MARRONE BIO INNOVATIONS INC (Form: 10-Q, Received: 05/15/2017 06:11:10)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2017

☐	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

incorporation or organization)

(I.R.S. Employer

Identification No.)

1540 Drew Avenue, Davis, CA 95618

(Address of principal executive offices and zip code)

(530) 750-2800

(Registrant’s telephone number, including area code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer		☐				Accelerated filer		☐
Non-accelerated filer		☐		(Do not check if a smaller reporting company)		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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Class	Shares Outstanding at May _8, 2017
Common Stock, $0.00001 par value	31,350,877

TABLE OF CONTENTS

		PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		3
Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 201 6		3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016		4
Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended March 31, 2017 and 2016		5
Condensed Consolidated Statements of Cash Flows for the three Months Ended March 31, 2017 and 2016		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		32
Item 4. Controls and Procedures		33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		34
Item 1A. Risk Factors		34
Item 6. Exhibits		36
SIGNATURES		37

PART I. FINANCI AL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Balance Sheets

(In Thousands, Except Par Value)

	MARCH 31, 2017			DECEMBER 31, 2016
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,782		$	9,609
Restricted cash, current portion		1,444			1,444
Accounts receivable		8,073			3,592
Inventories, net		8,135			8,482
Deferred cost of product revenues		3,995			2,688
Prepaid expenses and other current assets		982			1,060
Total current assets		24,411			26,875
Property, plant and equipment, net		16,914			17,343
Restricted cash, less current portion		1,560			1,560
Other assets		141			205
Total assets	$	43,026		$	45,983
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable	$	3,017		$	1,385
Accrued liabilities		6,398			5,508
Accrued interest due to related parties		798			1,618
Deferred revenue, current portion		7,489			5,647
Capital lease obligations, current portion		694			839
Debt, current portion		249			252
Total current liabilities		18,645			15,249
Deferred revenue, less current portion		2,252			1,787
Debt, less current portion		21,054			21,083
Debt due to related parties		36,952			36,667
Other liabilities		1,337			1,381
Total liabilities		80,240			76,167
Commitments and contingencies (Note 8)
Stockholders' deficit:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at March 31, 2017 and December 31, 2016		—			—
Common stock: $0.00001 par value; 250,000 shares authorized, 24,779 shares issued and outstanding as of March 31, 2017 and 24,661 as of December 31, 2016		—			—
Additional paid in capital		205,062			204,463
Accumulated deficit		(242,276	)		(234,647	)
Total stockholders' deficit		(37,214	)		(30,184	)
Total liabilities and stockholders' deficit	$	43,026		$	45,983

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

	THREE MONTHS ENDED MARCH 31,
	2017			2016
Revenues:
Product	$	4,096		$	2,577
License		58			92
Total revenues		4,154			2,669
Cost of product revenues		2,279			2,269
Gross profit		1,875			400
Operating Expenses:
Research, development and patent		2,444			2,322
Selling, general and administrative		5,343			5,530
Total operating expenses		7,787			7,852
Loss from operations		(5,912	)		(7,452	)
Other income (expense):
Interest income		1			15
Interest expense		(636	)		(1,037	)
Interest expense to related parties		(1,074	)		(796	)
Other income (expense), net		(8	)		(6	)
Total other expense, net		(1,717	)		(1,824	)
Loss before income taxes		(7,629	)		(9,276	)
Income taxes		—			—
Net loss	$	(7,629	)	$	(9,276	)
Basic and diluted net loss per common share	$	(0.31	)	$	(0.38	)
Weighted-average shares outstanding used in computing net loss per common share		24,739			24,569

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In Thousands)

(Unaudited)

	THREE MONTHS ENDED MARCH 31,
	2017			2016
Net loss	$	(7,629	)	$	(9,276	)
Other comprehensive loss		—			—
Comprehensive loss	$	(7,629	)	$	(9,276	)

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

(Unaudited)

	THREE MONTHS ENDED MARCH 31,
	2017			2016
Cash flows from operating activities
Net loss	$	(7,629	)	$	(9,276	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		521			594
Loss (gain) on disposal of equipment		(4	)		5
Share-based compensation		582			617
Non-cash interest expense		337			329
Net changes in operating assets and liabilities:
Accounts receivable		(4,481	)		(2,347	)
Inventories		347			504
Prepaid expenses and other assets		142			109
Deferred cost of product revenues		(1,307	)		(636	)
Accounts payable		1,627			583
Accrued and other liabilities		828			(1,040	)
Accrued interest due to related parties		(820	)		(371	)
Deferred revenue		2,307			1,385
Deferred revenue from related parties		—			(168	)
Net cash used in operating activities		(7,550	)		(9,712	)
Cash flows from investing activities
Purchases of property, plant and equipment		(83	)		(49	)
Net cash used in investing activities		(83	)		(49	)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs		—			—
Repayment of debt		(66	)		(65	)
Financing costs		—			—
Repayment of capital leases		(145	)		(204	)
Exercise of stock options		17			16
Net cash used in financing activities		(194	)		(253	)
Net increase (decrease) in cash and cash equivalents		(7,827	)		(10,014	)
Cash and cash equivalents, beginning of period		9,609			19,838
Cash and cash equivalents, end of period	$	1,782		$	9,824
Supplemental disclosure of cash flow information
Cash paid for interest	$	2,182		$	1,882
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities	$	40		$	14
Equipment acquired under capital leases	$	—		$	1,586

See accompanying notes.

MARRONE BIO INNOVATIONS, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2017

(Unaudited)

1. Summary of Business, Basis of Presentation and Liquidity

Marrone Bio Innovations, Inc. (“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. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation. The Company makes bio-based pest management and plant health products. The Company targets the major markets that use conventional chemical pesticides, including certain agricultural and water markets where its bio-based products are used as alternatives for, or mixed with, conventional chemical pesticides. The Company also targets new markets for which (i) there are no available conventional chemical pesticides or (ii) the use of conventional chemical pesticides 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 pesticides. The Company delivers EPA-approved and registered biopesticide products and other bio-based products that address the global demand for effective, safe and environmentally responsible products.

The Company is an early stage company with a limited operating history and has a limited number of commercialized products. As of March 31, 2017, the Company had an accumulated deficit of $242,276,000, has incurred significant losses since inception and expects to continue to incur losses for the foreseeable future. The Company has funded operations primarily with net proceeds from public offerings of common stock, private placements of convertible preferred stock, convertible notes, and promissory notes and term loans, as well as with the proceeds from the sale of its products and payments under strategic collaboration and distribution agreements and government grants. The Company will need to generate significant revenue growth to achieve and maintain profitability. As of March 31, 2017, the Company had working capital of $5,766,000, including cash and cash equivalents of $1,782,000. As of March 31, 2017, the Company had debt and debt due to related parties of $21,303,000 and $36,952,000, respectively, for which the underlying debt agreements contain various financial and non-financial covenants, as well as a material adverse change clause. In addition, as of March 31, 2017, the Company had a total of $3,004,000 of restricted cash relating to a debt agreement (see Note 6).

The Company believes that its existing cash and cash equivalents of $1,782,000 at March 31, 2017, expected revenues and the net proceeds from its “at-the-market” offering, the March 2017 LSQ Financing (as defined and discussed in Notes 6 and 10) and its April 2017 common stock offering (as discussed in Note 10) will not be sufficient to fund operations as currently planned through one year from the date of the issuance of these financial statements, which raises substantial doubt as to the Company’s ability to continue as a going concern. The Company has based this belief on assumptions and estimates that may prove to be wrong, and the Company could spend its available financial resources less or more rapidly than currently expected. The Company will 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, general capital expenditures and satisfaction of debt obligations. Management intends to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. Should the Company seek additional financing from outside sources, the Company may not be able to raise such financing on terms acceptable to the Company or at all. If the Company is unable to raise additional capital when required or on acceptable terms, the Company may be required to scale back or to discontinue the promotion of currently available products, scale back or discontinue the advancement of product candidates, reduce headcount, sell assets, file for bankruptcy, reorganize, merge with another entity, or cease operations.

Additionally, if the Company breaches any of the covenants contained within the debt agreements or if the material adverse change clause is 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 October 1, 2018, 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 maximum debt-to-worth requirement under a 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 (as defined in Note 6) 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 financial statements. The lender has waived its right to deem recurring losses, liquidity, going con cern, and financial condition a material adverse change through October 1, 2018. As a result, none of the long term portion of the Company’s outstanding debt has been reclassified to current in these financial statements as of March 31, 2017.

The Company participates in a heavily regulated and highly competitive crop protection industry and believes that adverse changes in any of the following areas could have a material effect on the Company’s future financial position, results of operations or cash flows: inability to obtain regulatory approvals, increased competition in the pesticide market, market acceptance of the Company’s products, weather and other seasonal factors beyond the Company’s control, litigation or claims against the Company related to intellectual property, patents, products or governmental regulation, and the Company’s ability to support increased growth.

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 is expected to result in dilution to existing shareholders and any debt financing is expected to 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 accompanying financial statements have been prepared under the assumption that the Company will continue to operate as a going concern, which 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 inability to continue as a going concern.

If the Company becomes unable to continue as a going concern, the Company may have to liquidate its assets, and might realize significantly less than the values at which they are carried on its financial statements, and stockholders may lose all or part of their investment in the Company’s common stock.

2. Significant Accounting Policies

Basis of Presentation

The accompanying financial information as of March 31, 2017, and for the three months ended March 31, 2017 and 2016, has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2016.

In the opinion of management, the condensed consolidated financial statements as of March 31, 2017, and for the three months ended March 31, 2017 and 2016, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations, comprehensive loss and cash flows. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Subsequent to the issuance of the Company’s condensed consolidated financial statements for the three months ended March 31, 2016, management determined that the Company had misclassified, in the statements of operations, $287,000 of interest expense to related parties as interest expense. This misclassification error did not impact total interest expense which includes interest expense and interest expense to related parties or the Company’s net loss for the period. Because the Company considers the impact of the misclassification error to be quantitatively and qualitatively immaterial to the total mix of information available in the Company’s financial statements for the three months ended March 31, 2016, the historical financial statements were not adjusted .

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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 consists of cash on deposit, money market funds and certificates of deposit accounts with United States (“U.S.”) 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 by the Federal Deposit Insurance Corporation. The Company has not experienced any losses on these deposits.

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 (as defined in Note 6). See Note 6 for further discussion.

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. Such deposits may exceed federal deposit insurance limits. The Company believes the financial risks associated with these financial instruments are minimal.

The Company’s customer base is dispersed across many different geographic areas, and currently most customers are pest management distributors in the U.S. Generally, receivables are due up to 120 days from the invoice date and are considered past due after this date, although the Company may offer extended terms from time to time.

Revenues generated from international customers were, for the three months ended March 31, 2017 and 2016, 18% and 9%, respectively.

The Company’s principal sources of revenues are its Regalia and Grandevo product lines. These two product lines accounted for 77% and 80% of the Company’s total revenues for the three months ended March 31, 2017 and 2016, respectively.

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			CUSTOMER B			CUSTOMER C			CUSTOMER D			CUSTOMER E
Three months ended March 31,
2017		18	%		6	%		15	%		13	%		12	%
2016		24	%		13	%		13	%		6	%		5	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2017 or December 31, 2016 consist of the following:

	CUSTOMER A			CUSTOMER B			CUSTOMER C
March 31, 2017		54	%		7	%		—
December 31, 2016		21	%		10	%		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 has one supplier of 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 maintains 7 months of knotweed extract at any given time, but an unexpected disruption in supply 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

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.

Deferred Cost of Product Revenues

Deferred cost of product revenues are stated at the lower of cost or net realizable value and include product sold where title has transferred but the criteria for revenue recognition have not been met. As of March 31, 2017 and December 31, 2016, the Company recorded deferred cost of product revenues of $3,995,000 and $2,688,000 respectively.

Revenue Recognition

The Company recognizes revenues when persuasive evidence of an arrangement exists, transfer of title has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. If contractual obligations, acceptance provisions or other contingencies exist which indicate that the price is not fixed or determinable, revenue is recognized after such obligations or provisions are fulfilled or expire.

Product revenues consist of revenues generated from sales of the Company’s products to distributors and direct customers, net of rebates and cash discounts. For sales of products made to distributors, the Company recognizes revenue either on a sell-in or sell-through basis depending on the specific facts and circumstances of the transaction(s) with the distributor. Factors considered include, but are not limited to, whether the payment terms offered to the distributor are structured to correspond to when product is resold, the distributor history of adhering to the terms of its contractual arrangements with the Company, whether the Company has a pattern of granting concessions for the benefit of the distributor and whether there are other conditions that may indicate that the sale to the distributor is not substantive.

In some cases, the Company recognizes distributor revenue as title and risk of loss passes, provided all other revenue recognition criteria have been satisfied (the “sell-in” method). For certain sales to certain distributors, the revenue recognition criteria for distributor sales are not satisfied at the time title and risk of loss passes to the distributor; for example, in instances where “inventory protection” arrangements were historically offered to distributors that permitted these distributors to return to the Company certain unsold products, the Company considers future arrangements with that distributor not to be fixed or determinable, and accordingly, revenue with that distributor is deferred until products are resold to customers of the distributor (the “sell-through” method). As of March 31, 2017 and December 31, 2016, the Company recorded current deferred product revenues of $7,245,000 and $5,411,000, respectively. In addition, the Company had $532,000 in deferred product revenue that was classified as long-term as of March 31, 2017. There was no deferred product revenues classified as long term as of December 31, 2016. Included in deferred revenue as of March 31, 2017 and December 31, 2016 but excluded from deferred product revenues is deferred revenue related to license revenues. As of March 31, 2017, the Company recorded current and non-current deferred revenues of $244,000 and $1,720,000, respectively, related to payments received under licensing agreements as discussed further below. As of December 31, 2016, the Company recorded current and non-current deferred revenues of $236,000 and $1,787,000, respectively, related to payments received under licensing agreements as discussed further below. The cost of product revenues associated with such deferrals are also deferred and classified as deferred cost of product revenues in the consolidated balance sheets. Cash received from customers related to delivered product that may not represent a true sale is classified as customer refund liabilities in the consolidated balance sheets and the related cost of inventory remains in inventory in the consolidated balance sheets until the product is returned or is resold to customers of the distributor and revenue is recognized. During the three months ended March 31, 2017 and 2016, 25% and 44%, respectively, of total revenues were recognized on a sell-through basis.

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.

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. No payments were received under these agreements for the

three months ended March 31, 2017 and 2016. For the three months ended March 31, 2017 and 2016, the Company recognized $58,000 and $92,000, respectively, as license revenues.

Research, Development and Patent Expenses

Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. For the three months ended March 31, 2017 and 2016, research and development expenses totaled $2,138,000 and $2,066,000, respectively, and patent expenses totaled $306,000 and $256,000, respectively.

Net Loss per Share

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted net loss per share is the same for all periods presented as the effect of the potential common stock equivalents, which consist of stock options and warrants to purchase common stock, are anti-dilutive due to the Company’s net loss position. Anti-dilutive common stock equivalents are excluded from diluted net loss per share. The following table sets forth the potential shares of common stock as of the end of each period presented that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands):

	MARCH 31,
	2017		2016
Stock options outstanding		3,325		2,839
Warrants to purchase common stock		4,152		4,027
Restricted stock units outstanding		415		171

Recently Adopted Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which amends the current requirement for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. Organizations will now be required to classify all deferred tax assets and liabilities as noncurrent. ASU 2015-17 is effective for public companies for financial statements issued for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The amendments may be applied prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company adopted ASU 2015-17 effective January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company adopted ASU 2016-09 effective January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The guidance excludes inventory measured using last-in, first-out or the retail inventory method. ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016 including interim periods within those fiscal years. Early adoption is permitted. The Company did not early adopt ASU 2015-11. The Company adopted ASU 2015-11 effective January 1, 2017. Adoption of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flow.

Recently Issued Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendments in this update clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 will be effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company has not elected to early adopt this guidance and is currently evaluating ASU 2016-15 to determine the impact to its consolidated financial statements.

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 disc losure requirements to enable users of 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 a Securities and Exchange Commission file r, 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 begi nning after December 15, 2018. The Company is currently evaluating ASU 2016-13 to determine the impact to its consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) Leases: Amendments to the FASB Accounting Standards Codifications (“ASU 2016-02”), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for public companies for financial statements issued for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Companies must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating ASU 2016-02 to determine the potential impact to its consolidated financial statements and related disclosures.

In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation and disclosure of financial instruments. Among other things, ASU 2016-01 (i) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (iii) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (iv) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (v) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (vi) requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (vii) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (viii) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating ASU 2016-01 to determine the potential impact to its consolidated financial statements and related disclosures.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09 and its related amendments provide new, globally applicable converged guidance concerning recognition and measurement of revenue. The new guidance requires the application of a five-step model to determine the amount and timing of revenue to be recognized. The underlying principle is that revenue is to be recognized for the transfer of goods or services to customers that reflects the amount of consideration that the Company expects to be entitled to in exchange for those goods or services. Additionally, significant additional disclosures are required about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for annual and interim periods beginning on or after December 15, 2017. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the transition method that will be elected and the potential effects of adopting the provisions of ASU 2014-09.

The Company is continuing to assess the impact of the new guidance on its accounting policies and procedures and is evaluating the new requirements as applied to existing revenue contracts. Although the Company is continuing to assess the impact of the new guidance, the Company believes the most significant impact will relate to the recognition of product sales made to distributors. The Company currently recognizes revenue from the sale of products made to distributors on either a sell-in or sell-through basis depending on the specific circumstances of the arrangement. The new guidance will likely result in an acceleration of revenue as the Company may no longer be required to defer revenues related to distributors that are currently recognized on the sell-through basis under the new standard. The Company is reviewing its revenue contracts and working on its plan for implementation of the new guidance which it will adopt beginning in the first quarter of 2018.

3. Fair Value Measurements

Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:

•

Level 1—Quoted prices in active markets for identical assets or liabilities.

•

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

The following table presents the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 (in thousands):

	MARCH 31, 2017
	TOTAL		LEVEL 1		LEVEL 2		LEVEL 3
Assets
Money market funds	$	—	$	—	$	—	$	—

	DECEMBER 31, 2016
	TOTAL		LEVEL 1		LEVEL 2		LEVEL 3
Assets
Money market funds	$	3,752	$	3,752	$	—	$	—

The Company’s money market funds are held at registered investment companies. As of December 31, 2016, the money market funds were in active markets and, therefore, are measured based on the Level 1 valuation hierarchy.

4. Inventories

Inventories, net consist of the following (in thousands):

As of March 31, 2017 and December 31, 2016, the Company had $133,000 and $127,000, respectively, in reserves against its inventories.

	MARCH 31,		DECEMBER 31,
	2017		2016
Raw materials	$	2,897	$	3,491
Work in progress		1,942		2,044
Finished goods		3,296		2,947
	$	8,135	$	8,482

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	MARCH 31, 2017		DECEMBER 31, 2016
Accrued compensation	$	1,626	$	1,403
Accrued warranty costs		605		754
Accrued legal costs		721		569
Accrued customer incentives		1,853		639
Accrued liabilities, other		1,593		2,143
	$	6,398	$	5,508

The Company warrants the specifications and/or performance of its products through implied product warranties and has extended product warranties to qualifying customers on a contractual basis. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time product is shipped. The Company’s estimate is based on historical experience and estimates of future warranty costs as a result of increasing usage of the Company’s products. During the three months ended March 31, 2017, the Company recognized $63,000 in warranty expense associated with product shipments for the period. This expense was reduced by $202,000 as a result of the historical usage of warranty reserves being lower than previously estimated. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount as necessary. Changes in the Company’s accrued warranty costs during the period are as follows (in thousands):

Balance at December 31, 2016	$	754
Warranties issued (released) during the period		(139	)
Settlements made during the period		(10	)
Balance at March 31, 2017	$	605

6. Debt

Debt, including debt due to related parties, consists of the following (in thousands):


	MARCH 31, 2017			DECEMBER 31, 2016
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 14.00% per annum, payable monthly through October 2018, collateralized by substantially all of the Company’s assets, net of unamortized debt discount as of March 31, 2017 and December 31, 2016 of $197 and $228, respectively, discount is based on imputed interest rate of 15.5%	$	12,253		$	12,222
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (5.75% as of March 31, 2017) 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 March 31, 2017 and December 31, 2016 of $242 and $247, respectively, discount is based on imputed interest rate of 5.8%		9,050			9,113
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest is payable biannually with principal payments due in increments at three, four and five years from the closing date, collateralized by substantially all of the Company’s assets, net of unamortized discount as of March 31, 2017 and December 31, 2016 of $3,048 and $3,333, respectively debt discount is based on imputed interest rate of 10.7% (see Note 9)		36,952			36,667
Debt, including debt due to related parties		58,255			58,002
Less debt due to related parties		(36,952	)		(36,667	)
Less current portion		(249	)		(252	)
	$	21,054		$	21,083

The fair value of the Company’s outstanding debt obligations as of March 31, 2017 and December 31, 2016 was $21,576,000 and $21,611,000, respectively, which was estimated based on a discounted cash flow model using an estimated market rate of interest of 15% for the fixed rate debt and 5.75% for the variable rate debt, and is classified as Level 3 within the fair value hierarchy.

Secured Promissory Notes

On October 2, 2012, the Company borrowed $7,500,000 pursuant to senior notes (“October 2012 Secured Promissory Notes”) with a group of lenders. On April 10, 2013 (“Conversion Date”), the Company entered into an amendment to increase, by up to $5,000,000, the amount available under the terms of the loan agreement with respect to the October 2012 Secured Promissory Notes. Under this amendment, an additional $4,950,000 was issued in partial consideration for $3,700,000 in cash received and in partial conversion for the cancellation of a $1,250,000 subordinated convertible note (collectively, “April 2013 Secured Promissory Notes”). The total amount borrowed under the amended loan agreement for the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes increased from $7,500,000 to $12,450,000 as of the Conversion Date. The October 2012 and April 2013 Secured Promissory Notes bear interest at 14% at March 31, 2017. This loan is collateralized by substantially all of the Company’s assets.

Secured Promissory Note

In June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory Note”) with Five Star Bank (“Lender”) which bears interest at 5.75% as of March 31, 2017. 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 $67,058 and adjusted from time-to-time as the interest rate changes, with the final payment due in June 2036. 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. In addition, until the Company provides documentation that the proceeds were used for c onstruction of the Company’s manufacturing plant, proceeds from the loan will be maintained in a restricted deposit account with the Lender. As of March 31, 2017, the Company had $1,444,000 remaining in this restricted deposit account, which is recorded as restricted cash included in current assets.

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 Gordon Snyder, an individual, as administrative agent for the Snyder lenders (the “Snyder Agent”), on behalf of the Snyder lenders, and the agent for the holders of the August 2015 Senior Secured Promissory Notes.

Advances by LSQ may be made at an advance rate of 80% of the face value of the receivables being sold. The Company also pays to LSQ (i) an invoice purchase fee equal to 1% of the face amount of each purchased invoice, at the time of the purchase, and (ii) a funds usage fee equal to 0.035%, payable monthly in arrears. An aging and collection fee is charged at the time when the purchased invoice is collected, calculated as a percentage of the face amount of such invoice while unpaid (which percentage ranges from 0% to 0.35% depending upon the duration the invoice remains outstanding). The LSQ Financing will be effective for one year with automatic one year renewals thereafter unless terminated within a 30-day window near the end of the then-effective term; a termination fee is due upon early termination by the Company if such termination is not requested within such 30-day window. The events of default under the LSQ Financing include failure to pay amounts due, failure to turn over amounts due to LSQ within a cure period, breach of covenants, falsity of representations, and certain insolvency events. As of March 31, 2017, no advances had been received under the LSQ Financing.

7. Share-Based Plans

As of March 31, 2017, there were 3,325,000 options outstanding, 415,000 restricted stock units outstanding and 2,543,000 share-based awards available for grant under the outstanding equity incentive plans.

For the three months ended March 31, 2017 and 2016, the Company recognized share-based compensation of $582,000 and $617,000, respectively.

During the three months ended March 31, 2017 and 2016, the Company granted 31,000 and 863,000 options, respectively, at a weighted-average exercise price of $2.10 and $1.22, respectively. During the three months ended March 31, 2017 and 2016, 14,000 and 37,000 options, respectively, were exercised at a weighted-average exercise price of $1.21 and $0.43 per share, respectively.

The following table summarizes the activity of restricted stock units from December 31, 2016 to March 31, 2017 (in thousands, except weighted average grant date fair value):

				WEIGHTED
				AVERAGE
				GRANT
	SHARES			DATE FAIR
	OUTSTANDING			VALUE
Nonvested at December 31, 2016	350			$	0.75
Vested		(25	)		1.06
Nonvested at March 31, 2017	325			$	0.73

8. Commitments and Contingencies

Operating Leases

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 is for a period of 60 months and commenced in August 2014. The monthly base rent is $44,000 per month for the first 12 months with a 3% increase each year thereafter. Concurrent with this amendment, in April 2014, 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 is for a period of 60 months and commenced in August 2014. The monthly base rent is $28,000 with a 3% increase each yea r thereafter.

On January 19, 2016, the Company entered into an agreement with a sublessee to sublease approximately 3,800 square feet of vacant office space located in Davis, California pursuant to the terms of its lease agreement. The initial term of the sublease is for a period of approximately 43 months and commenced on February 1, 2016. The monthly base rent is approximately $5,000 per month for the first 12 months with a 5% increase each year thereafter.

Litigation

On September 5, 2014, September 8, 2014, September 11, 2014, September 15, 2014 and November 3, 2014, the Company, along with certain of its current and former officers and directors and others were named as defendants in putative securities class action lawsuits filed in the U.S. District Court for the Eastern District of California. On February 13, 2015, these actions were consolidated as Special Situations Fund III QP, L.P. et al v. Marrone Bio Innovations, Inc. et al , Case No 2:14-cv-02571-MCE-KJN. On September 2, 2015, an initial consolidated complaint was filed on behalf of (i) all persons who purchased or otherwise acquired the Company’s publicly traded common stock directly in or traceable to the Company’s August 1, 2013 initial public offering; (ii) all persons who purchased or otherwise acquired the Company’s publicly traded common stock directly in the Company’s June 6, 2014 secondary offering; and (iii) all persons who purchased or otherwise acquired the Company’s publicly traded common stock on the open market between March 7, 2014 and September 2, 2014 (the “Class Action”). The initial consolidated complaint also named certain of the Company’s current and former officers and directors and the Company’s independent registered public accounting firm as defendants. The initial consolidated complaint alleged violations of the Securities Act of 1933, the Securities Exchange Act of 1934 (“Exchange Act”) and SEC Rule 10b-5, arising out of the issuance of allegedly false and misleading statements about the Company’s business and prospects, including its financial statements, product revenues and system of internal controls. An amended consolidated complaint was filed on January 11, 2016. On March 15, 2016, lead plaintiffs moved to amend their consolidated complaint to, among other things, assert claims on behalf of all persons who purchased or otherwise acquired securities of the Company on the open market between August 1, 2013 and November 10, 2015. On April 4, 2016, counsel for the Company and its current and former officer and directors, counsel for the Company’s primary and excess directors’ and officers’ liability insurers, and counsel for lead plaintiffs attended a private mediation before Jed D. Melnick at the JAMS offices in New York, New York. On May 25, 2016, the parties executed a final stipulation of settlement and lead plaintiff’s counsel filed an unopposed motion for preliminary approval of the settlement. The stipulation provided for dismissal of the action as to the Company and the officer and director defendants, and a payment by the Company’s insurers of $12.0 million to an escrow account, to be distributed upon order of the court. On May 27, 2016, the Federal Court approved lead plaintiffs’ motion to amend their consolidated complaint. At the Federal Court’s request, the settling parties revised the stipulation and papers in support of preliminary approval to reflect the amended consolidated complaint, and refiled for preliminary approval of the settlement on June 16, 2016. On July 8, 2016, the Federal Court granted preliminary approval of the class action settlement. On September 27, 2016, the Federal Court granted final approval of the settlement.

On September 9, 2014 and November 25, 2014, shareholder derivative actions were filed in the Superior Court of California, County of Yolo (Case No. CV14-1481) and the U.S. District Court for the Eastern District of California (Case No. 1:14-cv-02779-JAM-CKD), purportedly on the Company’s behalf, against certain current and former officers and members of its board of directors (the “2014 Derivative Actions”). The plaintiffs in the 2014 Derivative Actions allege that the defendants breached their fiduciary duties, committed waste, were unjustly enriched and aided and abetted breaches of fiduciary duty by causing the Company to issue allegedly false and misleading statements.

On October 14, 2015, a shareholder derivative action was filed in the Superior Court of California, County of Yolo (Case No. CV15-1423), purportedly on the Company’s behalf, against certain current and former officers and members of the Company’s board of directors and the Company’s independent registered public accounting firm (the “2015 Derivative Action,” and with the 2014 Derivative Actions, the “Derivative Actions”). The plaintiff in the 2015 Derivative Action alleges that the director and officer defendants breached their fiduciary duties, committed waste and were unjustly enriched by causing the Company to issue allegedly false and misleading statements and that the Company’s independent registered public accounting firm committed professional negligence and malpractice. The issues in the 2014 Derivative Actions and 2015 Derivative Action overlap substantially with those at issue in the Class Action described above. On November 15, 2016, the Company, in its capacity as a nominal defendant, entered into a stipulation of settlement (the “Stipulation”) in the Derivative Actions. On January 11, 2017, the Superior Court of California, County of Yolo entered an order preliminarily approving the settlement set forth in the Stipulation, and on April 5, 2017, it entered the final order and judgment approving the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the shareholder derivative actions as to the Company, the certain current and former officers and members of the board of directors and the Company’s independent registered public accounting firm , and the Company agrees to adopt or maintain certain corporate governance reforms for at least four years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Company’s insurers to plaintiffs’ counsel.

9. Related Party Transactions

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 is a beneficial owner of more than 5% of the Company’s common stock. Pursuant to such purchase agreement, the Company sold to such affiliates senior secured promissory notes (“August 2015 Senior Secured Promissory Notes”) in the aggregate principal amount of $40,000,000. 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. On May 31, 2016, the terms of the August 2015 Secured Promissory Notes were amended to remove the provisions that had required the Company to maintain a $15 million minimum cash balance. Debt due to related parties as of March 31, 2017 was $36,952,000, net of unamortized debt discount of $3,048,000. The fair value of the Company’s debt due to related parties was $37,608,000 and $38,120,000 as of March 31, 2017 and December 31, 2016, respectively, which was estimated based on a discounted cash flow model using an estimated market rate of interest of 11.25%, and is classified as Level 3 within the fair value hierarchy. Accrued interest due to related parties was $798,000 and $1,618,000 as of March 31, 2017 and December 31, 2016, respectively.

10. Subsequent Events

Common Stock Offering

In April 2017, the Company completed a public offering of 6,571,000 registered shares of its common stock (inclusive of 857,000 shares of its common stock to cover over-allotments). The public offering price of the shares sold in the offering was $1.40 per share. The total gross proceeds to the Company from the offering were $9,200,000, and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the aggregate net proceeds totaled approximately $8,200,000.

LSQ Financing

In April 2017, the Company began receiving proceeds under the LSQ Financing. As of May 5, 2017, the Company had received proceeds of approximately $2,890,000. The Company is currently reviewing the accounting treatment for the LSQ Financing.

Settlement of Derivative Case

On April 5, 2017, the Superior Court of California, County of Yolo entered a final order and judgment approving the settlement set forth in the Stipulation. The Stipulation provides for dismissal of the shareholder derivative actions as to the Company, the certain current and former officers and members of the board of directors and the Company’s independent registered public accounting firm, and the Company agrees to adopt or maintain certain corporate governance reforms for at least four years. The Stipulation also provides for attorneys’ fees and expenses to be paid by the Company’s insurers to plaintiffs’ counsel.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in connection with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission.

In addition to historical condensed consolidated financial information, this Quarterly Report on Form 10-Q contains forward-looking statements that reflect our plans, estimates and beliefs. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management for future operations, the progress, scope or duration of the development of product candidates or programs, clinical trial plans, timelines and potential results, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, our ability to protect intellectual property rights, our anticipated operations, financial position, revenues, costs or expenses, statements regarding future economic conditions or performance, statements of belief and any statement of assumptions underlying any of the foregoing. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere, including Part II, Item 1A—“Risk Factors,” in this Quarterly Report on Form 10-Q, and in Part I—Item 1A—“Risk Factors” of our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2016 (“Annual Report”). Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We make bio-based pest management and plant health products. Bio-based products are comprised of naturally occurring microorganisms, such as bacteria and fungi, and plant extracts. Our current products target the major markets that use conventional chemical pesticides, including certain agricultural and water markets, where our bio-based products are used as alternatives for, or mixed with, conventional chemical products. We also target new markets for which (i) there are no available conventional chemical pesticides or (ii) the use of conventional chemical pesticides 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 pesticides. All of our current products are approved by the United States Environmental Protection Agency (“EPA”) and registered as “biopesticides.” We expect our future products will include plant health products qualified as “biostimulants,” which may require state registrations, but do not require EPA registration. We believe our current portfolio of products and our pipeline address the growing global demand for effective, efficient and environmentally responsible products to control pests, increase crop yields and reduce crop stress.

The agricultural industry is increasingly dependent on effective and sustainable pest management practices to maximize yields and quality in a world of increased demand for agricultural products, rising consumer awareness of food production processes and finite land and water resources. In addition, our research has shown that the global market for biopesticides is growing substantially faster than the overall market for pesticides. This demand is in part a result of conventional growers acknowledging that there are tangible benefits to adopting bio-based pest management products into integrated pest management (“IPM”) programs, as well as increasing consumer demand for organic food. We seek to capitalize on these global trends by providing both conventional and organic growers with solutions to a broad range of pest management needs through strategies such as adding new products to our product portfolio, continuing to broaden the commercial applications of our existing product lines, leveraging growers’ positive experiences with existing product lines, educating growers with on-farm product demonstrations and controlled product launches with key target customers and other early adopters. To that end, in March 2016 we entered into an agreement with Isagro USA to distribute Bio-Tam 2.0, a biofungicide for soil-borne disease control and grapevine trunk disease control that complements our existing products, particularly Regalia. We believe this approach enables us to stay ahead of our competition in providing innovative pest management solutions, enhances our sales process at the distributor level and helps us to capture additional value from our products.

For the three months ended March 31, 2017, we have achieved significant growth in revenues, gross profit and product shipments when compared with the prior year. Also, in response to the business challenges reflected in our financial results in 2015, we implemented a prioritization plan that focused our resources on continuing to improve and promote our commercially available

products, advancing product candidates that are expected t o have the greatest impact on near-term growth potential and expanding international presence and commercialization. Our goal has been to reduce expenses, to conserve cash and improve operating efficiencies, to extract greater value from our products and p roduct pipeline and to improve our communication to and connection with the global sustainability movement that is core to our cultural values.

In connection with this strategy, we have significantly reduced overall headcount, while building a new sales and marketing organization with increased training and ability to educate and support customers in specialty crop markets, as well as providing our product development staff with greater responsibility for technical sales support, field trials and demonstrations to promote sales growth. For markets other than high-value specialty crops, such as row crops and seed treatments, we have been expanding our network of distribution partners, focusing on regional and national distributors operating in countries that present a significant opportunity for near-term revenue generation. In addition, our research and development efforts are now focused on supporting existing commercial products with a focus on reducing cost of product revenues, further understanding the modes of action, manufacturing support and improving formulations. Accordingly, while we believe that we have developed a robust pipeline of novel product candidates, we are currently limiting our internal efforts to three promising product candidates. Simultaneously, we are seeking collaborations with third parties to develop and commercialize more early stage candidates on which we have elected not to expend significant internal resources given our reduced budget. We believe collectively, these measures, together with our competitive strengths, including our leadership in the biologicals industry, commercially available products, robust pipeline of novel product candidates, proprietary discovery and development processes and industry experience, position us for growth.

We sell our crop protection products to leading agrichemical customers while also working directly with growers to increase existing and generate new product demand. To date, we have marketed our bio-based pest management and plant health products for agricultural applications to U.S. growers, through distributors and our own sales force, and we have focused primarily on high value specialty crops such as grapes, citrus, tomatoes and leafy greens. A large portion of our sales are currently attributable to conventional growers who use our bio-based pest management products either to replace conventional chemical pesticides or enhance the efficacy of their IPM programs. In addition, a portion of our sales are attributable to organic farmers who cannot use conventional pesticides and have few alternatives for pest management. As we continue to demonstrate the efficacy of our bio-based pest management and plant health products on new crops or for new applications, we may either continue to sell our products through our in-house sales force or collaborate with third parties for distribution to select markets.

Although we have historically sold a significant majority of our products in the United States, expanding our international presence and commercialization is an important component of our growth strategy. Regalia, Venerate and Grandevo are currently available in select international markets under distribution agreements with major agrichemical companies. Going forward, our plan is to focus first on countries where we can gain the fastest registration approval to permit product launches while also pursuing key countries and regions with the largest and fastest growing biopesticide and plant health product markets for specialty crops and selected row crops. We are working with regional or national distributors in key countries who have brand recognition and established customer bases and who can conduct field trials and grower demonstrations and lead or assist in regulatory processes and market development.

We currently market our water treatment product, Zequanox, directly to a selected group of U.S. power and industrial companies. Due to our prioritization plan, we have not committed sufficient resources to Zequanox in order to market it full-scale. We are seeking sales and distribution partners for in-pipe and open water uses, and are currently in discussions with large water treatment companies to further develop Zequanox and expand it commercially. In addition, we continue to work with state, federal and bi-national partners to further develop Zequanox in the Great Lakes/Upper Mississippi River Basin as a habitat restoration tool and potential harmful algal bloom management tool. We believe that Zequanox presents a unique opportunity for generating long-term revenue as there are limited water treatment options available to date, most of which are time-consuming, costly or subject to high levels of regulation. Our ability to generate significant revenues from Zequanox from in-pipe treatments is dependent on our ability to persuade customers to evaluate the costs of our Zequanox products compared to the overall cost, and environmental impact, of the chlorine treatment process, the primary current alternative to using Zequanox, rather than the cost of purchasing chemicals alone. In the fourth quarter of 2015, we implemented a new process at our manufacturing plant that reduced the cost of product revenues to be more competitive with other mussel treatment chemicals. Sales of Zequanox have also remained lower than our other products due to the length of the treatment cycle, the longer sales cycle (the bidding process with utility companies and governmental agencies occurs on a yearly or multi-year basis), the unique nature of the treatment approach for each customer based on the extent of the infestation, the design of the facility, and our prioritization of our crop protection business.

Although our initial EPA-approved master labels cover our products’ anticipated crop-pest use combinations, we launch early formulations of our pest management and plant health products to targeted customers under commercial labels that list a limited number of crops and applications that our initial efficacy data can best support. We then gather new data from experiments, field trials and demonstrations, gain product knowledge and get feedback to our research and development team from customers, researchers and agricultural agencies. Based on this information, we enhance our products, refine our recommendations for their use in optimal IPM programs, expand our commercial labels and submit new product formulations to the EPA and other regulatory agencies. For

example, we began sales of Regalia SC, an earlier formulation of Regalia, in the Florida fresh tomatoes market in 2008, while a more effective formulation of Regalia with an expanded master label, including listing for use in organic farming, was under review by the EPA. In 2011, we received EPA approval of a further expanded Regalia master label covering hundreds of crops and various new uses for applications to soil and through irrigation systems, and we recently expanded sales of Regalia in large-acre row crops as a plant health product, in addition to its beneficial uses as a fungicide. In January 2016, we launched a new formulation of Regalia that no longer contains a solvent that is difficult to source and may experience future regulatory restrictions. This new formulation of Regalia disperses better in water and is easier to mix and rinse from containers and spray equi pment. In addition, in June 2016, we launched a new formulation of Grandevo, Grandevo WDG, which offers improved handling and better, more convenient packaging. The water dispersible granule mixes easily in spray tanks with no dust or foam, which saves val uable time in the preparation and application processes. Similarly, ongoing field development research on the microbe used in Venerate, one of our insecticide products, led to our October 2015 registration of Majestene as a nematicide. We believe we have o pportunities to broaden the commercial applications and expand the use of our existing products lines to help drive significant growth for our company.

Our total revenues were $4.2 million and $2.7 million for the three months ended March 31, 2017 and 2016, respectively, and have risen as growers have adopted our products and have used our products on an expanded number of crops. We generate our revenues primarily from product sales, which are principally attributable to sales of our Regalia, Grandevo, Venerate, and Majestene product lines, but which also include sales of Bio-Tam 2.0. We believe concerns regarding our ability to continue operations have impacted our ability to grow more robustly. Going forward, we believe our revenues will largely be impacted by weather, natural disasters and other factors affecting planting and growing seasons and incidence of pests and plant disease, and, accordingly, the decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products.

We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenues since we sell to highly concentrated, traditional distributor-type customers. Customers to which 10% or more of our total revenues are attributable for any one of the periods presented consist of the following:

	CUSTOMER A			CUSTOMER B			CUSTOMER C			CUSTOMER D			CUSTOMER E
Three months ended March 31,
2017		18	%		6	%		15	%		13	%		12	%
2016		24	%		13	%		13	%		6	%		5	%

While we expect product sales to a limited number of customers to continue to be our primary source of revenues, as we continue to develop our pipeline and introduce new products to the marketplace, we anticipate that our revenue stream will be diversified over a broader product portfolio and customer base. Our cost of product revenues was $2.3 million and $2.3 million for the three months ended March 31, 2017 and 2016, respectively. Cost of product revenues consists principally of the cost of inventory, which includes the cost of raw materials, and third party services and allocation of operating expenses of our manufacturing plant related to procuring, processing, formulating, packaging, and shipping our products. Cost of product revenues also include charges recorded for write-downs of inventory, warranty, and, beginning in 2014, under-absorbed costs at our manufacturing plant when the manufacturing plant was placed into service. We have seen our costs of product revenues related to under-absorbed costs of our manufacturing plant decrease as we expand sales and increase production of our existing commercial products Regalia, Grandevo, Venerate, Majestene and Zequanox and introduce new products such as Haven to the market. Our costs related to write downs of inventory are expected to fluctuate based on increased volume of manufacturing and reliance on third party manufacturing services in the production of finished goods inventory. Our cost of product revenues has trended downward as a percentage of total revenues primarily due to favorable changes in product mix, based on margins the introduction of new products, and the growth of overall revenues, which also allows for better absorption of overhead costs and the realization of better production efficiencies. We expect to see a gradual increase in gross margin over the life cycle of each of our products as we improve production processes, gain efficiencies and increase product yields. These increases may be offset by additional charges for inventory write-downs and under-absorbed costs of our manufacturing plant until overall volume in the plant stabilizes at its optimum utilization levels, and/or we experience similar issues related to our third party manufacturing partners. We also expect fluctuation in margins on a quarterly basis due to seasonal product mix, and due to variations in the yield and efficacy of various individual batches of production until volumes get to a level that average out individual variances.

Our research, development and patent expenses have historically comprised a significant portion of our operating expenses. For the three months ended March 31, 2017 and 2016, these costs were $2.4 million and $2.3 million, respectively. We have reduced the size of our research and development staff compared to prior periods and have reduced costs spent on various research and development and patent efforts as part of our efforts to streamline business operations and focus on our pipeline product priorities. However, we have made, and will continue to make, substantial investments in research and development and we intend to continue to devote significant resources toward improving our processes and formulations of commercial products and the advancement of product candidates that are expected to have the greatest impact on near-term growth potential. Simultaneously, we are seeking collaborations

with third parties to develop and commercialize more early stage candidates, which we have elected not to expend significant resources on given our focused strategy.

Selling, general and administrative expenses incurred to establish and build our market presence and business infrastructure have generally comprised the remainder of our operating expenses, amounting to $5.3 million and $5.5 million for the three months ended March 31, 2017 and 2016, respectively. In connection with our new strategy, we have been building a new sales and marketing organization which provides for increased training and a better ability to educate and support customers and growers as well as transitioning our product development staff to undertake greater responsibility for technical sales support, field trials and demonstrations to promote sales growth. In February 2016, we entered into a settlement agreement with the SEC with respect to the SEC’s investigation, which was principally related to the accounting and other matters that were initially identified by us and that led to the financial restatement completed by us on November 10, 2015. Under the terms of the settlement agreement, we paid a $1.75 million civil penalty in March 2016. We had previously recorded an expense for $1.75 million in our consolidated statements of operations for the year ended December 31, 2014 to accrue its estimate of the penalties arising from such enforcement action.

Historically, we have funded our operations from the issuance of shares of common stock, preferred stock, warrants and convertible notes, the issuance of debt and entry into financing arrangements, product sales, payments under strategic collaboration and distribution agreements and government grants, but we have experienced significant losses as we invested heavily in research and development. We expect to incur additional losses related to our investment in the continued development, expansion and marketing of our product portfolio.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q are prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, net revenue, costs and expenses, and any related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Changes in accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe that the assumptions and estimates associated with revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize for those transactions accounted for on a “sell-through” method, inventory valuation and share-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. There have been no material changes to our critical accounting policies as described in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2016.

Key Components of Our Results of Operations

Product Revenues

Product revenues consist of revenues generated primarily from sales to customers, net of rebates and cash discounts. Product revenues constituted 99% and 97% of our total revenues for the three months ended March 31, 2017 and 2016, respectively. Product revenues in the United States, constituted 82% and 90% of our total revenues for the three months ended March 31, 2017 and 2016, respectively.

In some cases, we recognize customers’ revenue as title and risk of loss passes, provided all other revenue recognition criteria have been satisfied (the “sell-in” method). For sales to certain customers, the revenue recognition criteria are not satisfied at the time title and risk of loss passes to the customer; specifically, in instances where “inventory protection” arrangements were offered in the past to customers that permitted these customers to return to the Company certain unsold or unused products, or where the risk of future concessions may exist, we consider the arrangement not to be fixed or determinable, and accordingly, revenue is deferred until products are resold by our customers to their customers, or used (the “sell-through” method). The cost of goods sold associated with such deferral are also deferred and classified as deferred cost of product revenues in the consolidated balance sheets. For the three months ended March 31, 2017 and 2016, 25% and 45%, of product revenues, not including related party revenues, were recognized on a sell-through basis.

If cash is received from customers related to delivered product that may not represent a true sale, it is classified as customer refund liabilities in the consolidated balance sheets, and the related cost of inventory remains in inventory in the consolidated balance sheets until the product is returned or is resold to customers of the distributor and revenue is recognized.

License Revenues

License revenues generally consist of revenues recognized under our strategic collaboration and distribution agreements for exclusive distribution rights, either for Regalia, for other commercial products, or for our broader pipeline of products, for certain geographic markets or for market segments that we are not addressing directly through our internal sales force. Our strategic collaboration and distribution agreements generally outline overall business plans and include payments we receive at signing and for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that we provide over the term of the strategic collaboration and distribution agreements, revenues related to the payments received are deferred and recognized as revenues over the term of the exclusive period of the respective agreements, which we estimate to be between 5 and 17 years based on the terms of the contract and the covered products and regions. For the three months ended March 31, 2017 and 2016, license revenues constituted 1% and 3%, respectively. As of March 31, 2017, including agreements with related parties discussed below, we had received an aggregate of $3.9 million in payments under our strategic collaboration and distribution agreements. In addition, there will be an additional $0.3 million in payments due on certain anniversaries of regulatory approval and an additional $1.1 million in payments under these agreements that we could potentially receive if the testing validation, regulatory progress and commercialization events occur.

Product Shipments

We believe that product shipments is a useful measure of our sales that illustrates the value of our product shipment volumes in a given period. As certain of our product revenues are recognized on a “sell-in” basis while others are recognized on a “sell-through” basis, we believe product shipments facilitates a comparison of our operating performance on a consistent basis from period-to-period and provides for a more complete understanding of factors and trends affecting our business. We define product shipments as product revenues, plus related party product revenues related to product shipments, plus, or minus, the incremental amount of deferred revenues accrued during the applicable period from the shipment of products. This calculation specifically excludes changes in deferred revenue related to license revenues and customer deposits.

Cost of Product Revenues and Gross Profit

Cost of product revenues consists principally of the cost of raw materials, including inventory costs and third-party services related to procuring, processing, formulating, packaging and shipping our products. As we have used our Bangor, Michigan manufacturing plant to produce certain of our products, cost of product revenues includes an allocation of operating costs including direct and indirect labor, productions supplies, repairs and maintenance, depreciation, utilities and property taxes. The amount of indirect labor and overhead allocated to finished goods is determined on a basis presuming normal capacity utilization. Operating costs incurred in excess of production allocations, considered idle capacity, are expensed to cost of product revenues in the period incurred rather than added to the cost of the finished goods produced. Cost of product revenues may also include charges due to inventory adjustments and reserves. In addition, costs associated with license revenues have been included in cost of product revenues as they have not been significant. Gross profit is the difference between total revenues and cost of product revenues. Gross margin is gross profit expressed as a percentage of total revenues.

We have entered into in-license technology agreements with respect to the use and commercialization of three of our commercially available product lines, Regalia, Grandevo and Zequanox, and certain products under development. Under these licensing arrangements, we typically make royalty payments based on net product revenues, with royalty rates varying by product and ranging between 2% and 5% of net sales, subject in certain cases to aggregate dollar caps. These royalty payments are included in cost of product revenues, but they have historically not been significant. The exclusivity and royalty provisions of these agreements are generally tied to the expiration of underlying patents. The patents for Regalia and Zequanox will expire in 2017 and the in-licensed U.S. patent for Grandevo is expected to expire in 2024. There is, however, a pending in-licensed patent application relating to Grandevo, which could expire later than 2024 if issued. After the termination of these provisions, we may continue to produce and sell these products. While third parties thereafter may develop products using the technology under expired patents, we do not believe that they can produce competitive products without infringing other aspects of our proprietary technology, including pending patent applications related to Regalia, Grandevo and Zequanox, and we therefore do not expect the expiration of the patents or the related exclusivity obligations to have a significant adverse financial or operational impact on our business.

We expect to see increases in gross profit over the life cycle of each of our products as gross margins are expected to increase over time as production processes improve and as we gain efficiencies and increase product yields. We expect margins to improve on a product-by-product basis, as shipments expand and manufacturing efficiencies are realized our overall gross margins may vary as we introduce new products, introduce new sales incentives and programs, or have to rely on third-party manufacturing to address our demand. Gross margin has been and will continue to be affected by a variety of factors, including plant utilization, product manufacturing yields, changes in production processes, new product introductions, product mix and average selling prices.

In Ju ly 2012, we acquired a manufacturing facility, which we repurposed for manufacturing operations. We began full-scale manufacturing using this facility in 2014. We continue to use third party manufacturers for Venerate and Majestene and for spray-dried powd er formulations of Grandevo and Zequanox. We expect gross margins to improve using this facility as sales volumes recover enough to realize greater operational efficiencies, which could be offset by other factors mentioned above.

Research, Development and Patent Expenses

Research, development and patent expenses include personnel costs, including salaries, wages, benefits and share-based compensation, related to our research, development and patent staff in support of product discovery and development activities. Research, development and patent expenses also include costs incurred for laboratory supplies, field trials and toxicology tests, quality control assessment, consultants and facility and related overhead costs.

Beginning in the fourth quarter of 2014, we reduced our research and development staff and prioritized our pipeline candidates, focusing first on those that can be in the market in the next few years. We expect research, development and patent expenses to decrease in the near term as we have reduced headcount and will focus our efforts on select pipeline products. We are working to find partners to assist with the development of other pipeline candidates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel costs, including salaries, wages, benefits and share-based compensation, related to our executive, sales, marketing, finance and human resources personnel, as well as professional fees, including legal and accounting fees, and other selling costs incurred related to business development and to building product and brand awareness. We create brand awareness through programs such as speaking at industry events, trade show displays and hosting local-level grower and distributor meetings. In addition, we dedicate significant resources to technical marketing literature, targeted advertising in print and online media, webinars and radio advertising. Costs related to these activities, including travel, are included in selling expenses. Our administrative expenses have increased in recent periods primarily as a result of becoming a public company and incurring significant costs in connection with the Audit Committee’s independent investigation and subsequent restatement of our financial statements.

We expect our selling expenses to fluctuate in the near-term, both in absolute dollars and as a percentage of total revenues. For the three months ended March 31, 2017 and 2016, we incurred $0.0 million and $0.8 million, respectively, in costs related to the Audit Committee’s independent investigation and the subsequent restatement of our financial statements, net of insurance proceeds. In February 2016, we entered into a settlement agreement with the SEC with respect to the SEC’s investigation, which was principally related to the accounting and other matters that were initially identified by us in September 2014 and that led to the financial restatement completed by us on November 10, 2015. Under the terms of the settlement agreement, we paid a $1.75 million civil penalty in March 2016. We had previously recorded expenses of $1.75 million in our consolidated statements of operations for the year ended December 31, 2014 for an accrual of our estimate of the penalties arising from such enforcement action. As a result of the investigation and restatement activities having been largely concluded in the first half of 2016, we expect general and administrative expenses to remain relatively flat.

Interest Expense

We recognize interest expense on notes payable and other debt obligations. In June 2014, we entered into a $10.0 million promissory note with a variable interest rate that varies with the prime rate. Accordingly, our interest expense will increase as the prime rate increases. In August 2015, pursuant to a purchase agreement, we issued and sold to affiliates of Waddell & Reed Financial, Inc. senior secured promissory notes in the aggregate principal amount of $40.0 million with a fixed interest rate and warrants to purchase up to 4.0 million shares of our common stock at an exercise price of $1.91 per share for aggregate consideration of $40.0 million. In November 2016, pursuant to an amendment to the October 2012 and April 2013 Secured Promissory Notes, the interest rate on these notes decreased from 18% to 14%. This decrease in interest was partially offset by the additional interest associated with the valuation of 125,000 warrants in the amount of $0.2 million. The value of the warrants is treated as a discount to this note and is being amortized to interest expense through the maturity date of these secured notes.

We have also acquired equipment under capital leases, which results in interest expense over the lease term. Our capital lease obligations were $0.7 million and $0.8 million as of March 31, 2017 and December 31, 2016, respectively.

Interest Income

Interest income consists primarily of interest earned on cash balances. Our interest income will vary each reporting period depending on our average cash balances during the period and market interest rates.

Income Tax Provision

Since our inception, we have been subject to income taxes principally in the United States. We anticipate that as we further expand our sales into foreign countries, we will become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of March 31, 2017, based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have taken a full valuation allowance against all of our U.S. deferred tax assets.

Key Components of Our Results of Operations

Results of Operations

The following table sets forth certain statements of operations and other financial and operating data:

	THREE MONTHS ENDED MARCH 31,
	2017			2016
Revenues:
Product	$	4,096		$	2,577
License		58			92
Total revenues		4,154			2,669

Cost of product revenues		2,279			2,269
Gross profit		1,875			400
Operating Expenses:
Research, development and patent		2,444			2,322
Selling, general and administrative		5,343			5,530
Total operating expenses		7,787			7,852
Loss from operations		(5,912	)		(7,452	)
Other income (expense):
Interest income		1			15
Interest expense		(636	)		(1,037	)
Interest expense to related parties		(1,074	)		(796	)
Other income (expense), net		(8	)		(6	)
Total other expense, net		(1,717	)		(1,824	)
Loss before income taxes		(7,629	)		(9,276	)
Income taxes		—			—
Net loss	$	(7,629	)	$	(9,276	)
Product Shipments ⁽¹⁾	$	6,462		$	3,886

(1)

Product shipments is a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We define product shipments as product revenues, plus the incremental amount of deferred revenues accrued during the applicable period from shipment of products. This calculation specifically excludes changes in deferred revenue related to license revenues and customer deposits, and is intended to approximate the total value of products sold and under contract for sale in a given period. Product shipments, as defined herein, may not be comparable to similarly titled measures used by other companies. Our management uses this non-GAAP financial measure in order to have comparable results to analyze sales performance from quarter to quarter. We have chosen to provide this supplemental information regarding our sales in a given period to investors to facilitate a meaningful evaluation of actual operating results on a comparable basis with historical results, including to track product adoption, and to assist investors in their valuation of the Company.

The following table presents a reconciliation of product revenues, the most directly comparable GAAP financial measure, to product shipments for the periods indicated below:

	Three Months Ended March 31, 2017		Three Months Ended March 31, 2016
Product revenues	$	4,096	$	2,577
Change in deferred product revenue(a)		2,366		1,309
Product shipments	$	6,462	$	3,886

(a)

Change in deferred product revenue is defined as the increase in the amount of deferred product revenues accrued during the applicable period, less prior deferred product revenues recognized during the applicable period, excluding the change in deferred revenue associated with license fees and customer deposits. For the three months ended March 31, 2017 and 2016, deferred license revenues decreased $58,000 and $92,000, respectively.

The following table sets forth certain statements of operations data as a percentage of total revenues:

	THREE MONTHS ENDED MARCH 31,
	2017			2016
Revenues:
Product		99	%		97	%
License		1			3
Total revenues		100			100
Cost of product revenues		55			85
Gross profit		45			15
Operating Expenses:
Research, development and patent		59			87
Selling, general and administrative		129			207
Total operating expenses		188			294
Loss from operations		(143	)		(279	)
Other income (expense):
Interest income		—			1
Interest expense		(15	)		(39	)
Interest expense to related parties		(26	)		(30	)
Other income (expense), net		-			—
Total other expense, net		(41	)		(68	)
Loss before income taxes		(184	)		(347	)
Income taxes		—			—
Net loss		(184	)%		(347	)%

Comparison of Three Months Ended March 31, 2017 and 2016

Product Revenues

	THREE MONTHS ENDED MARCH 31,
	2017			2016
	(Dollars in thousands)
Product revenues	$	4,096		$	2,577
% of total revenues		99	%		97	%

Product revenues increased by $1.5 million, or 59%, primarily due to an increase of $2.6 million in product shipments, offset by revenue deferrals. Product revenues increased across all product lines, versus the first quarter of 2016 as demand was driven by continued acceptance of our product portfolio.

License Revenues

	THREE MONTHS ENDED MARCH 31,
	2017			2016
	(Dollars in thousands)
License revenues	$	58		$	92
% of total revenues		1	%		3	%

License revenues related to certain strategic collaboration and distribution agreements decreased for the period ended March 31, 2017 as compared to March 31, 2016, as some of these agreements became fully amortized to revenue in 2016, and were not offset by new agreements.

Cost of Product Revenues and Gross Profit

	THREE MONTHS ENDED MARCH 31,
	2017			2016
	(Dollars in thousands)
Cost of product revenues	$	2,279		$	2,269
% of total revenues		55	%		85	%
Gross profit		1,875		400
% of total revenues		45	%		15	%

Cost of product revenues were flat, and gross profit increased by $1.5 million. Gross margins increased from 15% to 45%. Cost of product revenues as a percentage of revenue declined sharply, as production efficiencies related to increased sales volume and favorable mix were realized during the quarter as compared to the first quarter of 2016. Gross margins increased due to favorable product mix during the quarter ended March 31, 2017, as well as, improved plant utilization, and better production efficiencies related to higher shipment volumes realized during the quarter ended March 31, 2017. Improved plant utilization resulted in a decrease of $0.1 million in under-absorbed operating costs as well as spoilage cost reductions of $0.4 million, that were recorded to the manufacturing plant as costs of revenues and not capitalized into inventory as compared to the quarter ended March 31 ^, 2016.

Research, Development and Patent Expenses

	THREE MONTHS ENDED MARCH 31,
	2017			2016
	(Dollars in thousands)
Research, development and patent	$	2,444		$	2,322
% of total revenues		59	%		87	%

Research, development and patent expenses increased by $0.1 million, or 5%, as we continued to focus our research and development resources on margin improvement, improved formulations of already commercialized products and our focused pipeline of new products.

Selling, General and Administrative Expenses

	THREE MONTHS ENDED MARCH 31,
	2017			2016
	(Dollars in thousands)
Selling, general administrative expenses	$	5,343		$	5,530
% of total revenues		129	%		207	%

Selling, general and administrative expenses decreased by $0.2 million or 3%, primarily due to a $0.6 million decrease in outside services, the result of lower legal fees, audit and tax fees, most significantly due to activities as a result of the restatement and related investigation and litigation, conducted during 2016. These reductions we offset by an increase in consulting expenses of $0.2 million, and $0.2 million in employee related expenses.

Other Expense, Net

	THREE MONTHS ENDED MARCH 31,
	2017			2016
	(Dollars in thousands)
Interest income	$	1			15
Interest expense		(636	)		(1,037	)
Interest expense to related parties		(1,074	)		(796	)
Other income (expense) net		(8	)		(6	)
	$	(1,717	)	$	(1,824	)

Interest expense decreased by $0.1 million, or 7%, primarily due to a decrease in the interest rate on the October 2012 and April 2013 Secured Promissory Notes as documented in Note 6. .

Seasonality and Quarterly Results

The level of seasonality in our business overall is difficult to evaluate as a result of our relatively early stage of development, our relatively limited number of commercialized products, our expansion into new geographical territories, the introduction of new products, the timing of introductions of new formulations and products and our recognition of revenue on both a “sell-in” and “sell-through” basis, depending on the transaction. It is possible that our business may become more seasonal, or experience seasonality in different periods, than anticipated, particularly if we expand into new geographical territories, add or change distributors or distributor programs or introduce new products with different applicable growing seasons, or if a more significant component of our revenue becomes comprised of sales of Zequanox, which has a separate seasonal sales cycle compared to our crop protection products. Notwithstanding any such seasonality, we expect substantial fluctuation in sales year over year and quarter over quarter as a result of a number of variables on which sales of our products are dependent. Weather conditions, natural disasters and other factors affect planting and growing seasons and incidence of pests and plant disease, and accordingly affect decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. In addition, disruptions that cause delays by growers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results. For example, late snows and cold temperatures in the Midwestern and Eastern United States in the first and second quarters of 2014 delayed planting and pesticide and plant health applications, and the California drought in 2015 and the Northeast U.S. drought in 2016 affected fungicide sales. Customers also may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year, and low commodity prices may discourage growers from purchasing our products in an effort to reduce their costs and increase their margins for a growing season.

Liquidity and Capital Resources

Since our inception, our operations have been financed primarily by net proceeds from public offerings of common stock and private placements of convertible preferred stock, convertible notes and promissory notes, and term loans, as well as proceeds from the sale of our products and payments under strategic collaboration and distribution agreements and government grants.

As of March 31, 2017, our cash and cash equivalents totaled $1.8 million, and we had additional $3.0 million of restricted cash that we are contractually obligated to maintain in accordance with our debt agreements, which are discussed further below. Unless Five Star Bank extends its waiver of the applicable covenant, or we enter into strategic agreements that include significant cash payments upfront, significantly increase revenues from sales or raise additional capital through the issuance of equity, we will exceed the

maximum debt-to-worth requirement under our promissory note to them upon the expiration of the current waiver on October 1, 2018. As of March 31, 2017 , we had an accumulated deficit of $242.3 million, and we estimate that we will continue to incur losses, which will further increase our accumulated deficit. Based on this cash on hand and our expectation that it will continue to incur significant operati ng losses, we do not have the capital to finance operations for the next twelve months. These circumstances raise substantial doubt about our ability to continue as a going concern, which depends on our ability to obtain further waivers of our covenants, e nter into strategic agreements that include significant cash payments upfront and/or raise additional capital. There is no assurance that we will be able to obtain waivers of our debt covenants or raise capital, or if we are able to raise capital, that it will be on favorable terms. Adequate funds for these and the other purposes may not be available to us when needed or on acceptable terms, and we may need to raise capital that may not be available on favorable or acceptable terms, if at all. If we cannot raise money when needed, we may have to reduce or slow sales and product development activities, further reduce operating expenses and/or reduce capital investment. We incorporated additional information regarding risks related to our capital and liquidity described in Part I— Item 1A— “Risk Factors”, in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2016.

Since our inception, we have incurred significant net losses, and we expect to incur additional losses related to the continued development and expansion of our business. Our liquidity may be negatively impacted as a result of slower than expected adoption of our products. We have certain strategic collaboration and distribution agreements under which we receive payments for the achievement of certain testing validation, regulatory progress and commercialization events. As of March 31, 2017, we had received an aggregate of $3.9 million in payments under these agreements. In addition, there will be an additional $0.3 million in payments due on certain anniversaries of regulatory approval and an additional $1.1 million in payments under these agreements that we could potentially receive if the testing validation, regulatory progress and commercialization events occur.

We had the following debt arrangements in place as of March 31, 2017, in each case as discussed below (dollars in thousands):

DESCRIPTION	STATED ANNUAL INTEREST RATE			PRINCIPAL BALANCE (INCLUDING ACCRUED INTEREST)		PAYMENT/MATURITY
Promissory Notes ⁽¹⁾		14.00	%	$	12,595	Monthly ⁽⁴⁾ /October 2018
Promissory Note ⁽²⁾		5.75	%	$	9,313	Monthly/June 2036
Promissory Notes ⁽³⁾		8.00	%	$	40,798	Biannually ⁽⁵⁾ /August 2020

(1)	See “—October 2012 and April 2013 Secured Promissory Notes.”

(2)	See “—June 2014 Secured Promissory Note.”

(3)	See “—August 2015 Senior Secured Promissory Notes.”

(4)	Monthly payments are interest only until maturity.

(5)	In November 2016, the maturity date was extended to October 2018.

(6)	Biannual payments are interest only until maturity with principal payments due in increments at three, four and five years from the closing date.

October 2012 and April 2013 Secured Promissory Notes

On October 2, 2012, we borrowed $7,500,000 pursuant to senior notes (“October 2012 Secured Promissory Notes”) with a group of lenders. On April 10, 2013 (“Conversion Date”), we entered into an amendment to increase, by up to $5,000,000, the amount available under the terms of the loan agreement with respect to the October 2012 Secured Promissory Notes. Under this amendment, an additional $4,950,000 was issued in partial consideration for $3,700,000 in cash received and in partial conversion for the cancellation of a $1,250,000 subordinated convertible note (collectively, “April 2013 Secured Promissory Notes”). The total amount borrowed under the amended loan agreement for the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes increased from $7,500,000 to $12,450,000 as of the Conversion Date. The October 2012 and April 2013 Secured Promissory Notes bear interest at 14% at March 31, 2017. This loan is collateralized by substantially all of the Company’s assets.

June 2014 Secured Promissory Note

In June 2014, we borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory Note”) with Five Star Bank (“Lender”) which bears interest at 5.75% as of March 31, 2017. 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 $67,058 and adjusted from time-to-time as the interest rate changes, with the final payment due in June 2036. Certain of our deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles have been pledged as collateral for the promissory note. We are required to maintain a deposit balance with the Lender of $1,560,000, which is recorded as restricted cash included in non-current assets. In addition, until we provide documentation that the proceeds were used for construction of the

Company’s manufacturing plant, proceeds from the loan will be maintained in a restricted deposit account with the Lender. As of March 31, 2017, we had $1,444,000 remaining in this restricted deposit account, which is recorded as restricted cash included in current assets.

August 2015 Senior Secured Promissory Notes

On August 20, 2015, we 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 is a beneficial owner of more than 5% of our common stock. Pursuant to such purchase agreement, we sold to such affiliates senior secured promissory notes (“August 2015 Senior Secured Promissory Notes”) in the aggregate principal amount of $40,000,000. 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. On May 31, 2016, we entered into an amendment to the August 2015 Senior Secured Promissory Notes, pursuant to which each such affiliate agreed to delete from the August 2015 Senior Secured Promissory Notes the provisions that had required us to maintain a $15 million minimum cash balance.

The August 2015 Senior Secured Promissory Notes are secured by substantially all of our personal property assets. The agent, acting on behalf of the lenders, shall be entitled to have a first priority lien on our intellectual property assets, pursuant to intercreditor arrangements with certain of our existing lenders.

LSQ Financing

On March 24, 2017, we 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. Our obligations under the LSQ Financing are secured by a lien on substantially all of our personal property; such lien is first priority with respect to our accounts receivable, inventory, and related property, pursuant to an intercreditor agreement, dated March 22, 2017 (the “Three Party Intercreditor Agreement”), with Gordon Snyder, an individual, as administrative agent for the Snyder lenders (the “Snyder Agent”) and the agent for the holders of the August 2015 Senior Secured Promissory Notes.

Advances by LSQ may be made at an advance rate of 80% of the face value of the receivables being sold. We also pay to LSQ (i) an invoice purchase fee equal to 1% of the face amount of each purchased invoice, at the time of the purchase, and (ii) a funds usage fee equal to 0.035%, payable monthly in arrears. An aging and collection fee is charged at the time when the purchased invoice is collected, calculated as a percentage of the face amount of such invoice while unpaid (which percentage ranges from 0% to 0.35% depending upon the duration the invoice remains outstanding). The LSQ Financing will be effective for one year with automatic one year renewals thereafter unless terminated within a 30-day window near the end of the then-effective term; a termination fee is due upon early termination by the Company if such termination is not requested within such 30-day window. The events of default under the LSQ Financing include failure to pay amounts due, failure to turn over amounts due to LSQ within a cure period, breach of covenants, falsity of representations, and certain insolvency events. As of March 31, 2017, no advances had been received under the LSQ Financing.

In April 2017, we began receiving proceeds under the LSQ Financing. As of May 5, 2017, we had received proceeds of approximately $2.9 million. The Company is currently reviewing the accounting treatment for the LSQ Financing.

Common Stock Offering

As discussed in Note 10 of the financial statements, in April 2017, we completed a public offering of 6.6 million registered common shares for estimated net proceeds totaling $8.2 million.

The following table sets forth a summary of our cash flows for the periods indicated (in thousands):

	THREE MONTHS ENDED
	MARCH 31,
	2017			2016
	(Unaudited)
Net cash used in operating activities	$	(7,550	)	$	(9,712	)
Net cash used in investing activities		(83	)		(49	)
Net cash used in financing activities		(194	)		(253	)
Net decrease in cash and cash equivalents	$	(7,827	)	$	(10,014	)

Cash Flows from Operating Activities

Net cash used in operating activities of $7.6 million during the three months ended March 31, 2017 primarily resulted from our net loss of $7.6 million and $1.4 million in cash used by operating assets and liabilities, which was partially offset by certain non-cash charges consisting of share-based compensation of $0.6 million, depreciation and amortization of $0.5 million, $0.3 million of non-cash interest expense,

Net cash used in operating activities of $9.7 million during the three months ended March 31, 2016 primarily resulted from our net loss of $9.3 million, which included $0.6 million of depreciation and amortization expense, $0.6 million of share-based compensation expense and $0.3 million of non-cash interest expense. In addition, net cash used in operating activities resulted from an increase in accounts receivable of $2.3 million and cost of deferred product revenues of $0.6 million, and decreases in accrued liabilities of $1.0 million, and interest due to related party of $0.5 million, and deferred revenue from related party of $0.2 million. These were partially offset by decreases in inventory of $0.4 million, prepaid expenses of $0.1 million, and increases of $0.6 million in accounts payable, and $1.4 million in deferred revenue and deferred revenue from related parties.

Cash Flows from Investing Activities

Net cash used in investing activities were $0.1 million during the three months ended March 31, 2017 resulting from purchases of property, plant and equipment to support our operations.

Net cash used in investing activities was less than $0.1 million during the three months ended March 31, 2016 that primarily resulted from purchases for the purchase of property, plant and equipment to support our operations.

Cash Flows from Financing Activities

Net cash used in financing activities of $0.2 million during the three months ended March 31, 2017 consisted primarily $0.1 million in payments under capital leases and $0.1 million in payments under debt obligations.

Net used in financing activities of $0.3 million during the three months ended March 31, 2016 consisted primarily of $0.2 million in payments on our capital leases and $0.1 million in payments on our debt.

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, 2017 (in thousands):

	TOTAL		2017		2018-2019		2020-2021		2022 AND BEYOND
	(In thousands)
Operating lease obligations	$	2,271	$	707	$	1,564	$	—	$	—
Debt and capital leases		62,436		899		33,046		20,664		7,827
Interest payments relating to debt and capital leases		18,103		4,962		7,353		1,985		3,803
Total	$	82,810	$	6,568	$	41,963	$	22,649	$	11,630

Operating leases consist of contractual obligations from agreements for non-cancelable office space and leases used to finance the acquisition of equipment. Debt and capital equipment lease payments and the interest payments relating thereto include promissory notes and capital lease obligations in accordance with the payment terms under the agreements.

In September 2013 and then amended in April 2014, we 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 is for a period of 60 months and commence d in August 2014. The monthly base rent is $44,000 for the first 12 months with a 3% increase each year thereafter. Concurrent with this amendment, in April 2014, we 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 is for a period of 60 months and commenced in August 2014. The monthly base rent is $28,000 with a 3% increase each year therea fter.

In January 2016, we entered into an agreement with a sublessee to sublease approximately 3,800 square feet of vacant office space in the aforementioned building complex pursuant to the terms of our lease agreement. The initial term of the sublease is for a period of approximately 43 months and commenced on February 1, 2016. The monthly base rent is approximately $5,000 per month for the first 12 months with increases of approximately 5% each year thereafter.

Since March 31, 2017, we have not added any additional leases that would qualify as operating leases.

On November 11, 2016, we entered into the Amendment, which decreased the interest rate under the Snyder Loan Agreement to 14% effective November 1, 2016 and extended the maturity date by one year to October 2, 2018, resulting in a decrease in the total contractual obligations due in 2017 of $12.5 million and an increase in the total contractual obligations due in 2018 of $12.5 million.

Inflation

We believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2017 and 2016.

Off-Balance Sheet Arrangements

We have not been involved in any material off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

See Note 2 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q in Part I—Item 1— “Financial Information.”

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We currently have minimal exposure to the effect of interest rate changes, foreign currency fluctuations and changes in commodity prices. We are exposed to changes in the general economic conditions in the countries where we conduct business, which currently is substantially all in the United States. Our current investment strategy is to invest in financial instruments that are highly liquid, readily convertible into cash and which mature within six months from the date of purchase. To date, we have not used derivative financial instruments to manage any of our market risks or entered into transactions using derivative financial instruments for trading purposes.

We do not believe our cash equivalents have significant risk of default or illiquidity. While we believe our cash equivalents do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value.

Interest Rate Risk

We had cash and cash equivalents of $1.8 million as of March 31, 2017, which was held for working capital purposes. We do not enter into investments for trading or speculative purposes. We entered into a promissory note in June 2014, which bears interest at the prime rate plus 2%. A change in market interest rates of 1% would have an impact of approximately $0.1 million on our future annual interest expense. All of our other debt is at fixed interest rates and thus a change in market interest rates would not have an impact on interest expense.

Foreign Currency Risk

Revenue and expenses have been primarily denominated in U.S. dollars and foreign currency fluctuations have not had a significant impact on our historical results of operations. In addition, our strategic collaboration and distribution agreements for current products provide for payments in U.S. dollars. As we market new products internationally, our product revenues and expenses may be in currencies other than U.S. dollars, and accordingly, foreign currency fluctuations may have a greater impact on our financial position and operating results.

Commodity Risk

Our exposure to market risk for changes in commodity prices currently is minimal. As our commercial operations grow, our exposure will relate mostly to the demand side as our end users are exposed to fluctuations in prices of agricultural commodities.

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, the we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures in ensuring that material information required to be disclosed in our reports filed or submitted under the Exchange Act has been made known to them in a timely fashion. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2017.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Because of the inherent limitations in internal control over financial reporting, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Note 8 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q in Part I, Item 1, “Financial Information” describes certain legal proceedings to which we are subject.

ITEM 1A.

RISK FACTORS

Other than as described below, we have not identified any material changes to the risk factors previously disclosed in Part I—Item 1A—“Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2016. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below or in the Annual Report, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including the section titled “Part I—Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes.

Our products are early in their life cycle with limited sales history and we have incurred significant losses to date and anticipate continuing to incur losses in the future, and we may not achieve or maintain profitability.

We are an early stage company, and our commercialized products are early in their life cycle with limited sales history. We have incurred operating losses since our inception in June 2006, and we expect to continue to incur operating losses for the foreseeable future. As of March 31, 2017 and December 31, 2016, we had an accumulated deficit of $242.3 million and $234.6 million, respectively. For the three months ended March 31, 2017 and 2016, we had a net loss attributable to common stockholders of $7.6 million, $9.3 million, respectively. As a result, we will need to generate significant revenues to achieve and maintain profitability, and we may not be able to achieve profitability in the near future or at all, which may depress our stock price.

Through March 31, 2017, we have derived substantially all of our revenues from sales of Regalia, Grandevo and Venerate. In addition, we have derived revenues from strategic collaboration and development agreements for the achievement of testing validation, regulatory progress and commercialization events, and from sales of other products. Accordingly, there is only a limited basis upon which to evaluate our business and prospects. Our future success depends, in part, on our ability to market and sell other products, as well as our ability to increase sales of Regalia, Venerate, Grandevo and Majestene and to introduce new products such as Haven. An investor in our stock should consider the challenges, expenses and difficulties we will face as a company seeking to develop and manufacture new types of products in a relatively established market. We expect to derive future revenues primarily from sales of Regalia, Grandevo, Zequanox, Venerate, Majestene and other products, but we cannot guarantee the magnitude of such sales, if any. We expect to continue to devote substantial resources to expand our research and development activities, further increase manufacturing capabilities and expand our sales and marketing activities for the further commercialization of Regalia, Grandevo, Zequanox, Venerate and Majestene, new products, such as Haven, and other product candidates. We expect to incur additional losses for the foreseeable future, including at least the next several years, and may never become profitable.

There is uncertainty about our ability to continue as a going concern.

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, our cash and cash equivalents were $1.8 million at March 31, 2017, compared with $9.6 million at December 31, 2016. Based on this cash on hand and our expectation to continue to incur significant operating losses, we do not have the capital to finance operations for the next twelve months.

Management believes that we have access to capital resources through increased possible public or private equity offerings, debt financings, strategic collaborations involving significant up-front cash payments or other means. In addition, we continue to explore opportunities to strategically monetize our product pipeline, through potential distributor arrangements and licensing transactions, although there can be no assurance that we will be successful with such plans. We have historically been able to raise capital through equity offerings and debt financings, although no assurance can be provided that we will continue to be successful in the future. Although management believes that significant on-going operating expenditures will be necessary to successfully implement our present business plan, if we are unable to raise sufficient capital, we may be forced to implement significant cost cutting measures and refocus our business as early as the second half of 2017.

In addition, although under a promissory note with Five Star Bank our lender has waived a requirement to remain below a maximum debt-to-worth ratio under this agreement through October 1, 2018, we expect that immediately after this waiver has expired, if we do

not arrange an extension of the current waiver, we will be in violation of this covenant as well. Breach of covenants included in our debt agreements, which could result in the lenders demanding paym ent of the unpaid principal and interest balances, would have a material adverse effect upon our business and would likely require us to seek to renegotiate these debt arrangements with the lenders. If such negotiations are unsuccessful, we may be required to seek protection from creditors through bankruptcy proceedings.

These circumstances raise substantial doubt about our ability to continue as a going concern, which depends on our ability to obtain further waivers of our covenants, or raise additional capital and increase revenues. Our consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

We expect to require additional financing in the future to meet our business requirements and to service our debt. Such capital raising may be costly, difficult or not possible to obtain and, if obtained, would significantly dilute current stockholders’ equity interests, and we may be unable to repay our secured indebtedness.

As of May 8, 2017, we have received proceeds of approximately $2.9 million under the LSQ Financing.

In our August 2015 private placement transaction, we issued senior secured promissory notes in the initial aggregate principal amount of $40.0 million, which accrue interest at a rate of 8% per annum, with $10.0 million payable three years from the closing, $10.0 million payable four years from the closing and $20.0 million payable five years from the closing. In June 2014, we borrowed $10.0 million pursuant to a promissory note with a bank, which accrues interest at a variable interest rate, 5.25% per annum as of December 31, 2015, and which is repayable in monthly payments through June 2036. We also completed private placements in October 2012 and April 2013 of promissory notes in the aggregate principal amount of $12.5 million, which, following their amendment in November 2016, now accrue interest at 14% through maturity in October 2018. The debt agreements with respect to these transactions contain various financial and other covenants, as discussed below, and our obligations under the loan agreements are secured by all of our real and personal property assets and general intangibles.

As we expect to continue to incur significant losses until we are able to significantly increase our revenue, we expect to need significant additional financing to meet the financial covenants or pay the principal and interest under our debt agreements, as well as to maintain and expand our business. We may seek additional funds from public or private equity offerings, debt financings, strategic collaborations involving up-front cash payments or other means. Additional capital may not be available on terms acceptable to us, or at all. Any additional equity financing would be significantly dilutive to stockholders or, in some cases, require us to seek shareholder approval for the financing, and debt financing, if available, may include restrictive covenants and bear high rates of interest. In addition, our existing loan agreements contain certain restrictive covenants that either limit our ability to, or require a mandatory prepayment if we incur additional indebtedness and liens and enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of our lenders or prepay the outstanding amounts under the debt agreements, which could require us to pay additional prepayment penalties. In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We also may be required to recognize non-cash expenses in connection with certain securities we issue, such as warrants, which may adversely impact our financial results.

Certain of our debt agreements also contain financial covenants, including maintaining minimum current, debt-to-worth and loan-to-value ratios and provisions providing for an event of default if there is a material adverse change in our financial condition or if we are in default under certain of our other agreements. While we are not currently in default under any of these agreements, and none of our lenders have previously declared an event of default on our indebtedness, prior to our recent receipt of waivers from our lenders, we had not been in compliance with certain of these covenants. Further, we expect that immediately after the waiver under our promissory note with Five Star Bank has expired on October 1, 2018, we will be in violation of the note’s requirement to remain below a maximum debt-to-worth ratio. Breach of covenants included in our debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances. If we fail to pay any principal or interest under our indebtedness when due, or are otherwise in violation of certain covenants under our debt agreements, this may result in the acceleration of our indebtedness, which would have a material adverse effect upon our business and would likely require us to seek to renegotiate these debt arrangements with the lenders, as we may not have sufficient funds to repay that indebtedness.

If we cannot raise more money when needed, or are unable to use our future working capital, borrowings or equity financing to repay or refinance the amounts outstanding under our debt agreements or to renegotiate our debt arrangements with lenders, we may have to reduce our capital expenditures, scale-back our development of new products, reduce our workforce or license to others products that we otherwise would seek to commercialize ourselves. Any of these eventualities would likely have a material adverse impact on our value and the value of our equity. Further, we may not be able to continue operating if we do not raise new capital or generate sufficient revenue from operations needed to stay in business, and we may be required to seek protection from creditors through bankruptcy proceedings. See Part I—Item 2— “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” above.

ITEM 6.

EXHIBITS

See the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, which is incorporated by reference herein.

SIGNA TURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Davis, State of California, on May 12, 2017.

MARRONE BIO INNOVATIONS, INC.

/s/ Pamela G. Marrone

Pamela G. Marrone

President and Chief Executive Officer

INDEX TO EXHIBITS

EXHIBIT NUMBER		EXHIBIT DESCRIPTION


10.43 10.44 10.45 31.1		Intercreditor Agreement, dated as of March 22, 2017, by and among the Company, Waddell Lenders, Snyder Lenders, and LSQ Funding Group, L.C Invoice Purchase Agreement, dated March 24, 2017, by and between the Company and LSQ Funding Group, L.C. Subordination Agreement dated March 28, 2017, by and among the Company, LSQ Funding Group, L.C. and Five Star Bank. Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1		Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. §1350

101		Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015, (ii) Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2017 and 2016, (iii) Condensed Consolidated Statements of Comprehensive Loss for the Three Months ended March 31, 2017 and 2016, (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2017 and 2016 and (v) Notes to Condensed Consolidated Financial Statements

Exhibit 10.43

INTERCREDITOR AGREEMENT

This Intercreditor Agreement, dated as of March 22, 2017 (this “ Agreement ”), is made between Ivy Investment Management Company, a Delaware corporation, as administrative agent for the Waddell Lenders referred to below (in such capacity, “ Waddell Agent ”), Gordon Snyder, an individual, as administrative agent for the Snyder Lenders referred to below (in such capacity “ Snyder Agent ”), and LSQ Funding Group, L.C. (“ LSQ ”).

Recitals

A.	Marrone Bio Innovations, Inc., a Delaware corporation (“ Borrower ”), has entered into the A/R Facility Agreement (as defined below) with LSQ, which, along with any other obligations owing to LSQ by Borrower, is secured by certain property of Borrower.

Ivy Science & Technology Fund, Waddell & Reed Advisors Science & Technology Fund and Ivy Funds VIP Science & Technology (collectively, the “ Waddell Lenders ”) are the holders of certain Senior Secured Promissory Notes, dated August 20, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “ Waddell Notes ”) made by Borrower pursuant to that certain Purchase Agreement, dated as of August 20, 2015 (as amended, restated, supplemented or otherwise modified from time to time, the “ Waddell Purchase Agreement ”), between Borrower and the investors party thereto. Waddell Agent has the full right, power and authority to enter into this Agreement on behalf of the Waddell Lenders and bind the Waddell Lenders thereto, pursuant to the Security Agreement (as defined in the Waddell Purchase Agreement).

Borrower, the lenders party thereto (collectively, the “ Snyder Lenders ”), and Snyder Agent (as administrative agent and collateral agent for the Snyder Lenders) have entered into that certain Loan Agreement dated as of October 2, 2012 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Snyder Loan Agreement ”). Snyder Agent, as administrative agent for the Snyder Lenders, has the full right, power and authority to enter into this Agreement on behalf of the Snyder Lenders and bind the Snyder Lenders thereto, pursuant to the Snyder Loan Agreement.

To induce each of LSQ and the Existing Creditors to make and maintain the credit extensions under the A/R Facility Agreement and each Existing Credit Agreement, respectively, each of LSQ and each Existing Agent, on behalf of the Existing Creditors, is willing to enter into this Agreement to, among other things, subordinate certain of its liens on the terms and conditions herein set forth.

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

1. Definitions . As used herein, the following terms have the following meanings:

“ A/R Facility Agreement ” means that certain Inventory Purchase Agreement, dated on or about March 22, 2017, between LSQ and Borrower, as the same may be amended, restated,

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supplemented or otherwise modified from time to time.

“ A/R Facility Documents ” means the A/R Facility Agreement and all Loan Documents, each as defined in the A/R Facility Agreement.

“ A/R Facility Senior Collateral ” means (i) Borrower’s present and future accounts arising from the sale or lease of inventory or the provision of services, (ii) Borrower’s present and future inventory, (iii) to the extent evidencing, governing, or securing Borrower’s accounts or inventory, Borrower’s payment intangibles, chattel paper, instruments and documents, (iv) proceeds of insurance policies covering Borrower’s accounts and inventory received with respect to such accounts and inventory, and (v) the direct and indirect proceeds of the foregoing; provided that , for purposes of clarification, notwithstanding the foregoing, in no event shall “A/R Facility Senior Collateral” include any right, title or interest of any Obligor in (A) any Intellectual Property or any licenses thereof, (B) equipment, (C) to the extent evidencing, governing, securing or otherwise related to equipment, any general intangibles, chattel paper, instruments or documents, or (D) Borrower’s deposit accounts # and # with Five Star Bank or any other property described as “Collateral” under the Commercial Security Agreement, dated as of June 13, 2014, by Borrower in favor of Five Star Bank, as such Security Agreement is in effect as of the date hereof or as amended with LSQ’s consent.

“ Bankruptcy Code ” means the federal bankruptcy law of the United States as from time to time in effect, currently as Title 11 of the United States Code. Section references to current sections of the Bankruptcy Code shall refer to comparable sections of any revised version thereof if section numbering is changed.

“ Claim ” means, (i) in the case of LSQ, any and all present and future “claims” (used in its broadest sense, as contemplated by and defined in Section 101(5) of the Bankruptcy Code, but without regard to whether such claim would be disallowed under the Bankruptcy Code) of LSQ now or hereafter arising or existing under or relating to the A/R Facility Documents, whether joint, several, or joint and several, whether fixed or indeterminate, due or not yet due, contingent or non-contingent, matured or unmatured, liquidated or unliquidated, or disputed or undisputed, whether under a guaranty or a letter of credit, and whether arising under contract, in tort, by law, or otherwise, any interest or fees thereon (including interest or fees that accrue after the filing of a petition by or against any Obligor under the Bankruptcy Code, irrespective of whether allowable under the Bankruptcy Code), any costs of Enforcement Actions, including reasonable attorneys’ fees and costs, and any prepayment or termination fees, and (ii) in the case of Existing Creditors, any and all present and future “claims” (used in its broadest sense, as contemplated by and defined in Section 101(5) of the Bankruptcy Code, but without regard to whether such claim would be disallowed under the Bankruptcy Code) of Existing Creditors now or hereafter arising or existing under or relating to the Existing Loan Documents, whether joint, several, or joint and several, whether fixed or indeterminate, due or not yet due, contingent or non-contingent, matured or unmatured, liquidated or unliquidated, or disputed or undisputed, whether under a guaranty or a letter of credit, and whether arising under contract, in tort, by law, or otherwise, any interest or fees thereon (including interest or fees that accrue after the filing of a petition by or against any Obligor under the Bankruptcy Code, irrespective of whether allowable under the Bankruptcy Code), any costs of Enforcement Actions, including reasonable attorneys’ fees and costs, and any prepayment or termination fees.

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“ Colla teral ” means all real or personal property of any Obligor in which any Creditor now or hereafter has a security interest.

“ Common Collateral ” means all Collateral in which both LSQ and each Existing Agent have a security interest.

“ Credit Documents ” means, collectively, the Existing Loan Documents and the A/R Facility Documents.

“ Creditors ” means, collectively, Existing Creditors and LSQ.

“ Enforcement Action ” means, with respect to any Creditor and with respect to any Claim of such Creditor or any item of Collateral in which such Creditor has or claims a security interest, lien, or right of offset, (i) any action, whether judicial or nonjudicial, to repossess, collect, offset, recoup, give notification to third parties with respect to, sell, dispose of, foreclose upon, give notice of sale, disposition, or foreclosure with respect to, or obtain equitable or injunctive relief with respect to, such Claim or Collateral, (ii) any action in connection with any Insolvency Proceeding to protect, defend, enforce or assert rights with respect to such Claim or Collateral, including without limitation filing and defending any proof of claim, opposing or joining in the opposition of any sale of assets or confirmation of a plan of reorganization, or opposing or joining in the opposition of any proposed debtor-in-possession loan or use of cash collateral, and (iii) the filing of, or the joining in the filing of, an involuntary bankruptcy or insolvency proceeding against any Obligor.

“ Existing Agent ” means each of the Waddell Agent and the Snyder Agent.

“ Existing Creditors ” means, collectively, the Waddell Lenders, the Snyder Lenders, the Waddell Agent and the Snyder Agent.

“ Existing Loan Documents ” means, collectively, all Snyder Loan Documents and all Waddell Loan Documents.

“ Existing Senior Collateral ” means all Collateral in which an Existing Creditor has a security interest, other than the A/R Facility Senior Collateral.

“ Intellectual Property ” means, collectively, all copyrights, copyright registrations and applications for copyright registrations, including all renewals and extensions thereof, all rights to recover for past, present or future infringements thereof and all other rights whatsoever accruing thereunder or pertaining thereto (collectively, “ Copyrights ”), all patents and patent applications, including the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations in part thereof, all damages and payments for past or future infringements thereof and rights to sue therefor, and all rights corresponding thereto throughout the world and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect thereto (collectively, “ Patents ”), and all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations, including all renewals of trademark and service mark registrations, all rights to recover for all past, present and future infringements thereof and all rights to sue therefor, and all rights corresponding

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thereto throughout the world (collectively, “ T rademarks ”), together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark, together with (a) all inventions, processes, production methods, propri etary information, know-how and trade secrets; (b) all licenses or user or other agreements granted to any Obligor with respect to any of the foregoing, in each case whether now or hereafter owned or used; (c) all information, customer lists, identificatio n of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, computer and automatic machiner y software and programs; (d) all field repair data, sales data and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all media in which or on which any information or knowledge or d ata or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies n ow or hereafter held by any Obligor; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by any Obligor in respect of any of the items listed above.

“ Junior Collateral ” means, (i) in the case of LSQ, all Common Collateral consisting of Existing Senior Collateral, and (ii) in the case of Existing Creditors, all Common Collateral consisting of A/R Facility Senior Collateral.

“ Obligor ” means Borrower, each subsidiary thereof and each other person or entity that provides a guaranty of, or collateral for, any Claim of any Creditor.

“ Proceeds Sweep Period ” means the period beginning on the later to occur of (i) the occurrence of an event of default under any Creditor’s Credit Documents and (ii) receipt by the other Creditor of written notice from such Creditor of such event of default, and ending on the date on which such event of default shall have been waived in writing by the Creditor issuing such notice.

“ Senior Collateral ” means, (i) in the case of LSQ, all A/R Facility Senior Collateral and (ii) in the case of Existing Creditors, all Existing Senior Collateral.

“ Snyder Loan Documents ” means, collectively, the Snyder Loan Agreement and all documents and agreements relating thereto.

“ UCC ” means the Uniform Commercial Code of any applicable jurisdiction and, if the applicable jurisdiction shall not have any Uniform Commercial Code, the Uniform Commercial Code as in effect in the State of New York. The following terms have the meanings given to them in the applicable UCC: “account”, “chattel paper”, “commodity account”, “deposit account”, “document”, “equipment”, “general intangible”, “instrument”, “inventory”, “proceeds” and “securities account”.

“ Waddell Loan Documents ” means, collectively, the Waddell Notes, the Waddell Purchase Agreement and all documents and agreements relating thereto.

2. Lien Subordination . (a) Notwithstanding the respective dates of attachment or

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perfection of the security interests of Existing Creditor s a nd the security interests of LSQ, or any contrary provision of the UCC, or any applicable law or decision, or the provisions of the Credit Documents, and irrespective of whether LSQ or any Existing Creditor holds possession of all or any part of the Collat eral, (i) all now existing and hereafter arising security interests of LSQ in any A/R Facility Senior Collateral shall at all times be senior to the security interests of Existing Creditor s in such A/R Facility Senior Collateral, and (ii) all now existing and hereafter arising security interests of Existing Creditor s in any Existing Senior Collateral shall at all times be senior to any security interests of LSQ in such Existing Senior Collateral.

(b) Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors:

(i) acknowledges and consents to (A) Borrower granting to the other Creditor a security interest in the Common Collateral of such other Creditor, (B) the other Creditor filing any and all financing statements and other documents as reasonably deemed necessary by the other Creditor in order to perfect its security interest in its Common Collateral, and (C) Borrower’s entry into the Credit Documents to which the other Creditor is a party.

(ii) acknowledges, agrees and covenants, notwithstanding Section 2(c) but subject to Section 5 , that it shall not contest, challenge or dispute the validity, attachment, perfection, priority or enforceability of the other Creditor’s security interest in the Common Collateral, or the validity, priority or enforceability of the other Creditor’s Claim. For the avoidance of doubt and notwithstanding anything in this Agreement to the contrary, LSQ shall not take any action seeking to recharacterize any Intellectual Property or equipment, the proceeds of either, or any other Existing Senior Collateral or proceeds thereof as A/R Facility Senior Collateral.

(c) Subject to Section 2(b)(ii) , the priorities provided for herein with respect to security interests and liens are applicable only to the extent that such security interests and liens are enforceable, perfected and have not been avoided; if a security interest or lien is judicially determined to be unenforceable or unperfected or is judicially avoided with respect to one or more Claims or any part thereof, the priorities provided for herein shall not be available to such security interest or lien to the extent that it is avoided or determined to be unenforceable. Nothing in this Section 2(c) affects the operation of any turnover of payment provisions hereof, or of any other agreements among any of the parties hereto.

3. Distribution of Proceeds of Common Collateral . (a) In the event that any Creditor shall receive any payment, distribution, security or proceeds constituting its Junior Collateral prior to the indefeasible payment in full of the other set of Creditors’ Claims and termination of all the other set of Creditors’ Credit Documents, such Creditor shall, upon demand of the other Creditor and delivery by such other creditor of evidence supporting its pri ority claim to such Collateral, deliver to such other Creditor such payment, distribution, security or proceeds for application to the other set of Creditors’ Claims.

(b) Except as expressly set forth herein, nothing in this Section 3 shall obligate any Creditor (i) to sell, exchange, collect or otherwise dispose of Collateral at any time, or (ii) to take any action in violation of any stay imposed in connection with any Insolvency Proceeding,

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including without limitation the automatic stay in Section 362(a) of the Bankruptcy Code, nor shall any Creditor have any liability to the other arising from or in connection with such Creditor’s failure to take such action.

4. Subordination of Remedies . Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors (such Person for purposes of this Section 4 , the “ Junior Creditor ”), agrees, subject to Section 5 , that, unless and until all Claims of the other set of Creditors (for purposes of this Section 4 , the “ Senior Creditor ”) have been indefeasibly paid in full and all Credit Documents of the Senior Creditor have been terminated, and whether or not any Insolvency Proceeding has been commenced by or against any Obligor, the Junior Creditor shall not, without the prior written consent of the Senior Creditor, enforce, or attempt to enforce, any rights or remedies under or with respect to any of such Junior Creditor’s Junior Collateral, including causing or compelling the pledge or delivery of such Junior Collateral, any attachment of, levy upon, execution against, foreclosure upon or the taking of other action against or institution of other proceedings with respect to any such Junior Collateral, notifying any account debtors of any Obligor, asserting any claim or interest in any insurance with respect to such Junior Collateral, or exercising any rights under any lockbox agreement, account control agreement, landlord waiver or bailee’s letter or similar agreement or arrangement with respect to such Junior Collateral, or institute or commence, or join with any person or entity in commencing, any action or proceeding with respect to such rights or remedies (including any action of foreclosure, enforcement, collection or execution and any Insolvency Proceeding involving any Obligor), except that notwithstanding the foregoing, at all times, including during a Proceeds Sweep Period, the Junior Creditor shall be able to exercise its rights under a lockbox agreement or an account control agreement with respect to any deposit account, securities account or commodity account constituting Collateral, including its rights to freeze such account or exercise any rights of offset.

5. Insolvency Proceedings . (a) Rights Continue . In the event of any Obligor’s insolvency, reorganization or any case, action or proceeding, commenced by or against such Obligor, under any bankruptcy or insolvency law or laws relating to the relief of debtors, including, without limitation, any voluntary or involuntary bankruptcy (including any case commenced under the Bankruptcy Code), insolvency, receivership, liquidation, dissolution, winding-up or other similar statutory or common law proceeding or arrangement involving any Obligor, the readjustment of its liabilities, any assignment for the benefit of its creditors, or any marshalling of its assets or liabilities (each, an “ Insolvency Proceeding ”), this Agreement shall remain in full force and effect in accordance with Section 510(a) of the United States Bankruptcy Code.

(b) Proof of Claim, Sales and Plans . At any meeting of creditors or in the event of any Insolvency Proceeding, each Creditor shall retain the right to vote, file a proof of claim and otherwise act with respect to its Claims (including the right to vote to accept or reject any plan of partial or complete liquidation, reorganization, arrangement, composition, or extension (a “ Plan ”)); provided that (i) no Creditor shall initiate, prosecute or participate in any claim or action in such Insolvency Proceeding directly or indirectly challenging the enforceability, validity, perfection or priority of the other set of Creditors’ Claims, this Agreement, the Credit Documents, or any liens securing the other set of Creditors’ Claims; and (ii) no Creditor shall propose any Plan or file or join in any motion or pleading in support of any motion or Plan or

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exercise any other voting rights unless such Plan provides for the treatment of the Creditors’’ claims in a manner consistent with the terms of this Agreement.

(c) Finance and Sale Issues . (i) If any Obligor shall be subject to any Insolvency Proceeding and a Creditor shall desire to permit the use by such Obligor of cash collateral (as defined in Section 363(a) of the Bankruptcy Code, “ Cash Collateral ”) constituting such Creditor’s Senior Collateral or to permit any Obligor to obtain financing (including on a priming basis with respect to such Creditor’s Senior Collateral), whether from such Creditor or any other third party under Section 362, 363 or 364 of the Bankruptcy Code or any other applicable law (each, a “ Post-Petition Financing ”), then the other set of Creditors shall not oppose or raise any objection to or contest (or join with or support any third party opposing, objecting to or contesting), such use of Cash Collateral or Post-Petition Financing; provided, however, that, notwithstanding the foregoing, each Creditor shall be entitled to oppose, raise objection to, or contest (or join with or support any third party opposing, objecting to, or contesting) any such use of Cash Collateral or Post-Petition Financing if such proposed use of Cash Collateral or Post-Petition Financing would result in any liens on such Creditor’s Senior Collateral to be subordinated to or pari passu with such Cash Collateral or Post-Petition Financing.

(ii) Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, agrees that it shall raise no objection to, and shall not oppose or contest (or join with or support any third party opposing, objecting to or contesting), a sale, revesting or other disposition of any Collateral constituting its Junior Collateral free and clear of its liens or other Claims, whether under Sections 363 or 1141 of the Bankruptcy Code or other applicable law, if the other set of Creditors has consented to such sale or disposition of such assets; provided, however, that, notwithstanding the foregoing and for the avoidance of doubt, any Creditor shall be entitled to oppose, raise objection to, or contest (or join with or support any third party opposing, objecting to, or contesting) any sale, revesting or other disposition of any Collateral constituting its Senior Collateral free and clear of its liens or other Claims.

(d) Relief from the Automatic Stay . Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, agrees that, until the other set of Creditors’ Claims have been indefeasibly paid in full, such Creditor shall not seek relief, pursuant to Section 362(d) of the Bankruptcy Code or otherwise, from the automatic stay of Section 362(a) of th e Bankruptcy Code or from any other stay in any Insolvency Proceeding in respect of its Junior Collateral without the prior written consent of such other Creditor.

(e) Reserved .

(f) Post-Petition Interest . Each Creditor shall not oppose or seek to challenge any claim by the other set of Creditors for allowance in any Insolvency Proceeding of Claims consisting of post-petition interest, fees or expenses; provided that the treatment of such Claims are consistent with the Creditors’ relative priorities set forth in t his Agreement.

(g) Reserved .

6. Notice of Default . Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, shall give to the other prompt written notice of the occurrence of any default

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or event of default (which has not been promp tly waived or cured) under any of its Credit Documents of which it has knowledge (and any subsequent cure or waiver thereof) and shall, simultaneously with giving any notice of default or acceleration to Borrower, provide to such other Creditor a copy of s uch notice of default. For the avoidance of doubt, nothing in this Section 6 shall obligate any Creditor to provide any notice in violation of any stay imposed in connection with any Insolvency Proceeding, including without limitation the automatic stay i n Section 362(a) of the Bankruptcy Code, nor shall any Creditor have any liability to the other arising from or in connection with such Creditor’s failure to take such action.

7. Release of Liens . In the event of any private or public sale or other disposition, by or with the consent of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors (such Person, for purposes of this Section 7 , the “ Senior Creditor ”), of all or any portion of such set of Creditors’ Senior Collateral, an Existing Agent, on behalf of Existing Creditors, and LSQ, respectively (for purposes of this Section 7 , the “ Junior Creditor ”), agrees that such sale or disposition shall be free and clear of such Junior Creditor’s liens; provided that such sale or disposition is made in accordance with the UCC or applicable provisions of the Bankruptcy Code, including without limitation Sections 363(f) or 1141(c) of the Bankruptcy Code. The Junior Creditor agrees that, in connection with any such sale or other disposition, it shall execute any and all lien releases or other documents reasonably requested by the Senior Creditor in connection therewith.

8. Reserved .

9. Agent for Perfection . (a) LSQ acknowledges that applicable provisions of the UCC may require, in order to properly perfect Existing Creditors’ security interest in the Common Collateral securing the Existing Creditors’ Claims, that an Existing Agent possess certain of such Common Collateral, and may require the execution of control agreements in favor of an Existing Agent concerning such Common Collateral. In order to help ensure that Existing Creditors’ security interest in such Common Collateral is properly perfected (but subject to and without waiving the other provisions of this Agreement), LSQ agrees to hold both for itself and, solely for the purposes of perfection and without incurring any duties or obligations to Existing Creditors as a result thereof or with respect thereto, for the benefit of Existing Creditors, any such Common Collateral, and agrees th at Existing Creditors’ lien in such Common Collateral shall be deemed perfected in accordance with applicable law.

(b) Each Existing Agent, on behalf of the applicable Existing Creditor, acknowledges that applicable provisions of the UCC may require, in order to properly perfect LSQ’s security interest in the Common Collateral securing LSQ’s Claims, that LSQ possess certain of such Common Collateral, and may require the execution of control agreements in favor of a LSQ concerning such Common Collateral. In order to help ensure that LSQ’s security interest in such Common Collateral is properly perfected (but subject to and without waiving the other provisions of this Agreement), each Existing Agent, on behalf of the applicable Existing Creditor, agrees to hold both for itself and, solely for the purposes of perfection and without incurring any duties or obligations to LSQ as a result thereof or with respect thereto, for the benefit of LSQ, any such Common Collateral, and agrees that LSQ’s lien in such Common Collateral shall be deemed perfected in accordance with applicable law

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10. Credit Documents . (a) Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, represents and warrants that it has provided to the other true, co rrect and complete copies of all of its Credit Documents.

(b) At any time and from time to time, without notice to the other set of Creditors, each Creditor may take such actions with respect to its Claims as such Creditor, in its sole discretion, may deem appropriate, including, without limitation, terminating advances under its Credit Documents, increasing the principal amount, extending the time of payment, increasing applicable interest to the default rate, renewing, compromising or otherwise amending the terms of any documents affecting its Claims and any Collateral therefor, and enforcing or failing to enforce any rights against Borrower or any other person, and no such action or inaction described in this sentence shall impair or otherwise affect such Creditor’s rights hereunder; provided, however, that no Creditor shall take any action that is inconsistent with the provisions of this Agreement. Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, waives the benefits, if any, of any statutory or common law rule that may permit a subordinating creditor to assert any defenses of a surety or guarantor, or that may give the subordinating creditor the right to require a senior creditor to marshal assets, and each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, agrees that it shall not assert any such defenses or rights.

(c) Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, agrees that any other Creditor may release or refrain from enforcing its security interest in the Collateral, or permit the use or consumption of such Collateral by any Obligor free of the other Creditor’s security interest, without incurring any liability to any other Creditor.

11. Waiver of Right to Require Marshaling . Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, expressly waives any right that it otherwise might have to require any other Creditor to marshal assets or to resort to Collateral in any particular order or manner, whether provided for by common law or statute. No Creditor shall be required to enforce any guaranty or any security interest or lien given by any person or entity as a condition precedent or concurrent to the taking of any Enforcement Action with respect to the Collateral.

12. Representations and Warranties . Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, represents and warrants to the other that:

(a) all action on the part of such Creditor, its officers, directors, partners, members and shareholders, as applicable, necessary for the authorization of this Agreement and the performance of all obligations of such Creditor hereunder has been taken;

(b) this Agreement constitutes the legal, valid and binding obligation of such Creditor, enforceable against such Creditor in accordance with its terms;

(c) the execution, delivery and performance of and compliance with this Agreement by such Creditor will not (i) result in any material violation or default of any term of any of such Creditor’s charter, formation or other organizational documents (such as Articles or Certificate of Incorporation, bylaws, partnership agreement, operating agreement, etc.) or (ii) violate any

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material applicable law, rule or regulation.

13. Disgorgement . (a) If, at any time after payment in full of the LSQ Claims any payments of the LSQ Claims must be disgorged by LSQ for any reason (including, without limitation, any Insolvency Proceeding), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made and Existing Creditors shall immediately pay over to LSQ all money or funds received or retained by Existing Creditors with respect to the Existing Creditors’ Claims to the extent that such receipt or retention would have been prohibited hereunder.

(b) If, at any time after payment in full of the Existing Creditors’ Claims any payments of the Existing Creditors’ Claims must be disgorged by any Existing Creditor for any reason (including, without limitation, any Insolvency Proceeding), this Agreement and the relative rights and priorities set forth herein shall be reinstated as to all such disgorged payments as though such payments had not been made and LSQ shall immediately pay over to an Existing Agent all money or funds received or retained by LSQ with respect to the LSQ Claims to the extent that such receipt or retention would have been prohibited hereunder.

14. Successors and Assigns . This Agreement shall bind any successors or assignees of each Creditor. This Agreement shall remain effective until all Claims are indefeasibly paid or otherwise satisfied in full and the Credit Documents of LSQ and the Existing Creditors have terminated. This Agreement is solely for the benefit of the Creditors and not for the benefit of Borrower or any other party. Each Creditor shall not sell, assign, pledge, dispose of or otherwise transfer all or any portion of its Claims or any of its Credit Documents or any interest in any Common Collateral unless, prior to the consummation of any such action, the transferee thereof shall execute and deliver to the other set of Creditors an agreement of such transferee to be bound hereby, or an agreement substantially identical to this Agreement providing for the continued subjection of such Claims, the interests of the transferee in the Collateral and the remedies of the transferee with respect thereto as provided herein with respect to the transferring Creditor and for the continued effectiveness of all of the other rights of the other Creditor arising under this Agreement, in each case in form satisfactory to the other set of Creditors.

15. Further Assurances . Each of LSQ and each Existing Agent, on behalf of the applicable Existing Creditors, agrees to execute such documents and/or take such further action as the other Creditor may at any time or times reasonably request in order to carry out the provisions and intent of this Agreement, including, without limitation, ratifications and confirmations of this Agreement from time to time hereafter, as and when requested by the other Creditor.

16. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

17. Governing Law; Waiver of Jury Trial . (a) This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed in accordance with, the law of the State of New York without regard to principles of conflicts of laws that would result in the application of the laws of any other jurisdiction.

(b) EACH CREDITOR WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY

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CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEM ENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

18. Entire Agreement . This Agreement represents the entire agreement with respect to the subject matter hereof, and supersedes all prior negotiations, agreements and commitments. Each Creditor is not relying on any representations by the other Creditor, Borrower or any other Obligor in entering into this Agreement, and each Creditor has kept and will continue to keep itself fully apprised of the financial and other condition of each Obligor. This Agreement may be amended only by written instrument signed by the Creditors.

19. Relationship among Creditors . The relationship among the Creditors is, and at all times shall remain solely that of creditors of Obligors. Creditors shall not under any circumstances be construed to be partners or joint venturers of one another; nor shall the Creditors under any circumstances be deemed to be in a relationship of confidence or trust or a fiduciary relationship with one another, or to owe any fiduciary duty to one another. Creditors do not undertake or assume any responsibility or duty to one another to select, review, inspect, supervise, pass judgment upon or otherwise inform each other of any matter in connection with any Obligor’s property, any Collateral held by any Creditor or the operations of any Obligor. Each Creditor shall rely entirely on its own judgment with respect to such matters, and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by any Creditor in connection with such matters is solely for the protection of such Creditor.

20. No Modification . Notwithstanding anything contained herein, no provision of this Agreement shall be deemed to waive, amend, limit or otherwise modify any term or condition of the an Existing Credit Agreement and the A/R Facility Documents.

21. Severability . Any provision of this Agreement which is illegal, invalid, prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent such illegality, invalidity, prohibition or unenforceability without invalidating or impairing the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

22. Notices . All notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing and shall be delivered or sent by first-class mail, postage prepaid, or by overnight courier or messenger service or by facsimile, message confirmed, and shall be deemed to be effective for purposes of this Agreement on the day that delivery is made or refused. Unless otherwise specified in a notice mailed or delivered in accordance with the foregoing sentence, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses and facsimile numbers indicated on the signature pages hereto.

[Signature pages follow]

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IN WITNESS WHEREOF, the undersigned have executed this Intercreditor Agreement as of the date first above written.

LSQ:

By /s/William Samuelson

William Samuelson

EVP & Director of Operations

Address for Notices:

LSQ Funding Group, L.C.

Address

Officer: William Samuelson

Email:

Tel:

S-1

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EXISTING AGENTS:

IVY INVESTMENT MANAGEMENT COMPANY, as administrative agent and collateral agent on behalf of the Waddell Lenders

By /s/ Zack Shafran

Name: Zack Shafran

Title: Senior Vice President, Portfolio Manager

Address for Notices:

Attn: Cory Williams

Tel.:

Fax:

Email:

S-2

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/s/Gordon Snyder

Gordon Snyder , as Snyder Agent

Address for Notices:

Tel.:

Fax:

Email:

S-3

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Acknowledged and Agreed to:

BORROWER:

MARRONE BIO INNOVATIONS, INC.

By: /s/Pamela Marrone

Name: Pamela Marrone

Title: CEO+Founder

Address for Notices:

1540 Drew Avenue
Davis, CA 95618

S-4

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e xhibit 10.44

invoice PURCHASE AGREEMENT

TH I S INVOICE PURCHASE AGREEMENT (the “Agreement”) is made on March 24 , 2017 , between MARRONE BIO INNOVATIONS , INC ., a Delaware corporation (“Seller”) and LSQ Funding Group , L.C. (“ Pu r chaser”) .

1. Definiti o n s and Inde x to Definitions . The following terms shall have the following meanings . All cap i talized terms not defined in this Agreement shall have the mean i ng set forth in the Uniform Com m ercia l Code (the “UCC”) as adopted i n the Chosen State:

1.1 “ Advance Rate ” – 80% , which percent may be rev i sed at any time by P u r chaser in Purchaser’s reasonab l e discretion.

1.2 “ Aging and Collection Fee ” – A percentage multiplied by the Face Amount of each Account for the follow i ng per i ods that an Account remains unpaid : 0% from day 1 through day 90; and 0.35% from day 91 t hereafter , charged at the time of collect ion of an Account.

1.3 “ Avoidance Claim ” – Any cla i m that a payment received by Purchase r is a preference or o t herwise avo i dab l e under the United States Bankrup t cy Code or any othe r deb t or-rel i ef statute.

1.4 “ Chosen State ” – De l aware.

1.5 “ Clearance Da ys ” – T hree (3) business days.

1.6 “ Closed Account ” – An Account for which Purchaser has received full pay m ent.

1.7 “ Collater a l ” – All now owned and hereafter acquired personal property and fixtures, and proceeds thereof , ( i nc l uding proceeds of proceeds) i ncluding without limitatio n: Accounts, inc l ud i ng health-care i nsurance receivables ; Chatte l P aper ; Inventory ; Equipme nt ; I nstru m en t s , includ i ng Promissory Notes; I nvestment P r operty ; Documents; Depos it Accounts ; L etter of Credit Rights ; General Intangibles ; and Support i ng Ob li gat i ons . Notwithstand i ng the foregoing , “ Collateral” does not i nclude Seller’s deposit accounts #3207933 and#3208014 with Five Star Bank .

1.8 “ Early Termination Fee ” – See Sections 21.1 , 21.2 , and 21.3.

1.9 “ Eligible Account ” – An Account at a ll times acceptable to Purchaser in i ts so l e d i sc r etion .

1.10 “ Eligibility Period ” – 60 days beyond ne t terms of the Invoice, but i n no case more than 120 days from invo i ce date .

1.11 “ E v ent s of Default ” – See Section 19 .

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1.12 “ Fa ce Amount ” – The face amount due on a Purchased Account at the time of purchase.

1.13 “ Funds U sa g e Fee ” – 0.035% , earned daily , charged m onth l y, on the last day of the monthtowhich it app l ies.

1.14 “ Invoice ” – The d ocument t hat ev i dences or is intended to evidence an Account.

1.15 “ Invoice Purchase Fee ” – 1 . 00 % multiplied by the Face Amount of a Purchased Account , charged at the t ime of the purchase of an Account.

1.16 “ Late Charge ” – 18% per annum, which shall accrue and be payable on demand on any obligation not paid when due.

1.17 “ Maximum Amount ” – $7,000,000.

1.18 “ Parties ” – Seller and Purchaser.

1.19 “ Payor ” – An Account Debtor, other obliger, or entity obligated on an Account, making payment for the account of such party.

1.20 “ Permitted lien ” –

(a) liens securing Seller’s obligations hereunder;

(b) liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to the provisions of ERISA or Environmental Laws) (i) not yet due and payable or (ii) which are being properly contested and for which Seller has established adequate reserves;

(c) claims of materialmen, mechanics, carriers, warehousemen, processors or landlords arising out of operation of law so long as the obligations secured thereby [(i)] are not past due [or (ii) are being properly contested and for which Seller has established adequate reserves];

(d) liens consisting of deposits or pledges made in the ordinary course of business in connection with workers’ compensation, unemployment insurance, social security and similar laws;

(e) liens on equipment (including capital leases) to secure purchase money indebtedness, so long as such security interests do not apply to any property of Seller other than the equipment so acquired (and the products and proceeds thereof and records related thereto), and the Indebtedness secured thereby does not exceed the cost of such equipment (plus any related soft costs);

(f) liens on deposit accounts or securities accounts (and the contents thereof), in favor of the financial institution at which such account is located, arising pursuant to such financial institution’s standard terms and conditions governing such account;

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(g) customary rights of any lessor, lessee or sub lessee with respect to leased property arising under any lease entered into in the ordinary course of b usiness;

(h) liens securing the Business Loan Agreement, dated June 13, 2014 (as amended from time to time), among Five Star Bank, Seller and Marrone Michigan Manufacturing, LLC, a Delaware limited liability company, and all documents relating thereto;

(i) liens subject to an inter-creditor agreement to which Purchaser is a party; and

(j) security interests, pledges, liens, charges, mortgages or other encumbrances in, to or on any Collateral in favor of any creditor of Seller other than Purchaser, so long as and to the extent that such security interest, pledge, lien, charge, mortgage or other encumbrance is junior and subordinate to the security interests, pledges, liens, charges, mortgages and other encumbrances in, to or on Collateral in favor of Purchaser

1.21 “ Prime Rate ” – The prime rate published by The Wall Street Journal, from time to time as its prime rate.

1.22 “ Purchase Price ” – The Face Amount of a Purchased Account minus the Invoice Purchase Fee.

1.23 “ Purchased Account ” – An Account purchased which is not a Closed Account.

1.24 “ Required Reserve Amount ” – 100% minus the Advance Rate multiplied by the unpaid Face Amount of Purchased Accounts that are Eligible Accounts plus 100% of the Face Amount of all other Purchased Accounts, plus accrued fees and expenses.

1.25 “ Reserve Account ” – An account or accounts on the books of Purchaser for the purposes set forth herein.

1.26 “ Reserve Shortfall ” – The amount by which the Reserve Account is less than the Required Reserve Amount.

1.27 “ Term and Termination Date ” – See Section 21.

2. Assignment and Sale . Seller shall sell to Purchaser as absolute owner, and Purchaser shall purchase from Seller, Seller’s Accounts as Purchaser determines in its sole discretion. Each Account shall be accompanied by such documentation supporting and evidencing the Account as Purchaser may request. Purchaser shall pay the Purchase Price of any Purchased Account, less the Required Reserve and any amounts due to Purchaser from Seller, within two (2) business days of the date of Purchase. Seller represents that all Purchased Accounts are true and collectible and are sold to Purchaser free and clear of any claims (other than Permitted Liens).

3. Reserve Account . Purchaser may credit any portion of any Purchase Price to the Reserve Account, including but not limited to the amount of the Reserve Shortfall. So long as there is no existing Event of Default, Purchaser shall pay to Seller upon Seller’s request, any

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amount by which the Reserve Account exceeds the Required Reserve Amount. Purchaser may charge the Reserve Account for any amoun ts accrued and unpaid from Seller to Purchaser.

4. Notice of Assignment and Lock Box . Purchaser may notify any Account Debtor obligated with respect to any Account that the underlying Account has been assigned to Purchaser by Seller and that payment thereof is to be made to the order of and directly and solely to Purchaser. All Invoices for Accounts sent by Seller to Account Debtors shall contain on the face of the Invoice the following legend: “This account is assigned and payable only to LSQ Funding Group, L.C. Payments should be sent to LSQ at: P.O. Box 743451, Los Angeles, CA 90074-3451.”

5. Authorization for Purchases . Purchaser is authorized to purchase Accounts upon instructions received from any authorized representative designated by Seller.

6. Fees . Seller shall pay to Purchaser throughout the Term or any Renewal Term of this Agreement, the Invoice Purchase Fee, the Funds Usage Fee and the Aging and Collection Fee, on the date(s) that each Fee is due and payable as provided as set forth in Sections 1.2, 1.13, and 1.15 herein.

7. Other Charges and Expenses . Seller shall reimburse Purchaser $15.00 for wire fees and the actual field examination fees directly incurred by Purchaser in the administration of this Agreement. Reimbursable expenses are due at the time of payment of the applicable fees or expenses by Purchaser and may be charged to the Reserve Account.

8. Repurchase Of Accounts . Seller shall immediately on demand by Purchaser repurchase any Purchased Account that Purchaser determines at any time is uncollectible for any reason or is otherwise no longer an Eligible Account and on such demand shall pay to Purchaser the then unpaid Face Amount of the Account, together with any accrued but unpaid fees relating to the Account. Purchaser shall retain its security interest in any Account repurchased by Seller.

9. Security Interest . To secure payment and performance of all present and future obligations of Seller to Purchaser, Seller grants to Purchaser a continuing first priority (upon entry into an inter-creditor agreement among Purchaser, Ivy Investment Management Company and Gordon Snyder) security interest in and to the Collateral, and authorizes Purchaser to file a UCC-1 in all jurisdictions and offices Purchaser deems appropriate which names Seller as the debtor and covering the Collateral.

10. Clearance Days . Clearance Days will be added to the date on which Purchaser receives any payment before such payment is credited to reduce outstanding amounts due hereunder.

11. Authorization to Purchaser . Seller authorizes Purchaser, at Seller’s expense, to exercise the following powers until Purchaser has been paid in full: (a) receive, take, endorse, assign, deliver, accept and deposit, in the name of Purchaser or Seller, proceeds of any Collateral; (b) take or bring, in the name of Purchaser or Seller, all steps, actions, suits or proceedings deemed by Purchaser necessary or desirable to effect collection of all Collateral; (c) file any claim under any bond or under any trust fund; (d) pay any sums necessary to discharge any lien, claim, or encumbrance which is senior to Purchaser’s security interest in any assets of Seller, which sums shall be included as obligations of Seller and which shall accrue the Late Charge and be

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immediately due and payable; (e) notify any Payor obligate d with respect to any Account, that the underlying Account has been assigned to Purchaser by Seller and that payment thereof is to be made to the order and directly and solely to Purchaser; (f) communicate directly with Seller’s Payors to verify the amount and validity of any Account created by Seller; and (g) endorse and deposit on behalf of Seller any checks tendered by an Account Debtor “in full payment” of its obligation to Seller.

12. ACH Authorization . Purchaser may process electronic debit or credit entries through the ACH system to any deposit account of Seller.

13. Covenants By Seller .

13.1 After written notice by Purchaser to Seller, and automatically, without notice following an Event of Default, Seller shall not (a) grant any extension of time for payment of any of its Accounts, (b) compromise or settle any of its Accounts for less than the full amount, (c) release in whole or in part any Account Debtor, or (d) grant credits, discounts, allowances, deductions, or return authorizations for any Accounts, in each case, except as set forth in Seller’s Master Distribution Agreements (provided that no such agreement may do any of the foregoing with respect to any amount owing under an Account or any invoice already issued by Seller with respect to an Account).

13.2 Seller must keep at its principal place of business for a period of five years all books of account and business records customary for the industry, which books and records are subject to inspection by Purchaser and its agents and representatives during normal business hours. Purchaser or its designee shall have access, during reasonable business hours if prior to an Event of Default and at any time if on or after an Event of Default, to all premises where Collateral is located for the purposes of inspecting (and removing, if after the occurrence of an Event of Default) any of the Collateral, and Seller shall permit Purchaser or its designee to make copies of such books and records as Purchaser may request.

13.3 Seller must give Purchaser 5 business days’ prior written notice of any change to its present name, the address of its headquarters or where its books and records are located, and any change to its form or jurisdiction of organization.

13.4 Seller shall pay when due all of its payroll and other taxes, and shall provide proof of payment to Purchaser.

13.5 Seller shall not create, incur, or permit the existence of any lien upon any Collateral without prior consent of Purchaser.

13.6 Seller shall provide Purchaser, within 2 business days of receipt by Seller, copies of any business or legal notices, summonses, complaints, or other proceedings received by Seller.

13.7 Seller shall pay to Purchaser on the next banking day following the date of receipt by Seller the amount of (a) any payment on account of a Purchased Account; and (b) after the occurrence of an Event of Default, any payment on account of any Account.

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14. Account S tated . Purchaser shall make available to Seller a statement setting forth the transactions arising hereunder. Each statement shall be considered correct and bindin g upon Seller as an account stated, except to the extent that Purchaser receives, within 30 days after the availability of such statement, written notice from Seller of any specific exceptions by Seller to that statement, and then it shall be binding again st Seller as to any items to which it has not objected.

15. Account Disputes . Seller shall notify Purchaser of, and at Purchaser’s request, shall settle all disputes concerning any Purchased Account, at Seller’s sole cost and expense. Seller shall not, without Purchaser’s prior consent, compromise or adjust a Purchased Account or grant any additional discounts, allowances or credits on a Purchased Account. Purchaser may attempt to settle, compromise, or litigate any dispute upon such terms, as Purchaser in its sole discretion deems advisable.

16. Representation and Warranties . Seller represents and warrants that (a) Seller is fully authorized to enter into this Agreement; (b) this Agreement constitutes a legal and valid obligation that is binding upon Seller and that is enforceable against it; (c) Seller is in good standing in the state of its organization; (d) there are no pending actions, suits, or other legal proceedings of any kind (whether civil or criminal) now pending (or, to its knowledge, threatened) against Seller, the adverse result of which would in any material respect affect its property or financial condition, or threaten its continued operations; (e) Seller has not conducted business under or used any other name, whether legal or fictitious; (f) the Purchased Accounts are and will remain bona fide existing obligations created by the sale and delivery of goods or services in the ordinary course of its business, and are unconditionally owed and will be paid to Purchaser without defenses, disputes, offsets, counterclaims, or rights of return or cancellation; and (g) Seller has not received notice of actual or imminent bankruptcy, insolvency, or material impairment of the financial condition of any applicable Account Debtor regarding Purchased Accounts.

17. Indemnification . Seller agrees to indemnify Purchaser and save it harmless against any suits, claims, liabilities, demands and expenses, including but not limited to, any loss arising out of the assertion of any Avoidance Claim, and shall pay to Purchaser on demand the amount thereof including attorneys’ fees and expenses, resulting from or arising under this Agreement. With respect to an Avoidance Claim, Seller shall notify Purchaser within two (2) business days of Seller’s becoming aware of the assertion of an Avoidance Claim. This provision shall survive termination of this Agreement.

18. Disclaimer of Liability . Purchaser will not be liable to Seller for any lost profits, lost savings or other consequential, incidental, punitive, or special damages resulting from or arising out of or in connection with this Agreement.

19. Default and Events of Default . The following events will constitute an Event of Default hereunder: (a) receipt by Seller or a third party of a Purchased Account which is not paid to Purchaser within three (3) business days following the date of Seller’s receipt or knowledge of receipt by such third party; (b) Seller defaults in the payment of any obligations hereunder; (c) breach by Seller in the performance of any provision of this Agreement, (d) any warranty or representation contained herein proves to be false in any way, howsoever minor, when made

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under this Agreement; (e) Seller or any guarantor of the obligations becomes subject to any debtor-relief proceedings; (f) any guarantor fails to perfo rm or observe any of the guarantor’s obligations to Purchaser or shall notify Purchaser of its intention to rescind, modify, terminate or revoke any guaranty, or any guaranty shall cease to be in full force and effect for any reason whatever.

19.1 SELLER WAIVES ANY REQUIREMENT THAT PURCHASER INFORM SELLER BY AFFIRMATIVE ACT OR OTHERWISE OF ANY ACCELERATION OF SELLER’S OBLIGATIONS. PURCHASER’S FAILURE TO CHARGE OR ACCRUE INTEREST OR FEES AT ANY “DEFAULT” OR “PAST DUE” RATE SHALL NOT BE DEEMED A WAIVER BY PURCHASER OF ITS CLAIM.

19.2 Upon the occurrence of any Event of Default, in addition to any rights Purchaser has under this Agreement or applicable law, Purchaser may immediately terminate this Agreement, at which time all obligations shall immediately become due and payable without notice.

20. Amendment and Waiver . Only a writing signed by all parties may amend this Agreement. No failure or delay in exercising any right shall impair any right that Purchaser has, nor shall any waiver by Purchaser be deemed a waiver of any default or breach occurring subsequently. Purchaser’s rights and remedies are cumulative and not exclusive of each other or of any rights or remedies that Purchaser would otherwise have.

21. Term and Termination Date . This Agreement will be effective when executed by the Parties, will continue in full force and effect for 1 year thereafter (the “Term”), and shall be further extended automatically annually (the “Renewal Term”), unless Seller provides written notice of its intention to terminate at least 60 days and not greater than 90 days prior to each anniversary date. Notwithstanding the preceding sentence, such termination shall not occur and the Agreement shall continue as if no notice was given unless, on the termination date, Seller has fully repaid Purchaser all monies due, and delivered to Purchaser the release as required by Section 22 below.

21.1 If effective notice by Seller under Section 21 above is not provided, then in addition to any other fees due under this Agreement, Seller agrees that it will pay an early termination fee equal to 0.75% multiplied by the Maximum Amount set forth in Section 1.17 herein multiplied by the number of months remaining in the Term or any Renewal Term (the “Early Termination Fee”).

21.2 Notwithstanding Section 21.1, if Seller was referred to Purchaser by a bank or other institution and intends to refinance with such bank its obligations under this Agreement, Seller may terminate this Agreement prior to the end of the Term or any Renewal Term by providing Purchaser 60 days’ prior written notice and refinancing with referring bank or institution. If such notice is provided and Seller refinances with the referring bank or other institution, no Early Termination Fee pursuant to Section 21.1 shall be due.

21.3 If Seller refinances its obligations under this Agreement with the bank that referred Seller to Purchaser without providing notice as required under Section 21.2, Seller may

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terminate this Agreement prior to the end of the Term or any Renewal Term by paying an early termination fee equa l to 1.5% multiplied by the Maximum Amount set forth in Section 1.17.

21.4 Purchaser may terminate this Agreement at any time by giving Seller 30 days’ prior written notice of termination, whereupon this Agreement shall terminate on the earlier date of 30 days thereafter or the end of the then current Term or Renewal Term, upon which termination date Seller shall fully repay to Purchaser all monies due and deliver to Purchaser the release as required under Section 22 below; provided that, if Purchaser for any reason, in good faith, deems itself insecure with respect to the prospect of repayment or performance of any obligations hereunder, such 30 day period shall not apply.

22. No Lien Termination without Release . Notwithstanding payment in full of all obligations by Seller, Purchaser shall not be required to record any termination or satisfaction of its liens on the Collateral unless and until Seller and any guarantors deliver to Purchaser a general release. Seller understands that this provision constitutes a waiver of its rights under §9-513 of the UCC.

23. Conflict . Unless otherwise expressly stated in any other agreement between Purchaser and Seller, if a conflict exists between the provisions of this Agreement and the provisions of such other agreement, the provisions of this Agreement shall control.

24. Severability . In the event any one or more of the provisions contained in this Agreement is held to be invalid, illegal or unenforceable in any respect, then such provision shall be ineffective only to the extent of such prohibition or invalidity, and the validity, legality, and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby.

25. Expenses . In addition to those Expenses set forth in Section 7 herein, Seller agrees to reimburse Purchaser the actual amount of all costs and expenses, including attorneys’ fees and expenses, which Purchaser may incur (a) protecting, preserving or enforcing any lien, security or other right granted by Seller to Purchaser or arising under applicable law, whether or not suit is brought, including but not limited to the defense of any Avoidance Claims or the defense of Purchaser’s lien priority; (b) for travel and attorneys’ fees and expenses incurred in complying with any subpoena or other legal process in any way relating to Seller; and (c) for the actual amount of all costs and expenses, including attorneys’ fees, which Purchaser may incur in enforcing this Agreement, or in connection with any federal or state insolvency proceeding commenced by or against Seller or any Account Debtor, including those (i) arising out of an automatic stay, (ii) seeking dismissal or conversion of a bankruptcy proceeding or (ii) opposing confirmation of Seller’s plan thereunder. All Expenses will be subtracted from the Reserve Account and are payable by Seller upon demand by Purchaser. This provision shall survive termination of this Agreement.

26. Entire Agreement . This Agreement supersedes all prior or contemporaneous agreements and understandings between the parties, verbal or written, express or implied, relating to the subject matter hereof. No promises of any kind have been made by Purchaser or any third party to induce Seller to execute this Agreement. No course of dealing, course of performance, or trade

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usage, and no parol evidence of any nature, shall be used to supplement or modify any terms of this Agreement.

27. Choice of Law . This Agreement shall be governed by, construed under, and enforced in accordance with the internal laws of the Chosen State.

28. Jury Trial Waiver . IN RECOGNITION OF THE HIGHER COSTS AND DELAY WHICH MAY RESULT FROM A JURY TRIAL, THE PARTIES HERETO WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (a) ARISING HEREUNDER, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY FURTHER WAIVES ANY RIGHT TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

29. Venue: Jurisdiction . The parties agree that any suit, action, or proceeding arising out of the subject matter or the interpretation, performance, or breach of this Agreement, shall, if Purchaser so elects, be instituted in any courts of the Chosen State or those located in Orange County, Florida (each an “Acceptable Forum”). Each Party agrees that the Acceptable Forums are convenient to it, and each Party irrevocably submits to the jurisdiction of the Acceptable Forums, irrevocably agrees to be bound by any judgment rendered in connection with this Agreement, and waives any and all objections to jurisdiction or venue that it may have under the laws of the Acceptable Forums or otherwise in those courts in any such suit, action, or proceeding. Should such proceeding be initiated in any other forum, Seller waives any right to oppose any motion or application made by Purchaser as a consequence of such proceeding having been commenced in a forum other than an Acceptable Forum.

30. Counterparts . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all signatures were upon the same instrument. Delivery of an executed counterpart of the signature page to this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart of this Agreement, and any Party delivering such an executed counterpart of the signature page to this Agreement by such means to any other Party sha ll thereafter a l so promptly del i ver a manua ll y executed counterpart of this Agreement to such other Party, provided that the failure to deliver such manually executed counterpart shall not affect the valid i ty, enforceability, or binding effect of this Agreement.

31. Notice . All notices required to be given to any Party shall be deemed given upon the f i rst to occur of (i) transmittal sent by commercial overnight carrier , ( ii) transmittal by e l ectronic

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means to a receiver under the control of such Party; or (iii) actual receipt by such Party or an employee or agent of such Party. Not i ces shall be sent to the follow i ng addresses , or to such other addresses as each such Party may in writing hereafter i ndicate:

PURCHASER:

LSQ Funding Group, L.C.
2600 Lucien Way, Suite 100
Maitland, FL 32751
Officer: William Samelson, wsamuelson@lsg.com

SELLER:

Marrone Bio Innovations, Inc.
1540 Drew Avenue
Davis, CA 95618
Officer: Pam Marrone, pmarrone@marronbio.com (email)

32. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

33. Confidentiality and Nondlsclosure . The Parties agree that the terms of this Agreement, all business methods and trade secrets, and any and all other records and i nformation clearly and specifically identified by the app l icab l e Party as confidential w i ll be held in strict confidence and treated as the confidential property of the other Party. A Party will not, except in the due performance of its duties or the enforcement of i ts righ t s under this Agreement, d i sclose any of the foregoing to any person, unless specifically authorized to do so in writing by the other Party or un l ess required by law . The provisions of this Section shall survive the terminat i on of this Agreement.

LSQ FUNDING GROUP, LC.

By /s/ William M. Samuelson

Name: William M. Samuelson

Title: EVP

Date: March 24, 2017

LSQ FUNDING GROUP, LC.

By /s/ Pamela G. Marrone

Name: Pamela G. Marrone

Title: CEO & Founder

Date: March 20, 2017

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Exhibit 10.45

SUBORDINATION AGREEMENT

This SUBORDINATION AGREEMENT, dated as of March 28 , 2017 (this "Agreement"), is among – Five Star Bank (the "Subordinating Creditor"), Marrone Bio Innovations, Inc., (the "Debtor"), and LSQ Funding Group L.C. (the "Senior Creditor").

RECITALS

A. Senior Creditor has or expects to acquire a security interest in assets of the Debtor in which the Subordinating Creditor has an interest, including but not limited to the Senior Creditor Collateral.

B. Debtor and Subordinating Creditor are or may become parties to the Subordinating Creditor Agreements.

C. The Creditors are executing this Agreement to set forth their lien priorities with respect to the Senior Creditor Collateral.

NOW, THEREFORE, in consideration of the premises, and intending to be legally bound hereby, the Creditors hereby agree as follows:

AGREEMENT

1. DEFINITIONS . The following terms used herein shall have the following meaning. All capitalized terms not herein defined shall have the meaning set forth in the Uniform Commercial Code:

1.1. " Bankruptcy Code " - Title 11 of the United States Code.

1.2. " Chosen State " - California.

1.3. " Creditors " - The Subordinating Creditor and the Senior Creditor.

1.4. " Debtor " - See preamble.

1.5. " Party " - Each of the Subordinating Creditor, the Debtor, and the Senior Creditor.

1.6. " Secondary Collateral " - Collateral of a Creditor holding a security interest which is inferior to the priority of the other Creditor.

1.7. " Senior Creditor " - See preamble.

1.8. “Senior Creditor Collateral” – See Exhibit B attached to this Agreement.

1.9. " Senior Creditor Priority Collateral " - All Debtor's present and future Accounts (as

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defined in the Uniform Commercial Code), Inventory, Instruments, Documents, Chattel Paper, and General Intangibles (other than intellectual property), and the direct and indirect proceeds thereof, but excluding Debtor’s deposit account number and deposit account number with Subordinating Creditor .

1.9.1.Senior Creditor Priority Collateral shall also include any raw materials, unfinished goods, finished goods, and//or Inventory of Debtor while in the possession and control of Debtor’s wholly-owned subsidiary, Marrone Michigan Manufacturing, LLC.

1.10. " Senior Creditor Obligations " - Obligations of the Debtor to the Senior Creditor secured by the Senior Creditor Collateral.

1.11. " Subordinating Creditor " - See preamble.

1.12. " Subordinating Creditor Agreements " - All agreements now or hereafter entered into between Subordinating Creditor and Debtor which create an obligation which is secured by the Subordinating Creditor Collateral.

1.13. “Subordinating Creditor Collateral” – All collateral described in the UCC-1 Financing Statements listed on Exhibit A attached to this Agreement, including Debtor’s deposit account number 3207933 and deposit account number 3208014 with Subordinating Creditor.

1.14. " Subordinating Creditor Obligations " - Indebtedness owed by the Debtor to the Subordinating Creditor secured by Subordinating Creditor Collateral.

2. PRIORITY .

2.1. Notwithstanding the terms or provisions of any agreement or arrangement which either Creditor may now or hereafter have with the Debtor or any rule of law, and irrespective of the time, order, or method of attachment or perfection of any security interest or the recordation or other filing in any public record of any financing statement, any security interests in the Senior Creditor Priority Collateral now or hereafter held by the Senior Creditor as security for the Senior Creditor Obligations, whether or not perfected, are and shall remain senior to any lien therein now or hereafter held by the Subordinating Creditor.

2.2 Notwithstanding the terms or provisions of any agreement or arrangement which either Creditor may now or hereafter have with the Debtor or any rule of law, and irrespective of the time, order, or method of attachment or perfection of any security interest or the recordation or other filing in any public record of any financing statement, any security interests in the Subordinating Creditor Collateral, other than Senior Creditor Priority Collateral, now or hereafter held by the Subordinating Creditor as security for the Subordinating Creditor Obligations, whether or not perfected, are and shall remain senior to any lien therein now or hereafter held by the Senior Creditor.

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3. ENFORCEMENT OF SECURITY INTEREST .

3.1. The Subordinating Creditor shall have no right to take any action with respect to its Secondary Collateral, whether by judicial or non-judicial foreclosure, recordation or enforcement of mechanics liens, notification to the Debtor's account debtors, the seeking of the appointment of a receiver for any portion of the Debtor's assets, setoff, or otherwise, unless and until all Senior Creditor Obligations have been fully and indefeasibly paid.

3.2. Senior Creditor shall have no right to take any action with respect to its Secondary Collateral, whether by judicial or non-judicial foreclosure, recordation or enforcement of mechanics liens, notification to the Debtor's account debtors, the seeking of the appointment of a receiver for any portion of the Debtor's assets, setoff, or otherwise, unless and until all Subordinating Creditor Obligations have been fully and indefeasibly paid.

4. PROCEEDS OF COLLATERAL .

4.1. Any proceeds of Secondary Collateral, or proceeds of proceeds, received by a Creditor shall be, immediately upon discovery, paid to the other Creditor.

4.2. Nothing contained herein shall prohibit the Subordinating Creditor from receiving and retaining payments made directly by the Debtor by check or electronic funds transfer directly from any deposit account of Debtor, unless the Subordinating Creditor is acting in collusion with Debtor to divert the proceeds of Senior Creditor Priority Collateral from Senior Creditor.

4.3. Any sums due pursuant to Section 4.1 of this Agreement not paid when due shall accrue a late charge at the rate of 10% per annum.

5. CREDITOR COVENANTS AND WARRANTIES .

5.1. The Subordinating Creditor warrants, covenants, and represents that it:

5.1.1. Is the owner of the Subordinating Creditor Obligations, free and clear of the claims of any other entity;

5.1.2. Is the secured party of record in each UCC Financing Statement listed on the attac hed Exhibit A.

5.1.3. Will not, at any time while this Agreement is in effect assign any of the Subordinating Creditor Obligations to any entity which does not agree in a writing, reasonably satisfactory in form and substance to the Senior Creditor (the "Transfer Document"), to become a Party and to succeed to the rights and to be bound by all of the obligations of the Subordinating Creditor hereunder. In the case of any such proposed assignment by the Subordinating Creditor, it will notify the Senior Creditor at least (10) ten days prior to the date of any of such intended disposition and include with such notice a copy of the proposed

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Transfer Document.

5.1.4. Will indemnify Senior Creditor and hold it harmless against any direct or indirect loss (inc luding attorney’s fees and expenses) arising from the assertion by any holder of the Subordinating Creditor Obligations that the provisions of this Agreement do not bind such holder.

5.1.5. Waives any rights it may have to claim that the enforceability o f this Agreement may be affected by any subsequent modification, release, extension, or other change, material or otherwise, in the Senior Creditor Obligations or the Senior Creditor Collateral.

5.1.6. Will not interfere with Senior Creditor’s notificati ons to the Debtor's account debtors that proceeds of Accounts should be paid to Senior Creditor and not to Subordinating Creditor.

5.2 The Senior Creditor warrants, covenants, and represents that it:

5.2.1. Is the owner of the Senior Creditor Obligations, free and clear of the claims of any other entity;

5.2.2. Is or will become the secured party of record by the filing of a UCC Financing Statement describing the Senior Creditor Collateral listed on the attached Exhibit B.

5.2.3. Will not, at any time while this Agreement is in effect assign any of the Senior Creditor Obligations to any entity which does not agree in a writing, reasonably satisfactory in form and substance to the Subordinating Credi tor (the "Senior Creditor Transfer Document"), to become a Party and to succeed to the rights and to be bound by all of the obligations of the Senior Creditor hereunder. In the case of any such proposed assignment by the Senior Creditor, it will notify the Subordinating Creditor at least (10) ten days prior to the date of any of such intended disposition and include with such notice a copy of the proposed Senior Creditor Transfer Document.

5.2.4. Will indemnify Subordinating Creditor and hold it harmless against any direct or indirect loss (including attorney’s fees and expenses) arising from the assertion by any holder of the Senior Creditor Obligations that the provisions of this Agreement do not bind such holder.

5.2.5. Waives any rights it may have to claim that the enforceability of this Agreement may be affected by any subsequent modification, release, extension, or other change, material or otherwise, in the Subordinating Creditor Obligations or the Subordinating Creditor Collateral.

5.2.6. Will not interfere with Subordinating Creditor’s efforts to realize on Subordinating Creditor’s Collateral, other than Senior Creditor Priority Collateral.

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6. REMEDY FOR BREACH .

6.1. Any breach hereof is likely to cause irreparable damage to the aggrieved party. Therefore, the relief to which such party shall be entitled in such event shall include, but not be limited to: (a) a mandatory injunction for specific performance, (b) judicial relief to prevent a violation of any of the provisions of this Agreement, (c) damages, and (d) any other relief to which it may be entitled at law or in equity.

7. AMENDMENT OF SUBORDINATING CREDITOR AGREEMENTS .

7.1. The consent of Subordinating Creditor shall not be required for any amendment of the Senior Creditor Agreements; provided however, no such amendments of the Senior Creditor Agreements shall affect the rights of Subordinating Creditor hereunder.

7.2. The consent of Senior Creditor shall not be required for any further amendment of the Subordinating Creditor Agreements; provided however, no such amendments of the Subordinating Creditor Agreements shall affect the rights of Senior Creditor hereunder.

8. EFFECT OF BANKRUPTCY .

8.1. This Agreement shall remain in full force and effect notwithstanding the filing of a petition for relief by or against the Debtor under the Bankruptcy Code and, without limiting the foregoing shall apply with full force and effect with respect to all Senior Creditor Collateral and Subordinating Creditor Collateral acquired by the Debtor, and obligations incurred by the Debtor to Senior Creditor and the Subordinating Creditor, subsequent to the date of any such petition.

9. NO DUTY TO PROVIDE FINANCIAL ACCOMMODATIONS .

9.1. Nothing contained herein or in any prior agreement or understanding between the Creditors shall be deemed to create any duty on the part of either Creditor to extend or continue to extend financial accommodations to the Debtor.

10. CROSS DEFAULT .

10.1. Notwithstanding anything to the contrary contained in any agreement between Debtor and Senior Creditor, default by Debtor in the performance of its obligations to the Subordinating Creditor shall constitute a default by Debtor in the performance of the Senior Creditor Obligations.

10.2. Notwithstanding anything to the contrary contained in any agreement between Debtor and Subordinating Creditor, default by Debtor in the performance of its obligations to the Senior Creditor shall constitute a default by Debtor in the performance of the Subordinating Creditor Obligations.

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11. CHOICE OF LAW .

11.1. This Agreement and all transactions contemplated hereunder and/or evidenced hereby shall be governed by, construed under, and enforced in accordance with the internal laws of the Chosen State.

12. AMENDMENT AND WAIVER .

12.1. Only a writing signed by all parties hereto may amend this Agreement. No failure or delay in exercising any right hereunder shall impair any such right that Senior Creditor may have, nor shall any waiver by Senior Creditor hereunder be deemed a waiver of any default or breach subsequently occurring. Either Creditor's rights and remedies herein are cumulative and not exclusive of each other or of any rights or remedies that either Creditor would otherwise have.

13. CONSTRUCTION OF AGREEMENT .

13.1. This Agreement and all agreements relating to the subject matter hereof is the product of negotiation and preparation by and among each party and its respective attorneys. This Agreement supersedes any and all prior agreements and understandings between the parties regarding the subject matter of this Agreement, including that certain Subordination Agreement dated June 14, 2013, by and among the Debtor, Subordinating Creditor and Senior Creditor.

14. BENEFITS OF THIS AGREEMENT .

14.1. This Agreement is solely for the benefit of and shall bind the Creditors and their respective successors and assigns and no other entity shall have any right, benefit, priority, or interest hereunder.

15. TERM .

15.1. This Agreement shall continue so long as the Senior Creditor holds a security interest in any portion of the Senior Creditor Collateral.

16. ATTORNEY'S FEES .

16.1. In the event that any party finds it necessary to retain counsel in connection with the interpretation, defense, or enforcement of this agreement, the prevailing party shall recover its reasonable attorney's fees and expenses from the unsuccessful party. It shall be presumed (subject to rebuttal only by the introduction of competent evidence to the contrary) that the amount recoverable is the amount billed to the prevailing party by its counsel and that such amount will be reasonable if based on the billing rates charged to the prevailing party by its

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counsel in similar matters.

17. COUNTERPARTS .

17.1. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if all signatures were upon the same instrument. Delivery of an executed counterpart of the signature page to this Agreement by facsimile shall be effective as delivery of a manually executed counterpart of this Agreement, and any party delivering such an executed counterpart of the signature page to this Agreement by facsimile to any other party shall thereafter also promptly deliver a manually executed counterpart of this Agreement to such other party, provided that the failure to deliver such manually executed counterpart shall not affect the validity, enforceability, or binding effect of this Agreement.

18. NOTICE .

18.1. All notices required to be given to either party hereunder shall be deemed given upon the first to occur of: (a) deposit thereof, postage prepaid, in a receptacle under the control of the United States Postal Service; (b) the first business day following transmittal by electronic means to a device under the control of the party to whom notice is being given; or (c) actual receipt by the party to whom notice is being given, or an employee or agent of thereof.

18.2 The Creditors each agree to file a UCC-3 Amendment in connection with the Financing Statements filed or to be filed in connection with the Senior Creditor Collateral and the Subordinating Creditor Collateral, which shall give notice that such Financing Statements are subject to the terms and conditions of this Subordination Agreement.

SUBORDINATING CREDITOR

PARTY: Five Star Bank

ADDRESS:

OFFICER: Jim Snider, SVP

DEBTOR

PARTY: Marrone Bio Innovations, Inc.

ADDRESS: 1540 Drew Avenue

Davis, CA 95618

OFFICER: Pamela Marrone, CEO/President

SENIOR CREDITOR

PARTY: LSQ Funding Group, L.C.

ADDRESS:

OFFICER: Wil liam Samuelson, EVP

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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written.

SUBORDINATING CREDITOR: Five Star Bank

By: /s/ Jim Snyder Jim Snider

SVP

DEBTOR: Marrone Bio Innovations, Inc.

By: /s/ Pamela Marrone

Pamela Marrone

CEO/President

SENIOR CREDITOR: LSQ Funding Group, L.C.

By: /s/ William Samuelson

William Samuelson

EVP & Director of Operations

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EXHIBIT A

(Subordinating Creditor Financing Statements)

Filing Date Filing NumberFiling Office Jurisdiction

01/03/2012 20120023053DE

09/03/2014 20143526878DE

09/03/2014 147426716533CA

08/20/2015 20153643946CA

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EXHIBIT B

All assets of Debtor, including but not limited to, now owned and hereafter acquired personal property and fixtures, and proceeds thereof, (including proceeds of proceeds) including without limitation: Accounts, including health-care insurance receivables; Chattel Paper; Inventory; Equipment; Instruments, including Promissory Notes; Investment Property; Documents; Deposit Accounts; Letter of Credit Rights; General Intangibles; and Supporting Obligations. Notwithstanding the foregoing, “Collateral” does not include Debtor’s deposit accounts and with Five Star Bank.

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Exhibit 31.1

I, Pamela G. Marrone, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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 12, 2017

/s/ Pamela G. Marrone

Pamela G. Marrone

President and Chief Executive Officer

Exhibit 31.2

I, James B. Boyd, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Marrone Bio Innovations, Inc.;

(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 12, 2017

/s/ James B. Boyd

James B. Boyd

Chief Financial Officer and Senior Vice President

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, Pamela G. Marrone, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Marrone Bio Innovations, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2017 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 Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.

Date: May 12, 2017


By:		/s/ Pamela G. Marrone
Name:		Pamela G. Marrone
Title:		President and Chief Executive Officer

I, James B. Boyd, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Marrone Bio Innovations, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2017 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 Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.

Date: May 12, 2017


By:		/s/ James B. Boyd
Name:		James B. Boyd
Title:		Chief Financial Officer and Senior Vice President

This certification accompanies this Report on Form 10-Q 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.