credit spread cased on the Company’s financial ratio in comparison with those of publicly traded peer group.
Interest Rate. Interest rate based on U.S. Constant Maturity Treasury rates for the same period as the period of performance of 2022 to 2023.
The change in the fair value estimate is recognized in the Company’s consolidated statement of operations in Other Income (expense) under caption Change in fair value of contingent consideration. The contingent consideration will be determined at each reporting period and will be settled with the issuance of the Company’s common shares.
| 16 |
Deferred Revenue
Under ASC 606, when the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows:
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Product revenues | $ | 87 | $ | 189 | ||||
| Financing costs | 477 | 581 | ||||||
| License revenues | 961 | 1,232 | ||||||
| Total deferred revenues | 1,525 | 2,002 | ||||||
| Less current portion | (360 | ) | (374 | ) | ||||
| Long term portion | $ | 1,165 | $ | 1,628 | ||||
Revenue Recognition
Under ASC 606, the Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. The Company may enter into contracts in which the SSP are different from the amount the Company is entitled to bill the customer. Product revenues consist of revenues generated from sales of the Company’s products to distributors and direct customers, net of rebates and cash discounts.
Product Sales. The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. The Company may enter into contracts in which the SSP is different from the amount the Company is entitled to bill the customer. As of December 31, 2021 and 2020, the Company had deferred product revenue in the amount of $87,000 and $189,000, respectively, associated primarily with billings in excess of SSP.
Licenses Revenues. The Company recognizes license revenues pursuant to strategic collaboration and distribution agreements under which the Company receives payments for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that the Company provides in connection with strategic collaboration and distribution agreements over the term of the agreements, revenues related to the payments received are deferred and recognized over the term of the exclusive distribution period of the respective agreement. Since inception through December 31, 2021, the Company has received an aggregate of $4,100,000 in payments under certain strategic collaboration and distribution agreements of which no amounts were received during December 31, 2021 and 2020. In addition to the amounts already received, an additional $800,000 in payments under these agreements could potentially receive if certain testing validation, regulatory progress and commercialization events occur.
Financing Component Revenues. The Company recognizes a financing component, if material, when the Company receives consideration from the customer, and when the Company expects control of the product or service to be transferred to the customer in a period of greater than one year from the date of receipt of the consideration. As such, the financing component is determined to be long-term and therefore recorded in the consolidated balance sheet as part of deferred revenues. For each year ended December 31, 2021 and 2020 the Company recognized $68,000 and $32,000, respectively of financing revenues.
Revenue recognition requires the Company to make a number of estimates that include variable consideration. For example, customers may receive sales or volume-based pricing incentives or receive incentives for providing the Company with marketing-related information. The Company makes estimates surrounding variable consideration and the net impact to revenues. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives and the likelihood that customers will achieve them. In the event estimates related to variable consideration change, the cumulative effect of these changes is recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material.
From time to time, the Company offers certain product rebates to its distributors and growers, which are estimated and recorded as reductions to product revenues, and an accrued liability is recorded at the later of when the revenues are recorded, or the rebate is being offered.
| 17 |
Contract Assets. The Company does not have contract assets since revenue is recognized as control of goods are transferred or as services are performed or such contract assets are incurred or expensed within one year of the recognition of the revenue.
Contract Liabilities. The contract liabilities consist of deferred revenue. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue. Generally, all contract liabilities, excluding deferred revenue, are expected to be recognized within one year and are included in accounts payable in the Company’s consolidated balance sheet.
Research, Development and Patent Expenses
Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. During the years ended December 31, 2021 and 2020, research and development expenses totaled $11,114,000 and $10,316,000, respectively, and patent expenses totaled $963,000 and $1,014,000, respectively.
Shipping and Handling Costs
Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the year ended December 31, 2021 and 2020 were $2,081,000 and $1,473,000, respectively.
Advertising
The Company expenses advertising costs as incurred and has included these expenses as a component of Selling, General and Administrative costs. Advertising costs for the years ended December 31, 2021 and 2020 were $654,000 and $631,000, respectively.
The Company recognizes share-based compensation expense for all stock options and restricted stock units granted to employees and directors based on estimated fair values.
The Company estimates the fair value of restricted stock units based on the closing bid price of the Company’s common stock on the date of grant.
The Company estimates the fair value of stock options on the date of grant using an option-pricing model. The value of the portion of the stock options that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period. Forfeitures are estimated on the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company uses the Black-Scholes-Merton option-pricing model to calculate the estimated fair value of stock options on the measurement date (generally, the date of grant). The required inputs in the option-pricing model include the expected life of the stock options, estimated volatility factor, risk-free interest rate and expected dividend yield. These inputs are subjective and generally require significant judgment. During the years ended December 31, 2021 and 2020, the Company calculated the fair value of stock options granted based on the following assumptions:
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Expected life (years) | - | - | ||||||
| Estimated volatility factor | %-% | %-% | ||||||
| Risk-free interest rate | %-% | %-% | ||||||
| Expected dividend yield |
| 18 |
Expected Life. Expected life represents the period that share-based payment awards are expected to be outstanding. The Company uses the “simplified method” in accordance with Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB No. 107”), and SAB No. 110, Simplified Method for Plain Vanilla Share Options (“SAB No. 110”), to calculate the expected term of stock options determined to be “plain vanilla.” Under this approach, the expected term is presumed to be the midpoint between the vesting date and the contractual end of the stock option grant. For stock options granted with an exercise price not equal to the determined fair value, the Company estimates the expected life based on historical data and management’s expectations about exercises and post-vesting termination behavior. The Company will use the simplified method until it has sufficient historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107 and SAB No. 110.
Estimated Volatility Factor. Estimated volatility factor is based on the Company’s trading history adjusted for certain periods of the Company’s trading history, not indicative of normal trading.
Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.
Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.
Estimated Forfeitures. The Company considers voluntary and involuntary termination behavior and actual stock option forfeitures when estimating forfeitures. If, in the future, the Company determines that other methods for calculating these assumptions are more reasonable, or if other methods are prescribed by authoritative guidance, the fair value calculated for the Company’s stock options could change significantly. Higher volatility factors and longer expected lives result in an increase to the share-based compensation expense determined at the date of grant. Share-based compensation expense is recorded in the Company’s research, development and patent expense and selling, general and administrative expense.
Warrants
The Company has a number of outstanding warrants. From time to time the terms of the warrants may be exchanged, amended or otherwise modified. Historically, the Company’s warrants have been deemed stand-alone equity instruments and as such changes to the original terms of the warranted have been accounted for a modification under Accounting Standards Codification (“ASC”) 718, Compensation – Stock Based Compensation.
On April 29, 2020, the Company entered into a warrant exchange agreement (“Warrant Exchange Agreement”) with certain holders of warrants under the August 2015 Senior Secured Promissory Notes, the Securities Purchase Agreement and the Warrant Reorganization Agreement. Pursuant to the Warrant Exchange Agreement, the Company agreed to exchange an aggregate of 45,977,809 warrants (“August 2015 Warrants”, “February 2018 Warrants 1 & 2”, and all “August 2019 Warrants” collectively, “the exchanged warrants”) for 29,881,855 warrants (“April 2020 Warrants”) (refer to Note 9 of the consolidated financial statements).
The fair value of the April 2020 Warrants was not greater than the fair values of the exchanged warrants immediately prior to the modification date and therefore had no impact on the Company’s year ended results. The fair value of each exchanged warrants immediately prior to the modification were estimated utilizing either a Black Scholes Merton or Monte Carlo option pricing model. The fair value of each April 2020 Warrants immediately after the modification were estimated utilizing a Black Scholes Merton option pricing model. The following table outlines the range of assumptions utilized in the option pricing models:
| EXCHANGED WARRANTS | APRIL 2020 WARRANTS | |||||||
| Contractual life (years) | 0.68-3.31 | 0.38-1.63 | ||||||
| Estimated volatility factor | 43-52% | 38-46% | ||||||
| Risk-free interest rate | 0.14-0.26% | 0.10-0.19% | ||||||
| Expected dividend yield |
| 19 |
Contractual Life. Contractual life represents the period that the warrants are expected to be outstanding. The Company estimates the contractual period, the period between the date of the modification and the expiration date of the warrant, which is an appropriate estimate of the expected term.
Estimated Volatility Factor. Estimated volatility factor is based on the Company’s trading history adjusted for certain periods of the Company’s trading history, not indicative of normal trading.
Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.
Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.
In December 2020, the Company also entered into an amendment (the “Warrant Amendment”) to a previously outstanding warrant to purchase 5,333,333 shares of the Company’s common stock issued to a historical warrant holder (the “Holder”) on February 5, 2018. Pursuant to the Warrant Amendment, in exchange for the Holder’s exercise of the warrant on December 29, 2020, with respect to 1,777,778 shares at the warrant’s exercise price of $0.96 per share the warrant’s expiration date was partially extended and allows the Holder to exercise warrants to purchase (i) 1,777,778 shares at $1.00 per share by March 25, 2021, and (ii) 1,777,777 shares at $1.04 share by December 15, 2021 (Refer to Note 9 of the consolidated financial statements).
The fair value of the February 2018 Warrants was greater than the fair values of the exchanged warrants immediately prior to the modification date and therefore the Company recognized $72,000 of additional expense in connection with the modification for the year ended results. The fair value of each exchanged warrants immediately before and after the modification were estimated utilizing the Black Scholes Merton option pricing model. The following table outlines the range of assumptions utilized in the option pricing models:
| DECEMBER 2020 | ||||
| WARRANTS | ||||
| Contractual life (years) | 0.24-0.96 | |||
| Estimated volatility factor | 15-58% | |||
| Risk-free interest rate | 0.10%-0.11% | |||
| Expected dividend yield |
Contractual Life. Contractual life represents the period that the warrants are expected to be outstanding. The Company estimates the contractual period, the period between the date of the modification and the expiration date of the warrant, which is an appropriate estimate of the expected term.
Estimated Volatility Factor. Estimated volatility factor is based on the Company’s trading history adjusted for certain periods of the Company’s trading history, not indicative of normal trading.
Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.
Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.
| 20 |
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. To the extent that deferred tax assets cannot be recognized under the preceding criteria, the Company establishes valuation allowances, as necessary, to reduce deferred tax assets to the amounts expected to be realized.
As of December 31, 2021 and 2020, all deferred tax assets, except the deferred tax asset generated during the year related to foreign entities, were fully offset by a valuation allowance. The realization of deferred tax assets is dependent upon future federal, state and foreign taxable income. The Company’s judgments regarding deferred tax assets may change due to future market conditions, as the Company expands into international jurisdictions, due to changes in U.S. or international tax laws and other factors.
These changes, if any, may require material adjustments to the Company’s deferred tax assets, resulting in a reduction in net income or an increase in net loss in the period in which such determinations are made. The Company recognizes liabilities for uncertain tax positions based upon a two-step process. To the extent that a tax position does not meet a more-likely-than-not level of certainty, no benefit is recognized in the consolidated financial statements. If a tax position meets the more-likely-than-not level of certainty, it is recognized in the consolidated financial statements at the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s policy is to analyze the Company’s tax positions taken with respect to all applicable income tax issues for all open tax years in each respective jurisdiction. As of December 31, 2021, the Company concluded that there were no additional uncertain tax positions required to be recognized in its consolidated financial statements. The Company recognizes interest and penalties related to income tax matters in income tax expense. No amounts were recognized for interest and penalties during the years ended December 31, 2021 and 2020.
Foreign Currency
The functional currency of the Company’s subsidiary Pro Farm is the U.S. dollar. Assets and liabilities have been converted to the U.S. dollar reporting currency using the exchange rates in effect on the consolidated balance sheet dates. Equity accounts are converted at historical rates, except for the change in retained earnings during the year which is the result of the income statement conversion process. Revenue and expense accounts are converted using the weighted average exchange rate during the period. The cumulative conversion adjustments associated with the net assets of foreign subsidiaries and the Company’s normal operations are recorded in “Other income (expense)” in the consolidated statement of operations in the amounts of $0.3 million for each period ended December 31, 2021 and 2020, respectively.
Comprehensive Loss
Comprehensive loss represents the net loss for the period adjusted for the results of certain changes to stockholders’ equity that are not reflected in the consolidated statements of operations, if applicable. From time to time the Company is impacted by foreign currency translation in the consolidation of the Company’s subsidiaries.
Segment Information
The Company is organized as a single operating segment, whereby its chief operating decision maker assesses the performance of and allocates resources to the business as a whole.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Tax” (“ASU No. 2019-12”), which removed certain exceptions and updated certain provisions related to the accounting for income tax. The provisions of ASU No. 2019-12 are effective for annual reporting periods beginning after December 15, 2020, and interim reporting periods within those annual periods, with early adoption permitted, including adoption in any interim period for public business entities for periods for which consolidated financial statements have not yet been issued or made available for issuance. The Company adopted ASU-No.2019-12, on January 1, 2021 on a modified retrospective basis. The Company has determined that the impact of implementing this new standard on the consolidated financial statements is immaterial given the Company’s current and expected net loss position in future periods. As a result of the implementation no benefit was recognized for federal or state income taxes and no significant adjustments were made into the Company’s income tax provision as of December 31, 2021.
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Recently Issued Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of consolidated financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of an SEC filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” (“ASU No. 2018-19”), in April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”), in November 2019, the FASB issued Accounting Standards Update No. 2019-10, Financial Instruments—Credit Losses, (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Date (“ASU 2019-10”) and Accounting Standards Update No. 2019-11, Financial Instruments—Credit Losses (“ASU 2019-11”), and in February 2020, the FASB issued Accounting Standards Update No. 2020-02, Financial Instruments—Credit Losses, (Topic 326) and Leases (Topic 842) (“ASU 2020-02”). ASU 2020-02, delayed the effective date for certain entities including entities meeting the SEC’s definition of a Smaller Reporting Company. The Company is currently evaluating ASU 2016-13 and all related ASUs to determine the impact to its consolidated financial statements and related disclosures. The Company does not believe the adoption of ASU 2016-13 will have a material impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, “Debt-Debt with Conversion and Other Options (Sub Topic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU No. 2020-06”), which removed certain separation models for convertible instruments including no longer separating an embedded conversion features from the host contract that are not required to be accounted for as derivatives or do not result in substantial premiums accounted for as paid-in capital and a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and a convertible preferred stock will be accounted for as a single equity instrument measured at its historical cost, as long as no other features required bifurcation and recognition as derivatives and included disclosure amendments for convertible instruments. The provisions of the ASU also amended Subtopic 815-40 by removing certain conditions from the previous settlement guidance, required instruments classified as an asset or liability be measured subsequently with changes reported in earnings and clarified the FASB’s view on penalty payments, disclosure requirements and reassessment on both freestanding and embedded features. Lastly, the provisions of the ASU also included amendments to the calculation of earnings per share. The provisions of ASU No. 2020-06 are effective for fiscal years beginning after December 15, 2021 including interim reporting periods within those fiscal years, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020 excluding entities eligible to be smaller reporting companies as defined by the SEC and for all other entities for fiscal years beginning after December 15, 2023. This ASU shall be applied on a modified retrospective or full retrospective method of transition. The Company has not yet determined the impact of implementing this new standard on the consolidated financial statements.
In May 2021, the FASB issued Accounting Standards Update No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Based Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU No. 2021-04”), which clarified an issuer’s accounting for modification or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The provisions of ASU No. 2021-04 are effective for annual reporting periods beginning after December 15, 2021, and interim reporting periods within those annual periods, with early adoption permitted, including adoption in any interim period for public business entities for periods for which consolidated financial statements have not yet been issued or made available for issuance. This ASU shall be applied on a prospective basis. The Company does not believe the adoption of ASU 2021-04 will have a significant impact on the Company’s consolidated financial statements.
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3. Right of Use Assets and Lease Liabilities
In September 2013 and then amended in April 2014, the Company entered into a lease agreement for approximately 27,300 square feet of office and laboratory space located in Davis, California. The initial term of the lease was for a period of 60 months and commenced in August 2014. In November 2018, the Company exercised the first lease extension option, extending the lease term for an additional 60 months. The monthly base rent is $44,000 per month for the first 12 months with a 3% increase each year thereafter. Concurrent with the April 2014 lease agreement, the Company entered into a lease agreement with an affiliate of the landlord to lease approximately 17,400 square feet of office and laboratory space in the same building complex in Davis, California. The initial term of the lease was for a period of 60 months and commenced in August 2014. The monthly base rent is $28,000 with a 3% increase each year thereafter. In November 2018, the Company exercised the first lease extension option, extending the lease term for an additional 60 months.
On March 31, 2021 the Company entered into a lease agreement for approximately 4,500 square feet of office and laboratory space located in Helsinki, Finland. The initial term of the lease is for a period of 24 months and requires a 6-month notice prior to termination. The minimum monthly rent is €9,462 per month ($11,096), subject to increase based on the consumer price index increase on January 1 of each fiscal year if, applicable. The operating lease resulted in the Company recognizing both a right-of-use asset and lease liability utilizing the Company’s incremental borrowing rate in the amounts of €220,000 ($258,000) and €227,000 ($266,000), respectively.
On December 1, 2021 the Company entered into a lease agreement for approximately 2,291 square feet of office space located in Raleigh, North Carolina. The initial term of the lease is for a period of 48 months and includes two option lease extension terms of three years each. The minimum monthly rent is $14,000, subject to increase of no more than 3% on the anniversary of the lease commencement date. The operating lease resulted in the Company recognizing both a right-of-use asset and lease liability utilizing the stated rate of 5% in the amounts of $614,000 and $682,000, respectively.
The Company’s operating leases have remaining terms ranging from less than one year to four years. The leases are for office space and various office equipment. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2021, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 5.76% and 2.8 years, respectively.
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The components of lease expense were as follows (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Operating lease cost | $ | 1,364 | $ | 1,149 | ||||
| Short-term lease cost | 85 | 175 | ||||||
| Sublease income | - | (26 | ) | |||||
| Total operating lease costs: | $ | 1,449 | $ | 1,298 | ||||
Maturities of lease liabilities for each future calendar year as of December 31, 2021 are as follows (in thousands):
| OPERATING | ||||
| LEASES | ||||
| 2022 | $ | 1,556 | ||
| 2023 | 1,514 | |||
| 2024 | 1,048 | |||
| 2025 | 169 | |||
| 2026 | - | |||
| Total lease payments | 4,287 | |||
| Less: imputed interest | 395 | |||
| Total lease obligation | 3,892 | |||
| Less lease obligation, current portion | 1,381 | |||
| Lease obligation, non-current portion | $ | 2,511 | ||
4. Property, Plant and Equipment
Property, plant and equipment consist of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Land | $ | 1 | $ | 1 | ||||
| Buildings | 6,562 | 6,562 | ||||||
| Computer equipment and software | 581 | 564 | ||||||
| Furniture, fixtures and office equipment | 393 | 416 | ||||||
| Machinery and equipment | 16,829 | 16,047 | ||||||
| Leasehold improvements | 2,410 | 2,410 | ||||||
| Construction in progress | 891 | 367 | ||||||
| Gross property, plant and equipment | 27,667 | 26,367 | ||||||
| Less accumulated depreciation and amortization | (14,991 | ) | (13,802 | ) | ||||
| Property, plant and equipment, net | $ | 12,676 | $ | 12,565 | ||||
The Company recognized depreciation and amortization expense of $1,189,000 and $1,210,000 during the years ended December 31, 2021 and 2020, respectively. Of the total depreciation and amortization expense, $1,011,000 and $1,024,000, respectively as of December 31, 2021 and 2020, are included in cost of product revenues in connection with property, plant, and equipment at the Company’s manufacturing plant. The total depreciation and amortization for disposed assets during the year ended December 31, 2021 and 2020 was $0 and $23,000, respectively.
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5. Intangible Assets
The Company’s intangible assets consist of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Customer Relationships | $ | 2,219 | $ | 2,244 | ||||
| Developed Technology | 16,362 | 16,362 | ||||||
| Tradenames | 3,102 | 3,106 | ||||||
| Non-compete | 89 | 90 | ||||||
| In Process Research and Development | 2,713 | 2,713 | ||||||
| Gross intangibles | 24,485 | 24,515 | ||||||
| Less accumulated amortization | (5,474 | ) | (3,132 | ) | ||||
| Intangibles, net | $ | 19,011 | $ | 21,383 | ||||
The Company recognized amortization expense during the year ended December 31, 2021 and 2020 of $2,342,000 and $2,348,000. The Company expects to recognize approximately $2,341,000 in each of the future periods from 2022 through 2024, $2,335,000 in 2025, $2,326,000 in 2026 with the remainder to be recognized in periods thereafter. The weighted average life of the intangible assets is 8.9 years. During the year ended December 31, 2021, changes to the Company’s initially recognized intangibles were in connection to the contingent consideration estimate included in the initial recognition of intangible assets associated with the Company’s asset acquisition of the Jet-Ag product lines.
Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, restricted stock units, convertible notes, convertible preferred stock and warrants, result in the issuance of common stock which share in the losses of the Company. Certain potential shares of common stock have been excluded from the computation of diluted net loss per share for certain periods as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce the loss per share. The treasury stock method has been applied to determine the dilutive effect of options and warrants.
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Stock options outstanding | 12,677 | 13,380 | ||||||
| Warrants to purchase common stock | 152 | 14,534 | ||||||
| Restricted stock units outstanding | 3,980 | 4,588 | ||||||
| Common shares to be issued in lieu of agent fees | 498 | 498 | ||||||
| Employee stock purchase plan | 54 | 18 | ||||||
| Maximum contingent consideration shares to be issued | 5,415 | 5,972 | ||||||
| 22,776 | 38,990 | |||||||
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7. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued compensation | $ | 3,922 | $ | 3,495 | ||||
| Accrued warranty costs | 440 | 475 | ||||||
| Accrued customer incentives | 6,758 | 4,288 | ||||||
| Accrued liabilities, acquisition related | 30 | 1,463 | ||||||
| Loan-related fees | 707 | - | ||||||
| Accrued liabilities, other | 2,994 | 1,929 | ||||||
| Accrued Liabilities | $ | 14,851 | $ | 11,650 | ||||
Contingent Consideration
As of December 31, 2021, the contingent consideration in connection with the Company’s acquisition of Pro Farm was recorded at its fair value. The following table provides a reconciliation of the activity for the contingent consideration measured between the most recent reporting period and as of the balance sheet date based on the fair value using significant inputs including the unobservable inputs (Level 3) (in thousands):
| CONTINGENT | ||||
| CONSIDERATION | ||||
| LIABILITY | ||||
| Fair value at December 31, 2029 | $ | 1,737 | ||
| Change in estimated fair value recorded of contingent consideration | 445 | |||
| Fair value at December 31, 2020 | 2,182 | |||
| Change in estimated fair value recorded of contingent consideration | (639 | ) | ||
| Settlement of contingent consideration | (1,004 | ) | ||
| Fair value at December 31, 2021 | $ | 539 | ||
The change in fair value for the reporting period was driven by the result of the unobservable fair value model, a Monte Carlo simulation in a risk-neutral framework assuming Geometric Browning Motion. The most significant input to the model was the estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2022 – 2023.
The change in the fair value estimate is recognized in the Company’s consolidated statement of operations in Other Income (expense) under caption Change in fair value of contingent consideration. Management has not finalized the earned contingent consideration for the fiscal year ended December 31, 2021 which is due before March 31, 2022 to the prior owners of Pro Farm.
On June 9, 2021, the Company issued of its common shares in connection with the contingent consideration settlement for fiscal year 2020, these common shares had a fair value of $1,004,000. As a result of the fiscal year 2020 contingent consideration settlement, the total maximum amount of contingent consideration shares to be issued in the future is $5,415,000. As of December 31, 2021, the remaining contingent consideration liability recorded in other liabilities on the Company’s consolidated balance sheets is $539,000.
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8. Debt
Debt, including debt due to related parties, consists of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets. | $ | 3,425 | $ | 3,425 | ||||
| Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (5.25% as of December 31, 2021) per annum, payable monthly through June 2036, collateralized by certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles, net of unamortized debt discount as of December 31, 2021 and 2020 of $147 and $166. | 7,774 | 8,106 | ||||||
| Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.80% annually) payable through the lenders direct collection of certain accounts receivable through March 2022, collateralized by substantially all of the Company’s personal property. | 14,829 | 8,966 | ||||||
| Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets. | 7,300 | 7,300 | ||||||
| Research loan facility (“2018 Research Facility”) bearing interest at 1.00% per annum, interest payments are due annually on the anniversary date of the facility with principal payable in 25% increments on the anniversary date of the facility beginning on the fourth anniversary of the loan (), net of imputed interest as of December 31, 2021 and 2020 of $38K and $41K, respectively. | 272 | 283 | ||||||
| Debt | $ | 33,600 | $ | 28,080 | ||||
| Less debt due to related parties, non-current | (7,300 | ) | ||||||
| Less current portion | (25,909 | ) | (9,301 | ) | ||||
| Debt, non-current | $ | 7,691 | $ | 11,479 | ||||
As of December 31, 2021, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties, are due as follows (in thousands):
| PERIOD ENDING DECEMBER 31, | DEBT | |||
| 2022 | $ | 22,652 | ||
| 2023 | 471 | |||
| 2024 | 491 | |||
| 2025 | 514 | |||
| 2026 | 537 | |||
| Thereafter | 5,844 | |||
| Total future principal payments | 30,510 | |||
| Interest payments included in debt balance (1) | 3,275 | |||
| Total future debt payments | $ | 33,785 | ||
| (1) | Due to the debt extinguishment requirement, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt. |
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The fair value of the Company’s outstanding debt obligations, as of December 31, 2021 and as of December 31, 2020 which excludes debt due to related parties was $26,300,000 and $20,780,000, respectively. The Company used 5.25%, the current interest rate, to value the variable rate debt. This debt is classified as Level 3 within the fair value hierarchy.
October 2012 and April 2013 Secured Promissory Notes
On October 2, 2012, the Company borrowed $7,500,000 pursuant to senior notes the “October 2012 Secured Promissory Notes”) with a group of lenders. On April 10, 2013, the Company entered into an amendment to increase, by up to $5,000,000, of which $4,950,000 was issued (collectively, the “April 2013 Secured Promissory Notes”), bringing the total amount outstanding under the notes to $12,450,000. On February 5, 2018, the Company converted $10,000,000 of the principal amount of indebtedness outstanding under the October 2012 and April 2013 Secured Promissory Notes to an aggregate of shares of common stock and warrants to purchase 1,142,856 shares of common stock, such that the total amount outstanding under the notes was decreased to $2,450,000, which remains outstanding as of December 31, 2021.
As part of the terms of February 5, 2018 conversion, the maturity of the October 2012 and April 2013 Secured Promissory Notes was extended to December 31, 2022, the interest rate was reduced from 14% to 8% and all interest payments under the October 2012 and April 2013 Secured Promissory Notes were deferred to the maturity of the notes. This loan is collateralized by substantially all of the Company’s assets. The October 2012 and April 2013 Secured Promissory Notes contain representations and warranties by the Company and the lender, certain indemnification provisions in favor of the lenders and customary covenants and events of default. The October 2012 and April 2013 Secured Promissory Notes also contain several restrictive covenants. The Company is in compliance with all related covenants, or has received an appropriate waiver of these covenants.
In conjunction with the conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance and as a result, the amount of the debt on the Company’s consolidated balance sheet related to the October 2012 and April 2013 Secured Promissory Notes is $3,425,000, which includes all interest payments due on the note as compared to the contractual amount outstanding of $2,450,000. The Company has not recognized interest expense on the October 2012 and April 2013 Secured Promissory Notes since the conversion date of February 5, 2018.
Additionally, in conjunction with the terms of the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes, the Company agreed to pay a fee of 7% of the funded principal amount to the agent that facilitated the financing transactions between the Company and the collective lenders which resulted in payment of shares to the Company’s common stock in lieu of a cash. These shares are issuable at the maturity of the note or . The Company has included this liability in accrued liabilities.
June 2014 Secured Promissory Note
In June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (the “June 2014 Secured Promissory Note”) with Five Star Bank (the “Lender”) which bears interest at 5.25% as of December 31, 2021. The interest rate is subject to change and is based on the prime rate plus 2.00% per annum. The June 2014 Secured Promissory Note is repayable in monthly payments of $65,404 and adjusted from time-to-time as the interest rate changes, with the final payment due in . Certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles have been pledged as collateral for the promissory note. The Company is required to maintain a deposit balance with the Lender of $1,560,000, which is recorded as restricted cash included in non-current assets. The total amount of finance related cost related to this debt initially was $304,000, currently treated as a debt discount and is being amortized over the life of the loan.
The Company may prepay 20% of the outstanding principal loan balance each year without penalty. A prepayment fee of 10% will be charged if prepayments exceed 20% in the first year, and the prepayment fee will decrease by 1% each year for the first ten years of the loan.
Under this note the Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than 4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank. The Company is also required to comply with certain affirmative and negative covenants under the loan agreement discussed above. In the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As of December 31, 2021, the Company was not in compliance with all of the required covenants, as such, the Company has obtained a waiver from the lender for the non-compliance through March 31, 2023.
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The following table reflects the activity under this note:
| 2021 | 2020 | |||||||
| Principal balance, net at January 1, | $ | 8,106 | $ | 8,404 | ||||
| Principal payments | (785 | ) | (820 | ) | ||||
| Interest | 434 | 503 | ||||||
| Debt discount amortization | 19 | 19 | ||||||
| Principal balance, net at December 31, 2021 | $ | 7,774 | $ | 8,106 | ||||
August 2015 Senior Secured Promissory Notes
On August 20, 2015, the Company entered into a purchase agreement with Ivy Science & Technology Fund, Waddell & Reed Advisors Science & Technology Fund and Ivy Funds VIP Science and Technology, each an affiliate of Waddell & Reed, which was a beneficial owner of more than 5% of the Company’s common stock through September 2021. Pursuant to the purchase agreement, the Company sold to such affiliates senior secured promissory notes (the “August 2015 Senior Secured Promissory Notes”) in the aggregate principal amount of $40,000,000. Until February 5, 2018, the August 2015 Senior Secured Promissory Notes bear interest at a rate of 8% per annum payable semi-annually on June 30 or December 31 of each year, commencing on December 31, 2015, with $10,000,000 payable three years from the closing, $10,000,000 payable four years from the closing and $20,000,000 payable five years from the closing. In connection with the note, the Company incurred $302,000 in financing-related costs. These costs were recorded as deferred financing costs to be amortized to interest expense over the term of the note.
In connection with the August 2015 Senior Secured Promissory Notes, the Company also issued warrants (the “August 2015 Warrants”) to purchase shares of common stock of the Company. The August 2015 Warrants are immediately exercisable at an exercise price of $1.91 per share and may be exercised at a holder’s option at any time on or before August 20, 2023 (subject to certain exceptions). The fair value of the August 2015 Warrants at the date of issuance of $4,610,000 was recorded as a discount to the August 2015 Senior Secured Promissory Notes to be amortized to interest expense over the term of the note.
The August 2015 Senior Secured Promissory Notes are secured by substantially all the Company’s personal property assets. The agent, acting on behalf of the lenders, shall be entitled to have a first priority lien on the Company’s intellectual property assets, pursuant to intercreditor arrangements with certain of the Company’s existing lenders.
The August 2015 Senior Secured Promissory Notes provide for various events of default, including, among others, default in payment of principal or interest, breach of any representation or warranty by the Company or any subsidiary under any agreement or document delivered in connection with the notes, a continued breach of any other condition or obligation under any loan document, certain bankruptcy, liquidation, reorganization or change of control events, the acquisition by any person or persons acting as group, other than the lenders, of beneficial ownership of 40% or more of the outstanding voting stock of the Company. Upon an event of default, the entire principal and interest may be declared immediately due and payable. As of December 31, 2021, the Company was in compliance with its covenants under the August 2015 Senior Secured Promissory Notes.
On February 5, 2018, pursuant to an amendment, the Company converted $35,000,000 of the then outstanding debt into shares of common stock and warrants to purchase 4,000,000 shares of common stock (the “Waddell Debt Conversion”). After the conversion the remaining principal outstanding was reduced to $5,000,000, the maturity of the August 2015 Senior Secured Promissory Notes was extended to December 31, 2022, and payment of all future interest was deferred to the maturity of the notes.
In conjunction with the Waddell Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance which resulted in the Company recording a gain and required all future interest to be recognized as part of the outstanding debt. As a result, the amount of the debt on the Company’s balance sheet related to the August 2015 Senior Secured Promissory Notes is $7,300,000, as compared to $5,000,000 of contractual principal amount outstanding thereunder and the Company will not recognize future interest expense on the August 2015 Senior Secured Promissory Notes.
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On June 30, 2021, Macquarie Group Limited acquired ownership of the Waddell Investors, which included the Waddell Investors’ investments in the Company, including the August 2015 Senior Secured Promissory Notes. Subsequent to the acquisition of the Waddell Investors by Macquarie Group Limited and as of December 31, 2021, the debt holder’s beneficial owner of the Company’s common stock was less than 5% and therefore the debt is no longer classified as related party.
LSQ Financing
On March 24, 2017, the Company entered into an Invoice Purchase Agreement (the “LSQ Financing”) with LSQ Funding Group, L.C. (“LSQ”), pursuant to which LSQ may elect to purchase up to $7,000,000 of eligible customer invoices from the Company. The Company’s obligations under the LSQ Financing are secured by a lien on substantially all of the Company’s personal property; such lien is first priority with respect to the Company’s accounts receivable, inventory, and related property, pursuant to an intercreditor agreement, dated March 22, 2017 (the “Three Party Intercreditor Agreement”), with administrative agents for the October 2012 and April 2013 Secured Promissory Notes holders and the August 2015 Senior Secured Promissory Notes holders.
Advances by LSQ may be made at an advance rate of up to 80% of the face value of the receivables being sold. Upon the sale of the receivable, the Company will not maintain servicing. LSQ may require the Company to repurchase accounts receivable if (i) the payment is disputed by the account debtor, with the purchaser being under no obligation to determine the bona fides of such dispute, (ii) the account debtor has become insolvent or (iii) upon the effective date of the termination of the LSQ Financing. LSQ will retain its security interest in any accounts repurchased from the Company.
On January 7, 2020, the Company entered into a Second Amendment to the Company’s Invoice Purchase Agreement with LSQ. The amendment, among other things, (i) increases the amount in which LSQ may elect to purchase up to $20,000,000 of eligible customer invoices from the Company from $7,000,000; (ii) increases the advance rate to 90% from 85% and 70% from 60%, respectively, of the face value of domestic and international receivables being sold; (iii) decreases the invoice purchase fee rate from 0.40% to 0.25%; (iv) increases the funds usage fee from 0.020% to 0.025%; (v) extends the 0% aging and collection fee percentage charged at the time when the purchased invoice is collected from 90 days to 120 days, and increases the fee percentage charged thereafter from 0.35% to 0.75%; and (vi) decreases the early termination fee from 0.75% to 0.50%.
In addition to the Amendment, the Company simultaneously entered into an Amended Inventory Financing Addendum (the “Addendum”) with LSQ. The Addendum allows the Company to request an advance up to the lesser of (i) 100% of the Company’s unpaid finished goods inventory; (ii) 65% of the appraised value of the Company’s inventory performed on or on behalf of LSQ; or (iii) $3,000,000. Funds advance under the Addendum are subject to a monthly inventory management fee of 0.5% on the average monthly inventory funds available and a daily interest rate of 0.025%. In December 2021, the Addendum was amended to increase the maximum funds advance to $4,500,000.
There was $14,829,000 and $8,966,000, respectively, in outstanding balance under the LSQ Financing as of December 31, 2021 and 2020. As of December 31, 2021 and 2020, the Company had $12,354,000 and $7,254,000, respectively included in accounts receivable that were transferred under this arrangement.
September 2018 Research Facility
In September 2018, the Company’s subsidiary Pro Farm entered into a research loan facility under the Finnish Government Innovation Funding initiative with the Innovation Centre Business Finland, in the amount of $326,000 (€282,000) and subsequently drew down $94,000 (€80,000) and $232,000 (€158,000), respectively, in September 2018 and November 2020 in connection with research and development costs. The note bears interest at 3% below the reference rate for Finnish Government Aid, with a minimum of 1% interest annually. The current effective interest rate as of December 31, 2021 is 1.00%. The loan facility requires repayment in increments of 25% on each of the anniversary date of the loan after the third anniversary of the loan execution date as such the balance of the loan has been classified as long-term. The terms of the loan facility allow for partial debt forgiveness if so determined by the State Council for the Financing of Research, Development and Innovation at the lender’s discretion. As of December 31, 2021, the outstanding principal balance net of imputed interest was $272,000 (€231,000).
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9. Warrants
On August 6, 2019, the Company entered into a warrant amendment and plan of reorganization agreement (the “Warrant Reorganization Agreement”) with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders agreed, at any time the Company’s stock trades above $and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (the “August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares were issuable pursuant to the August 2019 Warrants.
In February 2020, the Company requested an exercise of 6,000,000 February 2018 Warrants, resulting in the Company issuing common shares and 6,000,000 August 2019 Warrants (“Exercise 3”). The issuance of the August 2019 Warrants resulted in the Company incurring a non-cash charge of $1,391,000 in connection with the fair value of new warrants.
On April 29, 2020, the Company then entered into a warrant exchange agreement (the “Warrant Exchange Agreement”) with certain holders of warrants under the August 2015 Senior Secured Promissory Notes, the Securities Purchase Agreement and the Warrant Reorganization Agreement. Pursuant to the Warrant Exchange Agreement, the Company agreed to exchange an aggregate of 45,977,809 warrants (the “August 2015 Warrants”, the “February 2018 Warrants 1 & 2”, and all “August 2019 Warrants” collectively, the “Exchanged warrants”) for 29,881,855 warrants (the “April 2020 Warrants”).
The April 2020 Warrants have terms expiring for a total of (i) 3,392,581 Warrant Shares on May 1, 2020, (ii) 2,714,065 Warrant Shares on September 15, 2020, (iii) 13,027,512 Warrant Shares on December 15, 2020, (iv) 5,862,380 Warrant Shares on March 15, 2021, and (v) 4,885,317 Warrant Shares on December 15, 2021. All April 2020 Warrants have an exercise price of $0.75 per share. The April 2020 Warrants are exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the April 2020 Warrants effective as of March 31, 2021. As of December 31, 2021, April 2020 Warrants were exercised prior to their expiration date providing the Company with proceeds of $3,392,000, $2,714,000, $13,027,000, $4,397,000 and $3,545,000, respectively, for an aggregate proceed of $27,075,000.
The Company has accounted for the Warrant Exchange Agreement as a modification under ASC 718. The fair value of the April 2020 Warrants was not greater than the fair values of the Exchanged warrants immediately prior to the modification date and therefore had no impact on the Company’s year ended results.
In December 2020, the Company also entered into an amendment (the “Warrant Amendment”) to a previously outstanding warrant to purchase 5,333,333 shares of the Company’s common stock issued to a historical warrant holder (the “Holder”) on February 5, 2018. Pursuant to the Warrant Amendment, in exchange for the Holder’s exercise of the warrant on December 29, 2020, with respect to 1,777,778 shares at the warrant’s exercise price of $0.96 per share the warrant’s expiration date was partially extended and allows the Holder to exercise warrants to purchase (i) 1,777,778 shares at $1.00 per share by March 25, 2021, and (ii) 1,777,777 shares at $1.04 share by December 15, 2021. As of December 31, 2021, a total of Warrant Shares were exercised prior to the expiration date with the remaining Warrant Shares expired on December 15, 2021.
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The following table summarizes information about the Company’s common stock warrants activities for the year ended December 31, 2021 and the warrants outstanding as of December 31, 2021 (in thousands, except exercise price data):
| YEAR | YEAR | |||||||||||||||||||||||||||
| SHARES | ENDED | ENDED | SHARES | |||||||||||||||||||||||||
| SUBJECT TO | NUMBER OF | NUMBER OF | SUBJECT TO | |||||||||||||||||||||||||
| ISSUE | EXPIRATION | WARRANTS | WARRNTS | SHARES | WARRANTS | |||||||||||||||||||||||
| DATE | DATE | EXERCISE | OUTSTANDING | EXERCISED | EXPIRED | OUTSANDING | ||||||||||||||||||||||
| DESCRIPTION | MM/YY | MM/YY | PRICE | 12/31/2020 | 12/31/2021 | 12/31/2021 | 12/31/2021 | |||||||||||||||||||||
| June 2013 Warrants | 06/13 | 6/23 | $ | 8.40 | 27 | - | - | 27 | ||||||||||||||||||||
| November 2016 Warrants | 11/16 | 11/26 | $ | 2.38 | 125 | - | - | 125 | ||||||||||||||||||||
| November 2017 Warrants | 06/17 | 06/27 | $ | 1.10 | 80 | (80 | ) | - | ||||||||||||||||||||
| April 2020 Warrants, Tranche 4 | 04/20 | 03/21 | $ | 0.75 | 5,862 | (5,862 | ) | - | ||||||||||||||||||||
| April 2020 Warrants, Tranche 5 | 04/20 | 12/21 | $ | 0.75 | 4,885 | (4,727 | ) | (158 | ) | |||||||||||||||||||
| December 2020 Warrants, Tranche 2 | 12/20 | 03/21 | $ | 1.00 | 1,778 | (1,778 | ) | - | ||||||||||||||||||||
| December 2020 Warrants, Tranche 3 | 12/20 | 12/21 | $ | 1.04 | 1,777 | - | (1,777 | ) | ||||||||||||||||||||
| TOTALS: | 14,534 | (12,447 | ) | (1,935 | ) | 152 | ||||||||||||||||||||||
| (1) | The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity. |
The June 2013 Warrants became exercisable on the date of the IPO. The November 2016 were immediately exercisable and remain exercisable subject to certain exceptions.
The weighted average remaining contractual life and exercise price for warrants outstanding as of December 31, 2021 is 4.26 years and $3.45, respectively. The intrinsic value of the warrants on December 31, 2021 was $0.
On May 31, 2019, the Company’s stockholders approved an Employee Stock Purchase Plan (the “ESPP”) whereby employees may purchase Company stock through payroll deductions over each six-month period beginning on June 1 and December 1 (the “Offer Period”). The total maximum number of shares available for purchase under the ESPP is . The purchase price of the shares will be % of the lower of the fair market value of the shares at the beginning or at the end of the Offer Period. The ESPP is a tax qualified plan under Section 423 of the Internal Revenue Code. All employees, including officers, are eligible to participate in the ESPP. A participant may withdraw all uninvested payment balances credited to their account at any time. An employee whose stock ownership in the Company exceeds 5% of the Company’s outstanding common stock is not eligible to participate in the ESPP. The ESPP is compensatory and the 15% discount will be expensed over the Offer Period. The Company has accounted for the ESPP in accordance with ASC 718, Compensation – Stock Based Compensation. As of December 31, 2021 and 2020, the Company recorded stock-based compensation expense of approximately $ and $, respectively.
In July 2006, the Company authorized the 2006 Equity Incentive Plan, as amended, (the “2006 Plan”). The 2006 Plan provided for the issuance of up to shares of common stock underlying awards. The 2006 Plan was terminated in December 2011 and no new stock awards may be granted under the 2006 Plan.
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The 2006 Plan allowed holders to exercise stock options prior to their vesting. The common stock received by the employee is restricted and follows the same vesting schedule as the underlying option. In the event the employee voluntarily or involuntarily terminates employment from the Company, the Company retains a right to repurchase the unvested common stock at the original option exercise price. For each of the periods ended December 31, 2021 and 2020, no options were exercised that was subject to repurchase.
As of December 31, 2021, no options were outstanding under the 2006 Plan. During the year ended December 31, 2021, and options were exercised and cancelled, respectively, under the 2006 Plan.
In July 2011, and as amended in September 2012, the Company authorized the 2011 Stock Plan (the “2011 Plan”). The 2011 Plan provided for the issuance of up to shares of common stock underlying awards, plus any shares of common stock underlying awards previously issued under the 2006 Plan that terminate or expire after the date of authorization of the 2011 Plan, subject to certain adjustments. In addition, the 2011 Plan provided that the Company not deliver more than shares upon the exercise of incentive stock options issued under both the 2006 Plan and 2011 Plan. The 2011 Plan was terminated in August 2013 and no new stock awards may be granted under the 2011 Plan.
As of December 31, 2021, options to purchase shares of the Company’s common stock at a weighted-average exercise price of $per share were outstanding under the 2011 Plan, of which all were vested. During the year ended December 31, 2021, and options were exercised and cancelled under the 2011 Plan.
In August 2013, the Company’s board of directors adopted the 2013 Stock Incentive Plan (the “2013 Plan”) covering officers, employees, and directors of, and consultants to, the Company. Under the 2013 Plan, the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and dividend equivalent rights. At the time the 2013 Plan was established, the maximum aggregate number of shares of the Company’s common stock that could be issued pursuant to the 2013 Plan was , plus the number of shares of common stock that were reserved for issuance pursuant to future grants under the 2011 Plan at that time. The number of shares authorized for issuance pursuant to the 2013 Plan automatically increases by any additional shares that would have otherwise returned to the 2011 Plan as a result of the forfeiture, termination or expiration of awards previously granted under the 2011 Plan. In addition, the number of shares authorized for issuance pursuant to the 2013 Plan will increase by a number equal to the lesser of (i) % of the number of shares of the Company’s common stock outstanding on the last day of the immediately preceding fiscal year or (ii) a lesser number of shares determined by the administrator.
As of December 31, 2021, options to purchase shares of the Company’s common stock at a weighted-average exercise price of $per share were outstanding under the 2013 Plan, of which were vested. During the year ended December 31, 2021, and options were exercised and cancelled, respectively, under the 2013 Plan.
options with Standard Vesting Terms. The remaining options vested at a rate of 1/36 per month.
| WEIGHTED- | ||||||||||||||||
| AVERAGE | ||||||||||||||||
| WEIGHTED- | REMAINING | |||||||||||||||
| AVERAGE | CONTRACTUAL | AGGREGATE | ||||||||||||||
| SHARES | EXERCISE | LIFE | INTRINSIC | |||||||||||||
| OUTSTANDING | PRICE | (IN YEARS) | VALUE | |||||||||||||
| Balances at December 31, 2020 | 13,380 | $ | 2.32 | $ | 418 | |||||||||||
| Options granted | 553 | $ | 2.24 | |||||||||||||
| Options exercised | (79 | ) | $ | 1.12 | ||||||||||||
| Options cancelled | (1,177 | ) | $ | 1.98 | ||||||||||||
| Balances at December 31, 2021 | 12,677 | $ | 2.35 | $ | - | |||||||||||
| Vested and expected to vest at December 31, 2021 | 11,324 | $ | 2.47 | $ | ||||||||||||
| Exercisable at December 31, 2021 | 8,163 | $ | 2.88 | $ | ||||||||||||
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The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ and $, respectively.
The estimated fair value of options vested during the years ended December 31, 2021 and 2020 was $ and $, respectively. The weighted-average estimated fair value of options granted during the years ended December 31, 2021 and 2020 was $ per share and $ per share, respectively.
In February 2021, Suping (Sue) Cheung joined as the Company’s Chief Financial Officer (“CFO”). In connection with her employment she was granted options to purchase shares of the Company’s common stock under the 2013 Plan. The Option will be subject to time-based vesting over a period of four years as measured from Ms. Cheung’s first date of employment (the “Vesting Commencement Date”). Twenty-five percent of the option will vest on the first anniversary of the Vesting Commencement Date, and the remaining percent of the shares will vest over the next following on a pro-rata basis equally each month, for so long as Ms. Cheung provides services to the Company. Ms. Cheung’s options to purchase common stock was granted at an exercise price of $ and with a fair value of $. The Company’s fair value of these grants was estimated utilizing a Black Scholes option pricing model based on the assumptions which have determined consistent with the Company’s historical methodology for such assumptions.
In August 2020, Kevin Helash joined the Company as Chief Executive Officer (“CEO”) and as a member of the Company’s Board of Directors. In connection with his appointment, Mr. Helash has been granted options to purchase shares of the Company’s common stock, under the 2013 Plan. The Option is structured as follows:
| ● | Time-Based Tranche. shares of the Option are subject to time-based vesting over a period of four years. Twenty-five percent of the Time-Based Tranche will vest on the first anniversary of the Vesting Commencement Date, and the remaining percent of the shares under the Time-Based Tranche will vest over the next following on a pro-rata basis equally each month. | |
| ● | Enhanced Time-Based Tranche. shares of the Option are subject to time-based vesting over a period of four years as measured from the Vesting Commencement Date, on a pro-rata basis equally each month, subject to acceleration on the date on which the Company files its Annual Report on Form 10-K for the fiscal year ending December 31, 2020, if within such report, the Company reports the achievement of certain revenue, margin and expense performance targets for its 2020 fiscal year, each of which are within of the Company’s internal targets for the year with respect to the various target elements. The options were not accelerated upon the filing of the Company’s Annual Report on Form 10-K for fiscal year ending December 31, 2020. | |
| ● | Performance Tranche. shares of the Option are subject to performance-based vesting, but only if the performance criteria are satisfied by a specific performance deadline. Vesting of the Performance Tranche is contingent on the attainment of a certain closing price for the Company’s stock, as quoted on the Nasdaq Stock Market, for 30 consecutive trading days, by that date which is 30 days following the reporting of financial results for the Company’s second quarter of its fiscal year ending December 31, 2022 (the “Performance Deadline”). If the performance criteria are satisfied on or before the Performance Deadline, the Performance Tranche will vest on the date that the performance criteria are satisfied. If Mr. Helash terminates employment prior to the date on which the performance criteria are satisfied, or the performance criteria are not satisfied on or before the Performance Deadline, then all of the shares under the Performance Tranche will permanently and irrevocably forfeit at the earlier of the Performance Deadline or his termination date. |
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All dates on which vesting is to occur are conditioned upon Mr. Helash’s continued employment with the Company as of that date. Any portion of the Option shares that are not forfeited as of the Performance Deadline shall continue to vest for so long as Mr. Helash provides “Continuous Service” to the Company or a “Related Entity,” as those terms are defined in the Plan. Mr. Helash’s options to purchase common stock was granted at an exercise price of $ and with a fair value of $. The Company’s fair value of these grants was estimated utilizing either a Black Scholes or Monte Carlo option pricing model based on the following range of assumptions which have determined consistent with the Company’s historical methodology for such assumptions:
AUGUST 3, 2020 | ||||
| Expected life (years) | - | |||
| Estimated volatility factor | % | |||
| Risk-free interest rate | % | |||
| Expected dividend yield | ||||
Expected Life. Expected life represents the period that share-based payment awards are expected to be outstanding. The Company uses the “simplified method” in accordance with Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment (“SAB No. 107”), and SAB No. 110, Simplified Method for Plain Vanilla Share Options (“SAB No. 110”), to calculate the expected term of stock options determined to be “plain vanilla.” Under this approach, the expected term is presumed to be the midpoint between the vesting date and the contractual end of the stock option grant. For stock options granted with an exercise price not equal to the determined fair value, the Company estimates the expected life based on historical data and management’s expectations about exercises and post-vesting termination behavior. The Company will use the simplified method until it has sufficient historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107 and SAB No. 110.
Estimated Volatility Factor. As the Company’s common stock has limited period of normalized trading history, the Company calculated the estimated volatility factor based on the Company’s trading history adjusted for certain periods of the Company’s trading history, not indicative of normal trading.
Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.
Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.
In September 2020, James Boyd announced his intention to retire from his position as the Company’s Chief Financial Officer (“CFO”) and President of the Company. In connection with his retirement, Mr. Boyd entered into an employment separation agreement with the Company (the “Separation Agreement”). The Separation Agreement provides among other terms that all of his outstanding stock options will become fully vested, and all stock options will remain exercisable until the earlier of (x) the one-year anniversary of the date Mr. Boyd ceases providing consulting services pursuant to his consulting services agreement between Mr. Boyd and the Company on September 21, 2020 (the “Consulting Agreement”), and (y) the last day of the option’s full term. As a result the Company treated the accelerated vesting terms for the options as a modification under ASC 718 – Compensation – Stock Compensation, which requires the Company to assess the fair value of the instrument pre- and post-modification and recognize any incremental expense on the modification date dependent on the Company’s assessment of the initial probability of the option award vesting under the pre-modification terms. The Company recognized incremental stock-based compensation expense of $as of December 31, 2021.
During the years ended December 31, 2021 and 2020, the Company recorded share-based compensation expense related to stock options of $and $, respectively. During the years ended December 31, 2021 and 2020, the Company did not realize any tax benefit associated with its share-based compensation expense as certain of the option grants were incentive stock options for which share-based compensation expense is not deductible and as a result of the full valuation allowance on the Company’s deferred tax assets (see Note 11 to the consolidated financial statements).
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Restricted Stock
During the year ended December 31, 2021, the Company granted restricted stock units under the 2013 Plan. The vesting periods for the restricted stock are subject to board approval and during the year ended December 31, 2021 varied from immediate to 36 months. One share of common stock is issuable for each vested restricted stock unit upon the earlier of the grantee’s separation of service or a change in control in the case of non-employee directors, or in the case of employees the board can decide to provide for the immediate issuance of common stock once vesting has occurred. As of December 31, 2021, there were restricted stock units outstanding under the 2013 Plan. The following table reflects the activity of restricted stock units for the year ended December 31, 2021 (in thousands, except weighted average grant date fair value):
| WEIGHTED | ||||||||
| AVERAGE | ||||||||
| GRANT | ||||||||
| SHARES | DATE FAIR | |||||||
| OUTSTANDING | VALUE | |||||||
| Outstanding at December 31, 2020 | 4,588 | $ | 1.14 | |||||
| Granted | 824 | 1.61 | ||||||
| Settled | (1,432 | ) | 1.31 | |||||
| Forfeited | ||||||||
| Outstanding at December 31, 2021 | 3,980 | $ | 1.17 | |||||
The following table summarizes the activity of non-vested restricted stock units for the year ended December 31, 2021 (in thousands, except weighted average grant date fair value):
| WEIGHTED | ||||||||
| AVERAGE | ||||||||
| GRANT | ||||||||
| SHARES | DATE FAIR | |||||||
| OUTSTANDING | VALUE | |||||||
| Nonvested at December 31, 2020 | 1,437 | $ | 1.16 | |||||
| Granted | 824 | 1.61 | ||||||
| Vested | (1,265 | ) | 1.42 | |||||
| Forfeited | ||||||||
| Nonvested at December 31, 2021 | 996 | $ | 1.21 | |||||
The fair value of restricted stock units is determined based on the closing bid price of the Company’s common stock on the date of grant. During the years ended December 31, 2021 and 2020, the Company recognized $and $, respectively, of share-based compensation expense related to restricted stock units. Total share-based compensation expense related to restricted stock units not yet recognized as of December 31, 2021 was $, which is expected to be recognized over a weighted average period of years.
In May 2020, the Company granted to certain executives restricted stock units in lieu of ten percent of their annual base salaries for the fiscal year ending December 31, 2020. The total number of restricted stock units granted to these executives was at an exercise price of $.
In May 2020 the Company also the granted restricted stock units to certain executives and employees in lieu of cash bonuses for performance related to the fiscal year ended December 31, 2019. The total number of restricted stock units granted to these employees was at an exercise price of $. This grant resulted in the reclassification of the total fair value of $ between Accrued liabilities and Additional paid in capital in the Company’s consolidated balance sheet.
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In August 2020, in connection with the Company’s separation and consulting arrangement with its former chief executive officer, the Company granted restricted stock units to Dr. Pamela Marrone at a grant date market value of $. The restricted stock units will vest at each of the future anniversary dates of the consulting arrangement.
| SHARES | ||||
| AVAILABLE | ||||
| FOR | ||||
| GRANT | ||||
| Balances at December 31, 2020 | 4,410 | |||
| Shares authorized | 5,862 | |||
| Options granted | (553 | ) | ||
| Options cancelled | 1,158 | |||
| Restricted stock units granted | (824 | ) | ||
| Restricted stock units cancelled | ||||
| Balances at December 31, 2021 | 10,053 | |||
11. Income Taxes
As of December 31, 2021 and 2020, income (Loss) before provision for income taxes, includes the following components (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Domestic | $ | (12,797 | ) | (19,774 | ) | |||
| Foreign | (3,712 | ) | (365 | ) | ||||
| Income/(Loss) before income taxes | $ | (16,509 | ) | $ | (20,139 | ) | ||
The provision (benefit) for income taxes consists of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| CURRENT: | ||||||||
| Federal | - | - | ||||||
| State | - | - | ||||||
| Foreign | $ | 45 | 35 | |||||
| Total Current: | 45 | 35 | ||||||
| DEFERRED: | ||||||||
| Foreign | 0 | (6 | ) | |||||
| Total Deferred: | 0 | (6 | ) | |||||
| Provision for income taxes | $ | 45 | 29 | |||||
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Income tax provision (benefit) related to continuing operations differ from the amounts computed by applying the statutory income tax rate of 21% to pretax loss as follows (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| U.S. Federal tax benefit at statutory rate | 21 | % | 21 | % | ||||
| State tax benefit | 1 | 8 | ||||||
| Deferred tax asset true up | 0 | (3 | ) | |||||
| Expiring tax attributes | 0 | (240 | ) | |||||
| Share-based compensation expense | (2 | ) | (2 | ) | ||||
| Other | (1 | ) | (1 | ) | ||||
| Financing cost, warrants | 2 | (1 | ) | |||||
| PPP Loan Forgiveness | 0 | 2 | ||||||
| Adjustment due to change in valuation allowance | (19 | ) | 216 | |||||
| Provision for income taxes | 0 | % | 0 | % | ||||
Accounting standards require recognition of a future tax benefit to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied. During the years ended December 31, 2021 and 2020, the aggregate valuation allowance for deferred tax assets increased by $3,328,000 and decreased by $44,314,000, respectively. The decrease for the year ended December 31, 2020 was driven primarily by a change in ownership as defined under IRC Section 382 (the “382 Change”) resulting in a loss of tax attributes offset by the realizability of U.S. and certain foreign loss carryforwards and other U.S. and certain foreign deferred tax assets. The increase for the year ended December 31, 2021 was driven primarily by the realizability of U.S. and certain foreign loss carryforwards and other U.S. and certain foreign deferred tax assets.
The Company recorded tax shortfalls resulting from the exercise of nonqualified stock options and the value of vested restricted stock of $282,000 and $315,000 for the years ended December 31, 2021 and 2020, respectively, where amounts reported for such items as compensation costs under accounting standards related to stock-based compensation were less than the tax deduction.
The tax effects of significant temporary differences representing net deferred tax assets and liabilities consisted of the following (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| DEFERRED TAX ASSETS: | ||||||||
| Federal & State NOL carryforward | $ | 34,658 | $ | 31,911 | ||||
| Research and development tax credits | 2,901 | 2,762 | ||||||
| Other, deferred tax assets | 5,798 | 7,137 | ||||||
| Total gross deferred tax assets | 43,357 | 41,810 | ||||||
| Less valuation allowance | (37,201 | ) | (33,873 | ) | ||||
| Total deferred tax assets | $ | 6,156 | $ | 7,917 | ||||
| DEFERRED TAX LIABILITIES: | ||||||||
| Other Intangibles | (4,967 | ) | (5,615 | ) | ||||
| Other deferred tax liabilities | (1,169 | ) | (2,302 | ) | ||||
| Total gross deferred tax liabilities | (6,136 | ) | (7,917 | ) | ||||
| Net deferred tax assets | $ | 20 | $ | 20 | ||||
Realization of the Company’s deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Because of the Company’s lack of U.S. earnings history, the net U.S. deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $3,328,000 and decreased $44,314,000, during the years ended December 31, 2021 and 2020, respectively. The valuation allowance includes no benefit at both December 31, 2021 and December 31, 2020 related to stock-based compensation and exercises, prior to the implementation of ASC 515 and 718, which will be credited to additional paid in capital when realized.
Undistributed earnings of the Company’s foreign subsidiary of $470,000 are considered to be permanently reinvested and accordingly, no deferred U.S. income taxes have been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to U.S. income tax. At the present time it is not practicable to estimate the amount of U.S. income taxes that might be payable if these earnings were repatriated.
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As of December 31, 2021 and 2020, the Company had a federal net operating loss carryforward (“NOL”) of $113,432,000 and $104,180,000, respectively. The federal NOL subject to 80% of taxable income limitation and not subject to expiration at December 31, 2021 and 2020 was $74,392,000 and $65,140,000, respectively. The federal net operating loss subject to expirations as of December 31, 2021 and 2020 were $39,040,000 and $50,896,000 and will begin to expire in 2036. As of December 31, 2021 and 2020 the Company had a state NOL carryforward of $115,435,000 and $114,876,000, respectively, that will begin to expire in 2033. Federal and state NOL carryforwards were reduced during December 31, 2020, as a result of the completion of the Company’s Section 382 study in connection with the Company’s February 5, 2018 financing transactions. The amount of the federal and state NOL reductions were $176,433,000 and $119,131,000, respectively. Utilization of some of the federal and state net operating loss and credit carryforwards are subject to annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization.
As of December 31, 2021 and 2020, the Company had a federal research and development (“R&D”) tax credit carryforward of $561,000 and $607,000, respectively and will begin to expire in 2038. The December 31, 2021 and 2020 California R&D tax credit carryforward of $3,121,000 and $3,075,000, respectively, have no expiration date. The December 31, 2020 federal and California R&D tax credit carryforward was reduced by $2,317,000 due to the 382 Change.
The Company records valuation allowances on U.S. and certain foreign deferred tax assets. In assessing the need for a valuation allowance, the Company considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon generation of future taxable income. In the assessment of a valuation allowance, appropriate consideration is given to all positive and negative evidence including recent operating profitability, forecast of future earnings, ability to carryback, the reversal of net taxable temporary differences, the duration of statutory carryforward periods and tax planning strategies.
For purposes of the Company’s income tax provision, the acquisition required the Company to consider income tax changes under the Tax Cuts and Jobs Act it was not previously subject to, including Global Intangible Low-Taxed Income (“GILTI”) and Subpart F. The impact of these amounts on the Company’s income tax provision and consolidated financial statements as of December 31, 2021 and 2020 were not material. The Company has elected to treat GILTI as a period cost and accordingly has not recorded any deferred assets or liabilities related to the calculation of future GILTI income. The most significant impact to the Company’s tax provision as a result of the Pro Farm acquisition was the recognition of intangible assets which impacted the Company’s temporary differences for depreciation and amortization. Refer to the table above for the inclusion of the foreign entity on the Company’s overall federal income tax rate and deferred tax liabilities.
The Company has incurred net operating losses since inception and does not have any significant unrecognized tax benefits. The Company’s policy is to include interest and penalties related to unrecognized tax benefits, if any, within the provision for taxes in the consolidated statements of operations. If the Company is eventually able to recognize the Company’s uncertain positions, the Company’s effective tax rate would be reduced. The Company currently has a full valuation allowance against out net deferred tax asset which would impact the timing of the effective tax rate benefit should any of these uncertain tax positions be favorably settled in the future. Any adjustments to the Company’s uncertain tax positions would result in an adjustment of the Company’s net operating loss or tax credit carry forwards rather than resulting in a cash outlay.
The Company files income tax returns in the U.S. federal and foreign jurisdiction and various state jurisdictions. The Company is subject to U.S. federal and state income tax examination for 2006 through 2021 due to unutilized net operating loss carryforwards. The Company is subject to state income tax examination for the same periods due to an unutilized research and development tax credit carryforward. The Company’s foreign locations in Finland is subject to income tax examination for 2017 through 2021.
As of December 31, 2021 and 2020, the Company had unrecognized tax benefits of $992,000 and $946,000, respectively. The unrecognized tax benefits, if recognized, would impact the Company’s effective tax rate for December 31, 2021 and 2020. The remaining unrecognized tax benefits would not impact the effective tax rate as tax benefits would be offset by changes in the Company’s valuation allowance. The Company does not believe there will be any material changes in its unrecognized tax position during the next twelve months.
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The Company has the following activity relating to unrecognized tax benefits is as follows (in thousands):
| DECEMBER 31, | DECEMBER 31, | |||||||
| 2021 | 2020 | |||||||
| Balance at January 1 | $ | 946 | $ | 1,431 | ||||
| Gross increase to tax positions in prior years | 24 | 40 | ||||||
| Gross decrease to tax positions in prior years | - | (617 | ) | |||||
| Gross increase to tax positions in current years | 22 | 92 | ||||||
| Balance at December 31 | $ | 992 | $ | 946 | ||||
Although it is reasonably possible that certain unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, settlement activities, expirations of statute of limitations, or the impact on recognition and measurement considerations related to the results of published tax cases or other similar activities, the Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. During the years ended December 31, 2021 and 2020, immaterial interest and penalties were required to be recognized relating to unrecognized tax benefits.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The act contains many tax incentives intended to assist companies and individuals during the COVID-19 outbreak. The Company has analyzed the impact of the CARES Act and concluded the following:
| - | The Company did not utilize the Paycheck Protection Program loan in the year ended December 31, 2021. | |
| - | The Company has historically been in a NOLs position and, as such, the Company will not utilize the NOLs carryback provision of the CARES Act. |
The Consolidated Appropriations Act, 2021, which was enacted on December 27, 2020, has expanded, extended, and clarified selected CARES Act provisions, specifically on Paycheck Protection Program loans and Employee Retention Tax Credits, 100% deductibility of business meals as well as other tax extenders. The Consolidated Appropriations Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2021 or 2020.
12. Common Stock
In August 2013, the Company amended and restated its certificate of incorporation to increase the number of shares of common stock authorized for issuance to shares with a par value of $.
As of December 31, 2021, the Company had reserved shares of common stock for future issuances as follows (in thousands):
| SHARES | ||||
| Shares available for future grant under stock incentive plans | 10,053 | |||
| Stock options outstanding | 12,677 | |||
| Restricted stock units outstanding | 3,980 | |||
| Warrants to purchase common stock | 152 | |||
| Common shares to be issued in lieu of agent fees | 498 | |||
| Shares available for future purchase under ESPP | 307 | |||
| Maximum contingent consideration shares to be issued | 5,415 | |||
| Balance at December 31, 2021 | 33,082 | |||
13. Employee Benefit Plan
The Company offers a defined contribution plan to all eligible employees, which is qualified under Section 401(k) of the IRC. The Company currently provides a matching contribution based on a formula which provides for a dollar-for-dollar matching contribution of the employee’s 401(k) contribution up to 3% of eligible pay plus a 50% matching contribution on the employee’s 401(k) contribution between 3% and 5% of eligible pay. Each participant is 100% vested in elective contributions and the Company’s matching contribution. The Company provided 401(k) matching contributions during the years ended December 31, 2021 and 2020 of $506,000 and $315,000, respectively.
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14. Related Party Transactions
Warrant Exercises
Ospraie Ag Science LLC (“Ospraie”) and Ardsley Advisory Partners (“Ardsley”), are beneficial owners of the Company’s securities, holding 38.9% and 9.7%, respectively, of the Company’s total outstanding common stock as of December 31, 2021.
In March 2020, pursuant to the terms of the February 2018 Warrants, the Company’s utilization of its call option under the Warrant Reorganization Agreement to exercise 6,000,000 warrants. As a result of this transaction, the Company issued 6,000,000 common shares and 6,000,000 August 2019 Warrants. The total number of warrants exercised at the request of the Company by Ospraie and Ardsley represented 5,027,325 and 874,314, shares of common stock, respectively. The August 2019 Warrants issued as a result of this transaction were subsequently forfeited in connection with the Warrant Exchange Agreement (refer to Note 9 of the consolidated financial statements).
Pursuant to the terms of the April 2020 Warrants, prior to each warrant expiration dates for a total of (i) 3,392,581 Warrant Shares on May 1, 2020, (ii) 2,714,065 Warrant Shares on September 15, 2020, (iii) 13,027,512 Warrant Shares on December 15, 2020, (iv) 5,862,380 Warrant Shares on March 15, 2021, and (v) 4,885,317 Warrant Shares on December 15, 2021, a total of , , , , and , respectively April 2020 Warrants were exercised (See Note 9). As a result of these transactions, the Company issued common shares of and , to Ospraie and Ardsley, respectively.
15. Other Matters
Paycheck Protection Program
In April 2020, the Company entered into an unsecured note (the “Note”) in the amount of $1,723,000 under the PPP. The Company has accounted for the transaction when it is considered that there is reasonable assurance that the grant amounts will be received and all necessary qualifying conditions, as stated in the loan agreement, are met, consistent with International Accounting Standards (IAS) 20, Accounting for Government Grants. In November 2020, the Company received correspondence from the lender of the PPP that the Company’s PPP loan amount had been forgiven by the Small Business Administration.
For the year ended December 31, 2020, the Company recognized as reduction to the expense categories specified under the PPP $702,000 and $695,000, respectively, in research, development and patents and Selling, general and administrative, in the consolidated statement of operations. The remaining amount of total PPP funds received of $326,000 was allocated to the related PPP-specified expenses associated with the Company’s manufacturing operations and was originally capitalized into inventory, but as of December 31, 2020, the full amount was amortized from inventory, offsetting cost of product revenues in the consolidated statement of operations based on the Company’s normal recognition policy for similar items.
Chief Financial Officer
On January 28, 2021, the Company announced the appointment of Suping (Sue) Liu Cheung, Ph.D., CPA, as CFO, which took effect upon her commencement of employment, on February 18, 2021. In connection with her appointment as the Company’s CFO, Ms. Cheung will receive an annual base salary of $275,000, and a target annual award opportunity under the Company’s discretionary bonus plan of up to 40% of her annual base salary, unless adjusted by the Board for any year. Ms. Cheung will also receive a $50,000 signing bonus in April 2021, and certain relocation expenses. Additionally, pursuant to her offer letter and as approved by the Board (the “Compensation Committee”), Ms. Cheung was granted an option to purchase shares of the Company’s common stock under the Company’s 2013 Plan. , for so long as Ms. Cheung provides services to the Company.
The Company also entered into a change in control agreement with Ms. Cheung (the “CIC Agreement”), which provides Ms. Cheung with the right to receive certain benefits if, in connection with a Change in Control (as defined in the CIC Agreement), Ms. Cheung terminates her employment with the Company for good reason or the Company terminates her employment without cause. The CIC Agreement provides that in such an event: (i) Ms. Cheung will receive a single lump sum severance payment equal to twelve months of her annual salary; (ii) all outstanding and unvested equity compensation awards held by Ms. Cheung will vest; (iii) Ms. Cheung will receive a lump sum bonus payment in an amount equal to 20% of her then-current base salary, prorated based on the percentage of the current year completed prior to termination; and (iv) the Company will pay for health continuation coverage premiums for the executive and her family members for twelve months following the date of termination. The benefits provided for in the CIC Agreement are subject to Ms. Cheung’s delivery of a release of claims reasonably acceptable to the Company. Under the CIC Agreement, Ms. Cheung is also subject to non-solicitation and non-disparagement obligations during employment with the Company and for one year following termination.
16. Subsequent Events
Long-term Incentive Program
On February 7, 2022, the Company’s board of directors, upon recommendation of the Compensation Committee, approved of awards under a newly implemented long-term incentive program (“LTIP”) Under the LTIP, the board of directors approved grants to certain officers in a total aggregate amount of restricted stock units and, options to purchase shares of the Company’s common stock, which the Company’s board of directors valued at a total of $, with the weighing of the awards values being % for the options and % for the restricted stock units (the “Executive Awards”). Each Executive Award was issued under the 2013 Plan and vests in equal monthly installments over three years, subject to the recipient’s continued employment by the Company through the applicable vesting date, provided that, in lieu of the terms of any change in control agreement in place between the Company and the recipient, in the event that any recipient is terminated without Cause (as defined in the applicable recipient’s Change In Control Agreement) or resigns for Good Reason (as defined in the applicable recipient’s Change In Control Agreement) within twelve months of a Change in Control (as defined in the recipient’s Change In Control Agreement), % of the unvested portion of each Executive Award will become immediately vested.
Also under the LTIP, the Company’s board of directors approved the issuance of an aggregate of restricted stock units to certain other employees, which the Company’s board valued at a total of $ (the “Additional Awards”).
Also under the LTIP, the Company’s board of directors approved a fund totaling up to $600,000 to be distributed by management to non-executive officer employees in the form of cash, on terms to be determined by management, or, at the description of and with the approval of the Compensation Committee, equity-based awards under the 2013 Plan.
Chief Financial Officer
On February 15, 2022, Suping (Sue) Cheung notified the Company of her decision to resign from her position as the Company’s Chief Financial Officer, effective March 9, 2022.
On February 21, 2022, the Company’s board of directors approved the retention of LaDon Johnson as Interim Chief Financial Officer, effective upon Ms. Cheung’s departure, under an agreement with CFO Systems, LLC, a provider of senior financial and accounting executive and support services. Mr. Johnson will also serve as the Company’s principal financial and accounting officer until the Company appoints a permanent successor to Ms. Cheung.
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Merger Agreement
On March 16, 2022, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bioceres Crop Solutions Corp., a Cayman Islands exempted company (“Bioceres”), and BCS Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Bioceres (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Bioceres (“NewCo”). Consummation of the Merger is subject to the approval of the Company’s stockholders, the receipt of required regulatory approvals and satisfaction of other customary closing conditions.
The board of directors of the Company (the “Board”) has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, (ii) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to and in the best interests of the Company and its stockholders, (iii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and (iv) resolved to recommend adoption of the Merger Agreement by the Company’s stockholders. The Merger Agreement was also unanimously approved by the board of directors of Bioceres.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $ per share, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by Bioceres, the Company or any direct or indirect wholly owned subsidiary of Bioceres or the Company, in each case immediately prior to the Effective Time, shall be cancelled and extinguished and automatically converted into the right to receive (the “Exchange Ratio”) validly issued, fully paid and nonassesable ordinary shares, par value $ per share, of Bioceres and, if applicable, cash in lieu of fractional Bioceres ordinary shares (the “Merger Consideration”).
The Merger Agreement also specifies the treatment of the Company’s outstanding equity awards in connection with the Merger, which shall be treated as follows at the Effective Time:
(i) each outstanding restricted stock unit award relating to shares of Company Common Stock (a “Company RSU”) (that is not a Company RSU that provides for settlement and issuance of shares of Company Common Stock in connection with a change in control of the Company (a “Change in Control Settled RSU”)) that is unvested immediately prior to the Effective Time and does not vest as a result of the consummation of the transactions contemplated by the Merger Agreement shall be assumed by Bioceres (each, an “Assumed RSU”), with each such Assumed RSU being subject to substantially the same terms and conditions, except that the number of Bioceres ordinary shares subject to each Assumed RSU Award shall be equal to the product of (x) the number of shares of Company Common Stock underlying such unvested Company RSU as of immediately prior to the Effective Time (with any performance milestones deemed achieved based on maximum level of performance) multiplied by (y) the Exchange Ratio;
(ii) each outstanding Company RSU that is vested immediately prior to the Effective Time (taking into account any acceleration of vesting as a result of the consummation of the transactions contemplated by the Merger Agreement), each Change in Control Settled RSU (whether or not vested) and each unvested Company RSU held by a non-employee director of the Company will be settled immediately before the Effective Time by way of the issuance of one share of Company Common Stock for each such Company RSU and such shares of Company Common Stock will be converted into the right to receive the Merger Consideration;
(iii) each outstanding option to purchase Company Common Stock (a “Company Option”) that is unvested as of immediately prior to the Effective Time (and does not vest as a result of the consummation of the transactions contemplated by the Merger Agreement) and each Company Option that is outstanding and vested as of immediately prior to the Effective Time (or vests as a result of the consummation of the transactions contemplated by the Merger Agreement) for which the exercise price per share is equal to or greater than the Cash Equivalent Consideration (as defined in the Merger Agreement) (a “Rolled Vested Option), shall be assumed by Bioceres (each, an “Assumed Option), with each such Assumed Option being subject to substantially the same terms and conditions, except that (A) the number of Bioceres ordinary shares subject to each Assumed Option shall be equal to the product of (x) the number of shares of Company Common Stock underlying such Company Option as of immediately prior to the Effective Time multiplied by (y) the Exchange Ratio, and (B) the per share exercise price of each Assumed Option shall be equal to the quotient determined by dividing (x) the exercise price per share at which such Company Option was exercisable immediately prior to the Effective Time by (y) the Exchange Ratio;
(iv) each Company Option, other than a Rolled Vested Option, that is outstanding and vested as of immediately prior to the Effective Time (or vests as a result of the consummation of the transactions contemplated by the Merger Agreement) shall by cancelled and converted into the right to receive the Merger Consideration in respect of each “net” share underlying such Company Option, which is the quotient obtained by dividing (A) the product of (x) the excess of the Cash Equivalent Consideration (as defined in the Merger Agreement) over the per share exercise price of such Company Option multiplied by (y) the number of shares subject to such Company Option by (B) the Cash Equivalent Consideration (as defined in the Merger Agreement); and
(v) with respect to the employee stock purchase plan (the “ESPP”), the Company shall make any pro rata adjustments necessary to reflect a shortened offer period under the ESPP and treat any shortened offer period as a fully effective and completed offer period for all purposes pursuant to the ESPP, cause the exercise, no later than one business day, prior to the date on which the Effective Time occurs, of each outstanding purchase right pursuant to the ESPP, and then terminate the ESPP.
The Merger Agreement contains representations and warranties of the Company and Bioceres relating to their respective businesses and public filings, in each case generally subject to a materiality qualifier. Additionally, the Merger Agreement provides for pre-closing covenants of the Company, including (i) covenants relating to conducting its business in the ordinary course consistent with past practice and refraining from taking certain types of actions without Bioceres’s consent, (ii) covenants relating to removing certain inventory from certain jurisdictions and (iii) certain restrictions on the Company’s ability to solicit alternative acquisition proposals from third parties, and/or to provide information to third parties and to engage in discussions with third parties, in each case, in connection with alternative acquisition proposals, subject to certain exceptions (the “No-Shop”).
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The consummation of the Merger is subject to certain closing conditions, including (i) the approval of the Company’s stockholders (the “Company Stockholder Approval”), (ii) the expiration or termination of all waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and receipt of any other specified merger control consents or clearances, (ii) the effectiveness of the registration statement to be filed by Bioceres with the SEC pursuant to the Merger Agreement, (iii) the approval for listing on Nasdaq of Bioceres’s ordinary shares to be issued as Merger Consideration in connection with the Merger, subject to official notice of issuance, (iv) the absence of any judgment or law issued by any governmental entity enjoining or otherwise prohibiting the consummation of the Merger, and (vii) other customary conditions specified in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, each of the Company and Bioceres is required to use reasonable best efforts to consummate the Merger, including with respect to satisfaction of the relevant closing conditions.
Prior to obtaining the Company Stockholder Approval, the Board may, in certain limited circumstances, withdraw or modify its recommendation that the Company’s stockholders adopt the Merger Agreement or recommend or otherwise declare advisable any Superior Proposal (as defined in the Merger Agreement) (a “Company Recommendation Change”), subject to complying with notice and other specified conditions, including giving Bioceres the opportunity to propose revisions to the terms of the transaction contemplated by the Merger Agreement during a matching right period. Notwithstanding a Company Recommendation Change, unless Bioceres terminates the Merger Agreement, the Company is still required to convene the meeting of its stockholders.
The Merger Agreement also provides for certain termination rights of Bioceres and the Company, including the right of either party to terminate the Merger Agreement if the Merger is not consummated by the date that is eight (8) months following the date of the Merger Agreement. Either party may also terminate the Merger Agreement if the Company Stockholder Approval has not been obtained at a duly convened meeting of the Company’s stockholders or a judgment enjoining or otherwise prohibiting consummation of the Merger becomes final and non-appealable.
In addition, Bioceres may terminate the Merger Agreement if the Board effects a Company Recommendation Change, fails to include its recommendation to vote in favor of the Merger in the proxy statement/prospectus to be filed with the SEC in connection with the transaction or willfully breaches the provisions of the No-Shop in any material respect prior to the Company Stockholder Approval having been obtained. If the Merger Agreement is terminated by Bioceres in connection with such actions, then the Company shall be obligated to pay Bioceres a fee equal to $9,700,000.
Prior to the Effective Time, Bioceres is required to take all necessary corporate action so that upon and after the Effective Time, (x) if the size of the board of directors of Bioceres is 8 or less members, then 2 members thereof shall have been designated by the Board and (y) if the size of the board of directors of Bioceres is more than 8 members, then 3 members thereof shall have been designated by the Board. In no event will the total number of directors that comprise the board of directors of Bioceres as of the Effective Time exceed 11 members.
Support Agreement
On March 16, 2022, concurrently with the execution of the Merger Agreement and as a condition to Bioceres’s entry into the Merger Agreement, Bioceres entered into a Transaction Support Agreement (the “Support Agreement”), with certain of the Company’s stockholders (the “Supporting Stockholders”) who, collectively and in the aggregate, hold voting power over approximately 48.9% of the outstanding Company Common Stock (the “Subject Shares”). Pursuant to the terms of the Support Agreement, the Supporting Stockholders have agreed to take certain actions to support the transactions contemplated by the Merger Agreement, including not transferring the Subject Shares during the term of the Support Agreement and voting the Subject Shares in favor of the Merger Agreement and transaction contemplated thereby and against any alternative acquisition proposals.
Notwithstanding the voting obligations in the Support Agreement, (x) if the Board effects a Company Recommendation Change that is not in response to a Superior Proposal, the Supporting Stockholders in the aggregate will only have an obligation under the Support Agreement to vote a number of Subject Securities representing 25% of the outstanding Company Common Stock and (y) if the Board effects a Company Recommendation Change in response to a Superior Proposal, then the Supporting Stockholders will have no obligations in respect of how to vote their respective Subject Securities.
The Support Agreement will terminate automatically as of the earliest of (i) the Effective Time, (ii) the termination of the Merger Agreement in accordance with its terms, (iii) with respect to any Supporting Stockholder, the mutual agreement of Bioceres and such Supporting Stockholder, and (iv) with respect to any Supporting Stockholder, such time as any modification or amendment to the Merger Agreement is effected without such Supporting Stockholder’s consent that materially and adversely affects such Supporting Stockholder.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
We have filed the following documents as part of this Form 10-K/A:
| 1. | Consolidated financial statements: |
| 2. | Financial Statement Schedules |
All schedules have been omitted because they are not required, not applicable, not present in amounts sufficient to require submission of the schedule, or the required information is otherwise included.
| 3. | Exhibits |
The exhibits listed in the Exhibit Index of the Original Filing, the exhibits listed in the First Amendment, and the additional exhibits listed in the Exhibit Index of this Second Amendment are filed with, or incorporated by reference, in this report.
INDEX TO EXHIBITS
| EXHIBIT NUMBER |
EXHIBIT DESCRIPTION |
FORM | FILE NO. | EXHIBIT NUMBER |
FILING
DATE |
FILED HEREWITH | ||||||
| 2.1 | 8-K | 001-36030 |
2.1 |
March 16, 2022 | ||||||||
| 3.1 | Fourth Amended and Restated Certificate of Incorporation of Marrone Bio Innovations, Inc. | 10-K | 001-36030 | 3.1 | March 25, 2014 | |||||||
| 3.2 | Fifth Amended and Restated Bylaws of Marrone Bio Innovations, Inc. | 8-K | 001-36030 | 3.1 | April 26, 2019 | |||||||
| 4.1 | Form of Marrone Bio Innovations, Inc.’s common stock certificate. | S-1/A | 333-189753 | 10.4 | July 22, 2013 |
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| 4.2 | Form of Warrants issued by Marrone Bio Innovations, Inc. pursuant to the Third Amendment to Loan Agreement, dated as of November 11, 2016, by and between Marrone Bio Innovations, Inc. and Gordon Snyder, as agent. | 10-K | 001-36030 | 4.4 | April 5, 2018 | |||||||
| 4.3 | Form of Warrants issued by Marrone Bio Innovations, Inc. | S-1 | 333-189753 | 10.33 | July 1, 2013 | |||||||
| 4.4 | Description of Registrant’s Securities | 10-K | 001-36030 | 4.4 | March 30, 2022 | |||||||
| 10.1 | Office Lease, dated April 30, 2014, by and between Marrone Bio Innovations, Inc. and Seven Davis, LLC. | 10-Q | 001-36030 | 10.4 | May 15, 2014 | |||||||
| 10.2# | Marrone Bio Innovations, Inc. Stock Option Plan and related documents. | S-1 | 333-189753 | 10.1 | July 1, 2013 |
| 45 |
| 46 |
| 47 |
| # | Indicates a management contract or compensatory plan or arrangement. |
| † | Confidential portions of this document have been redacted as permitted by applicable regulations. |
| 48 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Raleigh, State of North Carolina, on May 9, 2022.
| MARRONE BIO INNOVATIONS, INC. | |
| /s/ Kevin Helash | |
| Kevin Helash | |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K/A has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| SIGNATURE | TITLE | DATE | ||
| /s/ Kevin Helash | Chief Executive Officer | May 9, 2022 | ||
| Kevin Helash | (Principal Executive Officer) | |||
| /s/ LaDon Johnson | Interim Chief Financial Officer | May 9, 2022 | ||
| LaDon Johnson | (Principal Financial Officer and Principal Accounting Officer) | |||
| * | Chair of the Board | May 9, 2022 | ||
| Robert A. Woods | ||||
| * | Director | May 9, 2022 | ||
| Pamela G. Marrone | ||||
| * | Director | May 9, 2022 | ||
| Yogesh Mago | ||||
| * | Director | May 9, 2022 | ||
| Zachary S. Wochok | ||||
| * | Director | May 9, 2022 | ||
| Keith McGovern | ||||
| * | Director | May 9, 2022 | ||
| Stuart Woolf | ||||
| * | Director | May 9, 2022 | ||
| Lara L. Lee |
| *By: | /s/ Kevin Helash | |
| Kevin Helash | ||
| Attorney-in-Fact |
| 49 |
Exhibit 23.1
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We consent to the incorporation by reference in the Registration Statement of Marrone Bio Innovations, Inc. on Form S-8 (File No.’s 333-191048, 333-219981, 333-222846, 333-225401, 333-229859, 333-232039, 333-237322, and 333-251970), Form S-3 (File No.’s 333-251284 and 333-252823), and Form S-1 (File No. 333-237331) of our report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern, dated March 30, 2022, with respect to our audit of the consolidated financial statements of Marrone Bio Innovations, Inc. as of December 31, 2021 and 2020 and for each of the two years in the period ended December 31, 2021, which report is included in this Annual Report on Form 10-K of Marrone Bio Innovations, Inc. for the year ended December 31, 2021.
| /s/ Marcum LLP | |
| Marcum LLP |
San Francisco, CA
March 30, 2022
Exhibit 31.1
I, Kevin Helash, certify that:
1. I have reviewed this Annual Report on Form 10-K/A of Marrone Bio Innovations, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2022
| /s/ Kevin Helash | |
| Kevin Helash | |
| Chief Executive Officer |
Exhibit 31.2
I, LaDon Johnson, certify that:
1. I have reviewed this Annual Report on Form 10-K/A of Marrone Bio Innovations, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 9, 2022
| /s/ LaDon Johnson | |
| LaDon Johnson | |
| Interim Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Helash, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Marrone Bio Innovations, Inc. on Form 10-K/A for the fiscal year ended December 31, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K/A fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.
Date: May 9, 2022
| By: | /s/ Kevin Helash | |
| Name: | Kevin Helash | |
| Title: | Chief Executive Officer |
I, LaDon Johnson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Marrone Bio Innovations, Inc. on Form 10-K/A for the fiscal year ended December 31, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K/A fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.
Date: May 9, 2022
| By: | /s/ LaDon Johnson | |
| Name: | LaDon Johnson | |
| Title: | Interim Chief Financial Officer |
This certification accompanies this Report on Form 10-K/A pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.