10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2019

Or

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                            to                            

Commission File Number: 001-36030

Marrone Bio Innovations, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-5137161
(State or other jurisdiction of 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 [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

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

Large accelerated filer	[  ]	Accelerated filer	[X]
Non-accelerated filer	[  ]	Smaller reporting company	[X]
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 [X]

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	MBII	Nasdaq Capital Market

Class	Shares Outstanding at May 3, 2019
Common Stock, $0.00001 par value	110,724,611

TABLE OF CONTENTS

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018	4
Condensed Consolidated Statements of Stockholder’s Equity for the Three Months Ended March 31, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2018	6
Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	34
Item 4. Controls and Procedures	35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 6. Exhibits	36
SIGNATURES	37

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Balance Sheets

(In Thousands, Except Par Value)

	MARCH 31,			DECEMBER 31,
	2019			2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	13,586		$	18,221
Accounts receivable		8,759			2,720
Inventories, net		7,554			8,224
Prepaid expenses and other current assets		1,310			971
Total current assets		31,209			30,136
Property, plant and equipment, net		14,132			14,512
Right of use assets, net		5,126			—
Restricted cash		1,560			1,560
Other assets		356			359
Total assets	$	52,383		$	46,567
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,377		$	1,692
Accrued liabilities		7,015			6,871
Deferred revenue, current portion		379			438
Lease liability, current portion		752			—
Debt, current portion, net		5,541			2,318
Total current liabilities		16,064			11,319
Deferred revenue, less current portion		2,327			2,399
Lease liability, less current portion		4,607			-
Debt, less current portion, net		11,732			11,819
Debt due to related parties		7,300			7,300
Other liabilities		776			794
Total liabilities		42,806			33,631
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at March 31, 2019 and December 31, 2018		—			—
Common stock: $0.00001 par value; 250,000 shares authorized, 110,691 shares issued and outstanding as of March 31, 2019 and December 31, 2018		1			1
Additional paid in capital		296,967			296,409
Accumulated deficit (1)		(287,391	)		(283,474	)
Total stockholders’ equity		9,577			12,936
Total liabilities and stockholders’ equity	$	52,383		$	46,567

(1) The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.

See accompanying notes.

3

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

(Unaudited)

	THREE MONTHS ENDED MARCH 31,
	2019			2018
Revenues:
Product	$	8,601		$	4,224
License		115			100
Total revenues		8,716			4,324
Cost of product revenues		3,729			2,242
Gross profit		4,987			2,082
Operating Expenses:
Research, development and patent		2,942			2,535
Selling, general and administrative		5,674			5,030
Total operating expenses		8,616			7,565
Loss from operations		(3,629	)		(5,483	)
Other income (expense):
Interest expense		(306	)		(1,119	)
Interest expense, related parties		—			(434	)
Change in fair value of financial instruments		—			(5,177	)
Loss on extinguishment of debt, net (1)		—			(2,196	)
Gain on extinguishment of debt, related party (1)		—			9,183
Other income (expense), net		18			(31	)
Total other income (expense), net		(288	)		226
Net loss (1)	$	(3,917	)	$	(5,257	)
Basic and diluted net loss per common share:	$	(0.04	)		(0.07	)
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:		110,691			74,591

(1) The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.

See accompanying notes.

4

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Stockholder’s Equity

For the Three Months Ended March 31, 2018

(In Thousands)

										TOTAL
	COMMON STOCK				ADDITIONAL		ACCUMULATED			STOCKHOLDERS’
	SHARES		AMOUNT		PAID IN CAPITAL		DEFICIT			EQUITY (DEFICIT)
Balance at January 1, 2018		31,351	$	—	$	214,921	$	(265,572	)	$	(50,651	)
ASC 606 Adjustment		—		—		—		2,311			2,311
Net loss (1)		—		—		—		(5,257	)		(5,257	)
Settlement of restricted stock units		228		—		—		—			—
Issuance of RSUs for 2017 bonuses		—		—		205		—			205
Share-based compensation		—		—		491		—			491
Conversion of related party notes for common stock and warrants		20,000		—		21,685		—			21,685
Conversion of secured promissory notes for common stock and warrants		5,714		—		6,196		—			6,196
Conversion of convertible notes for common stock and warrants		12,000		—		16,843		—			16,843
Fair value of common stock and warrants issued to placement agent in connection with private placement and note conversion		800		—		1,610		—			1,610
Issuance of common stock and warrants in private placement, net of offering costs and underwriter commissions		32,000		1		20,310		—			20,311
Balance at March 31, 2018		102,093	$	1	$	282,261	$	(268,518	)	$	13,744

(1) The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.

Condensed Consolidated Statements of Stockholder’s Equity

For the Three Months Ended March 31, 2019

(In Thousands)

										TOTAL
	COMMON STOCK				ADDITIONAL		ACCUMULATED			STOCKHOLDERS’
	SHARES		AMOUNT		PAID IN CAPITAL		DEFICIT			EQUITY
Balance at January 1, 2019		110,691	$	1	$	296,409	$	(283,474	)	$	12,936
Net loss		—		—		—		(3,917	)		(3,917	)
Share-based compensation		—		—		558		—			558
Balance at March 31, 2019		110,691	$	1	$	296,967	$	(287,391	)	$	9,577

See accompanying notes.

5

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

	THREE MONTHS ENDED MARCH 31,
	2019			2018
Cash flows from operating activities
Net loss (1)	$	(3,917	)	$	(5,257	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		455			478
Right of use assets amortization		199			-
Share-based compensation		558			491
Non-cash interest expense		73			611
Change in fair value of financial instruments		—			5,177
Loss on extinguishment of debt, net (1)		—			2,196
Gain on extinguishment of debt, related party, net (1)		—			(9,183	)
Net changes in operating assets and liabilities:
Accounts receivable		(6,039	)		(567	)
Inventories		670			(220	)
Prepaid Expenses and other assets		(336	)		146
Deferred cost of product revenues		—			2
Accounts payable		726			(1,085	)
Accrued and other liabilities		310			(793	)
Accrued interest due to related parties		—			(1,614	)
Lease Liability		(150	)		-
Deferred revenue		(199	)		(128	)
Net cash used in operating activities		(7,650	)		(9,746	)
Cash flows from investing activities
Purchases of property, plant and equipment		(116	)		(362	)
Net cash used in investing activities		(116	)		(362	)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs		—			21,820
Proceeds from issuance of debt		—			2,000
Proceeds from secured borrowings		6,714			3,520
Reductions in secured borrowings		(3,511	)		(3,194	)
Repayment of debt		(72	)		(67	)
Net cash provided by financing activities		3,131			24,079
Net increase (decrease) in cash and cash equivalents and restricted cash		(4,635	)		13,971
Cash and cash equivalents and restricted cash, beginning of period		19,781			2,833
Cash and cash equivalents and restricted cash, end of period	$	15,146		$	16,804
Supplemental disclosure of cash flow information
Cash paid for interest	$	223		$	2,145
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities	$	10		$	200
Embedded derivative liability associated with bridge loan	$	—		$	573
Conversion of debt to equity	$	—		$	10,000
Conversion of bridge loan (convertible note) to equity	$	—		$	6,000
Conversion of debt, related party to equity	$	—		$	35,000
Conversion of accrued liabilities into equity associated with the granting of restricted stock units	$	—		$	205

(1) The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.

See accompanying notes.

6

MARRONE BIO INNOVATIONS, INC.

Notes to Condensed Consolidated Financial Statements

March 31, 2019

(Unaudited)

1. Summary of Business, Basis of Presentation

Marrone Bio Innovations, Inc. (the “Company”), formerly Marrone Organic Innovations, Inc., was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. The condensed 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.

Going Concern, Liquidity, and Management Plans

The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue to operate as a going concern, for the 12 months upon the issuance of these condensed consolidated financial statements, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed 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 any inability of the Company to continue as a going concern.

The Company is an early stage company with a limited operating history and has a limited number of commercialized products. As of March 31, 2019, the Company had an accumulated deficit of $287,391,000, has incurred significant losses since inception and expects to continue to incur losses for the foreseeable future. The Company had funded operations primarily with net proceeds from public sales and private placements of equity and debt securities and from 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, 2019, the Company had working capital of $15,145,000, including cash and cash equivalents of $13,586,000. In addition, as of March 31, 2019, the Company had debt and debt due to related parties of $17,273,000 and $7,300,000, respectively, for which the underlying debt agreements contain various financial and non-financial covenants, as well as certain material adverse change clauses. As of March 31, 2019, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements (see Note 6).

The Company’s operating results, including historical prior periods of negative working capital, indicate that substantial doubt exists related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these condensed consolidated financial statements. However, the Company believes that its existing cash and cash equivalents of $10,899,000 at May 9, 2019 together with expected revenues, expected future debt or equity financings and cost management as well as cost reductions will be sufficient to fund operations as currently planned through one year from the date of the issuance of these condensed consolidated financial statements. The Company anticipates securing additional sources of through equity and/or debt financings, collaborative or other funding arrangements with partners, or through other sources of financing, consistent with historic results. The Company cannot predict, with certainty, the outcome of its actions to grow revenue, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. 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 may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations.

7

The actions discussed above cannot be considered probable of occurring and mitigating the substantial doubt raised by its operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these consolidated financial statements. If the Company becomes unable to continue as a going concern, it may have to liquidate its assets, 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 condensed consolidated financial information as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2018.

In the opinion of management, the condensed consolidated financial statements as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company used significant estimates in accounting for assumptions and estimates associated with revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize for those transactions with variable considerations, reserves for inventory obsolescence, share-based compensation, right-of-use, fair value of financial instruments, warrants and in its going concern analysis.

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. 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.

8

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

The Company’s principal sources of revenues are its Regalia, Grandevo and Venerate product lines. These three product lines accounted for 97% and 91% of the Company’s total revenues for the three months ended March 31, 2019 and 2018, respectively.

Revenues generated from international customers were 7% and 18% for the three months ended March 31, 2019 and 2018, 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
Three months ended March 31,
2019		36	%		16	%		12	%
2018		14	%		23	%		6	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2019 or December 31, 2018, which may or may not correspond with the customers above, consist of the following:

	CUSTOMER			CUSTOMER			CUSTOMER			CUSTOMER
	A			B			C			D
March 31, 2019		35	%		21	%		11	%		4	%
December 31, 2018		52	%		8	%		3	%		24	%

Concentrations of Supplier Dependence

The active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 months of knotweed extract on hand 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.

The Company continues to rely on third parties to formulate Grandevo and Zequanox into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus/Amplitude and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, particularly for drying and for all of its production of Venerate, may adversely affect its ability to satisfy demand and meet delivery obligations, as well as to develop and commercialize new products, on a timely and competitive basis. The Company has not entered into any long-term manufacturing or supply agreements for any of its products, and it may need to enter into additional agreements for the commercial development, manufacturing and sale of its products. There can be no assurance that it can do so on favorable terms, if at all.

9

Deferred Revenue

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows (in thousands):

	MARCH 31, 2019			DECEMBER 31, 2018
Product revenues	$	398		$	457
Financing costs		600			604
License revenues		1,708			1,776
		2,706			2,837
Less current portion		(379	)		(438	)
	$	2,327		$	2,399

Revenue Recognition

Product Sales. The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. The Company may enter into contracts in which the standalone selling prices (“SSP”) is different from the amount the Company is entitled to bill the customer. As of March 31, 2019, the Company had deferred product revenue in the amount of $398,000 associated primarily with billings in excess of SSP and will be recognized in future periods in conjunction with the transfer of control of such products to the customers.

Licenses Revenues. The Company recognizes license revenues pursuant to strategic collaboration and distribution agreements under which the Company receives payments for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that the Company provides in connection with strategic collaboration and distribution agreements over the term of the agreements, revenues related to the payments received are deferred and recognized over the term of the exclusive distribution period of the respective agreement.

Financing Component Revenues. The Company recognizes a financing component, if material, when the Company receives consideration from the customer, and when the Company expects control of the product or service to be transferred to the customer in a period of greater than one year from the date of receipt of the consideration. As of March 31, 2019 and 2018, the Company recognized $72,000 and $51,000, respectively of financing component revenues within both product and license revenues in the condensed consolidated financial statements.

Revenue recognition requires the Company to make a number of estimates that include variable consideration. For example, customers may receive sales or volume-based pricing incentives or receive incentives for providing the Company with marketing-related information. The Company makes estimates surrounding variable consideration and the net impact to revenues. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives and the likelihood that customers will achieve them. In the event estimates related to variable consideration change, the cumulative effect of these changes is recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material.

From time to time, the Company offers certain product rebates to its distributors and growers, which are estimated and recorded as reductions to product revenues, and an accrued liability is recorded at the later of when the revenues are recorded or the rebate is being offered.

10

Contract Assets. The Company does not have contract assets since revenue is recognized as control of goods are transferred or as services are performed or such contract assets are incurred or expensed within one year of the recognition of the revenue.

Contract Liabilities. The contract liabilities consist of deferred revenue. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue. Generally all contract liabilities, excluding deferred revenue, are expected to be recognized within one year and are included in accounts payable in the Company’s condensed consolidated balance sheet.

Research, Development and Patent Expenses

Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. For the three months ended March 31, 2019 and 2018, research and development expenses totaled $2,627,000 and $2,287,000, respectively, and patent expenses totaled $315,000 and $248,000, respectively.

Shipping and Handling Costs

Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three months ended March 31, 2019 and 2018 were $281,000 and $174,000, respectively.

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the three months ended March 31, 2019 and 2018 were $191,000 and $206,000, respectively.

Segment Information

The Company is organized as a single operating segment, whereby its chief operating decision maker assesses the performance of and allocates resources to the business as a whole.

Net Loss Per Share

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted net loss per share is the same for all periods presented as the effect of certain potential common stock equivalents, which consist of stock options and warrants to purchase common stock and restricted stock units, 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,
	2019		2018
Stock options outstanding		6,965		5,343
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,217		931
Common shares to be issued in lieu of agent fees		498		498
		61,327		59,497

11

Recently Adopted Accounting Pronouncements

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.

The Company adopted ASU 2016-02 in the first quarter of 2019 using the modified-retrospective method. This adoption primarily affected the Company’s condensed consolidated balance sheet based on the recording of Right-of-use assets and Lease liability, current and non-current for its operating leases. The adoption of ASU 2016-02, did not change the Company’s historical classification of these leases or the straight-line recognition of related expenses.

See Note 4 for the effects of the adoption of ASU 2016-02 on the Company’s condensed consolidated financial statements as of January 1, 2019 and for the three months ended March 31, 2019. The adoption of this standard had a material impact on the Company’s condensed consolidated financial statements and is expected to continue to have a material impact for the foreseeable future.

3. Inventories

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

	MARCH 31,		DECEMBER 31,
	2019		2018
Raw materials	$	1,411	$	1,844
Work in progress		1,058		1,580
Finished goods		5,085		4,800
	$	7,554	$	8,224

As of March 31, 2019 and December 31, 2018, the Company had $526,000 and $579,000, respectively, in reserves against its inventories.

4. Right-Of-Use and Lease Liability

On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (ASU 2016-02) using the modified retrospective transition method allowing it to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. Under this transition method, the prior comparative period continues to be reported under the accounting standards in effect for that period.

The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and iii) an entity need not reassess any initial direct costs for any existing leases. The Company made an accounting policy election to adopt the short-term lease exception which allows the Company to not recognize on the balance sheet those leases with terms of 12 months or less resulting in short-term lease payments being recognized in the condensed consolidated statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified as operating and are similarly classified as operating lease under the new standard.

Adoption of the new standard resulted in recognition of both right-of-use assets and lease liabilities of approximately $5,324,000 and $5,510,000 as of January 1, 2019, respectively. As the right-of-use assets and lease liabilities were substantially the same at adoption, the Company did not record a cumulative effect adjustment to the opening balance of retained earnings.

12

The Company’s operating leases have remaining terms ranging from less than one year to six years. The leases are for office space and various office equipment. The Company determines if an arrangement includes a lease at the inception of the agreement and the right-of-use asset and lease liability is determined at the lease commencement date and is based on the present value of estimated lease payments. The Company’s lease agreements contain both fixed and variable lease payments, none of which are based on a rate or an index. Fixed lease payments are included in the determination of the right-of-use asset and lease liability. Variable lease payments that are not based on a rate or index are expensed when incurred. The present value of estimated lease payments is determined utilizing the rate implicit in the lease agreement if that rate can be determined. If the implicit rate cannot be determined, the present value of estimated lease payments is determined utilizing the Company’s incremental borrowing rate. The incremental borrowing rate is determined at the lease commencement date and is estimated utilizing similar or collateralized borrowing instruments adjusted for the terms of leasing arrangement as necessary. Some of the leases include an option to renew that can extend the lease term. For those leases which are reasonably certain to be renewed, the Company included the renewal period in the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 7.04% and 5.5 years, respectively.

The components of lease expense were as follows:

	THREE MONTHS ENDED
	MARCH 31, 2019
	(in thousands)
Operating lease cost	$	297
Short-term lease cost		13
Sublease income		(23	)
	$	287
Other information
Cash paid for amounts included in the measurement of lease liabilities	$	222
Right-of-use assets obtained in exchange for operating lease liabilities	$	199

Maturities of lease liabilities for each future calendar year as of March 31, 2019 are as follows:

	OPERATING
	LEASES
	(in thousands)
2019, remaining 9 months	$	813
2020		1,182
2021		1,205
2022		1,241
2023 and beyond		2,036
Total lease payments		6,477
Less: imputed interest		1,118
Total lease obligation		5,359
Less lease obligation, current portion		752
Lease obligation, non-current portion	$	4,607

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5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	MARCH 31,		DECEMBER 31,
	2019		2018
Accrued compensation	$	2,726	$	2,570
Accrued warranty costs		360		320
Accrued legal costs		315		69
Accrued customer incentives		2,432		2,170
Accrued liabilities, other		1,182		1,742
	$	7,015	$	6,871

The Company warrants the specifications 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, 2019 and 2018, the Company recognized $94,000 and $44,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $54,000 for the three months ended March 31, 2019 as a result of the historical usage of warranty reserves being lower than previously estimated and during the three months ended March 31, 2019 the Company settled no warranty claims. 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, 2018	$	320
Warranties issued (released) during the period		40
Settlements made during the period		-
Balance at March 31, 2019	$	360

6. Debt

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

	MARCH 31,			DECEMBER 31,
	2019			2018
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.	$	3,425		$	3,425
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (7.5% as of March 31, 2019) 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, 2019 and December 31, 2018 of $200 and $205.		8,572			8,639
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.8% annually) payable through the lenders direct collection of certain accounts receivable through June 2019, collateralized by substantially all of the Company’s personal property.		5,276			2,073
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.		7,300			7,300
Debt, including debt due to related parties		24,573			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(5,541	)		(2,318	)
Debt, non-current	$	11,732		$	11,819

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As of March 31, 2019, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties for each calendar year, are due as follows (in thousands):

Period ended March 31, 2019	Debt		Debt to Related Party
2019	$	5,464	$	-
2020		270		-
2021		292		-
2022		2,766		5,000
2023		340		-
Thereafter		7,365		-
Total future principal payments		16,497		5,000
Interest payments included in debt balance (1)		975		2,300
	$	17,472	$	7,300

⁽¹⁾ Due to the debt extinguishment requirement, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt.

The following is a reconciliation of interest expense for the debt outstanding during the three months ended (in thousands).

	MARCH 31, 2019
	Interest
Three Months	Expense		Related Party, Net		Non cash
June 2014 Secured Promissory Note		158		—		5
LSQ Financing		76		—		—
ASC 606 Financing Component		68		—		68
Other		4		—		—
	$	306	$	—	$	73

	MARCH 31, 2018
	Interest
Three Months	Expense		Related Party, Net		Non cash
October 2012 and April 2013 Secured Promissory Notes	$	213	$	—	$	42
June 2014 Secured Promissory Notes		152		—		6
Secured December 2017 Convertible Notes (1)		529		—		322
LSQ Financing		152		—		54
August 2015 Senior Secured Promissory Notes		—		434		114
ASC 606 Financing Component		73		—		73
	$	1,119	$	434	$	611

⁽¹⁾ This agreement was terminated in February 2018

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Secured Promissory Notes

On October 2, 2012, the Company borrowed $7,500,000 pursuant to senior notes (the “October 2012 Secured Promissory Notes”) with a group of lenders. On April 10, 2013 (“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, the “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.

On February 5, 2018, the Company converted, pursuant to an amendment, dated December 15, 2017, to the October 2012 and April 2013 Secured Promissory Notes, $10,000,000 aggregate principal amount of indebtedness outstanding under the October 2012 and April 2013 Secured Promissory Notes to an aggregate of 5,714,285 shares of common stock and warrants to purchase 1,142,856 shares of common stock (such conversion, the “Snyder Debt Conversion”), such that $2,450,000 of principal under the October 2012 and April 2013 Secured Promissory Notes is outstanding as of March 31, 2019. Simultaneously with the Snyder Debt Conversion, the maturity of the October 2012 and April 2013 Secured Promissory Notes was extended to December 31, 2022 (“Maturity Date”), the interest was reduced from 14% to 8% and all interest payments under the October 2012 and April 2013 Secured Promissory Notes were deferred to the Maturity Date.

The October 2012 and April 2013 Secured Promissory Notes contain representations and warranties by the Company and the lender, certain indemnification provisions in favor of the lenders and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in the lender’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The October 2012 and April 2013 Secured Promissory Notes contain several restrictive covenants. The Company is in compliance with all related covenants, or has received an appropriate waiver of these covenants.

In conjunction with the Snyder Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance. The Company recognized a gain of $3,015,000 for the three ended March 31, 2018 on partial extinguishment of the October 2012 and April 2013 Secured Promissory Notes, which included the recognition of the debt discount. Because the Company recognized a gain on the partial extinguishment of debt, the Company was required to include all future interest and additional consideration, which included accrued interest, under the terms of this agreement as a reduction of the gain. As a result, the amount of the debt on the Company’s consolidated balance sheet related to the October 2012 and April 2013 Secured Promissory Notes is $3,425,000, as compared to $2,450,000 of contractual principal outstanding thereunder. Going forward, subject to future amendments to debt agreement or costs, the Company will not recognize future interest expense on the October 2012 and April 2013 Secured Promissory Notes.

The accounting for the change due to the Snyder Debt Conversion is as follows (in thousands):

Principal (pre-conversion)	$	12,450
Discount (pre-conversion)		(134	)
Consideration of common stock and warrants provided at conversion		(6,196	)
Gain on extinguishment		(2,695	)
Principal and future interest at March 31, 2019	$	3,425

16

Additionally, in conjunction with the terms of the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes, the Company agreed to pay a fee of 7% of the funded principal amount to the agent that facilitated the 2018 February Financing Transactions between the Company and the collective lenders. As part of the Snyder Debt Conversion, the Company renegotiated the Agent Fee, which resulted in 498,000 shares of the Company’s common stock being issuable to the agent in lieu of a cash payment for services. These shares are issuable at the Maturity Date of the note. The Company has included this liability in other non-current liabilities. The change in the value of the agent fee and the fair value of the common stock granted in lieu of cash was also included in the gain on partial extinguishment of debt as follows:

Agent fee, included in other liabilities, long term (pre-conversion)	$	827
Gain on extinguishment		(319	)
Agent fee payable in common shares	$	508

June 2014 Secured Promissory Note

In June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory Note”) with Five Star Bank that bears interest at 7.5% as of March 31, 2019. 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 $74,997 and adjusted from time-to-time as the interest rate changes, with the final payment due in June 2036. The Company is required to maintain a deposit balance with the Five Star Bank of $1,560,000, which is recorded as restricted cash included in non-current assets.

Under this note the Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than 4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank. The Company is also required to comply with certain affirmative and negative covenants under the loan agreement discussed above. In the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As of March 31, 2019, the Company was in compliance with each of these covenants except, potentially, a requirement that no material adverse situation shall have occurred, given the Company’s current going concern assessment and the requirement that her be no unapproved compensation increases for the Company’s executives for calendar year 2019. However, the Company has obtained a waiver from the lender for any non-compliance through November 15, 2020.

The following table reflects the activity under this note:

Principal balance, net at December 31, 2018	$	8,639
Principal payments		(225	)
Interest		153
Debt discount amortization		5
Principal balance, net at March 31, 2019	$	8,572

Secured Convertible Promissory Note

On October 12, 2017, the Company and Dwight W. Anderson (“Anderson”) entered into a $1,000,000 convertible promissory note, which was restated in its entirety by a convertible promissory note entered into by the Company and Anderson on October 23, 2017 (the “October 2017 Convertible Note”). The October 2017 Convertible Note was an unsecured promissory note in the aggregate principal amount of up to $6,000,000, was subject to Anderson’s approval and due on October 23, 2020 (the “Anderson Maturity Date”).

On December 15, 2017, the Company entered into the Securities Purchase Agreement with an affiliate of Anderson and certain other accredited investors (collectively, the “Buyers”). In conjunction with the transaction contemplated in the Securities Purchase Agreement, Anderson was entitled to convert any portion of the balance outstanding under the October 2017 Convertible Note and any accrued interest into shares of the Company’s common stock at a rate of one share of common stock per $0.50. Anderson’s ability to affect conversions at the $0.50 rate was subject to, among other things, approval of the Company’s shareholders, which was received on January 31, 2018.

17

On December 22, 2017, the Company and Anderson amended and restated in its entirety the terms of the October 2017 Convertible Note (“Secured December 2017 Convertible Note”). Under the amendment, the Secured December 2017 Convertible Note became a secured promissory note and the maturity date was reverted to the original terms, due on October 12, 2020 (the “Maturity Date”). The interest rate and conversion terms of the Secured December 2017 Convertible Note remain unchanged from the terms of the October 2017 Convertible Note as described above. As of December 31, 2017, the outstanding principal balance under the Secured December Convertible Note was $4,000,000, exclusive of a $510,000 discount. In January 2018, the Company borrowed the remaining available principal under the Secured December 2017 Convertible Note of $2,000,000, exclusive of an additional derivative liability discount of $574,000.

On February 5, 2018, the holder converted the entire outstanding principal of $6,000,000 under the Secured December 2017 Convertible Note into 12,000,000 each common stock and warrants units in accordance with the terms of the Securities Purchase Agreement which provided for conversion of the outstanding balance at a rate of $0.50 per common share. Upon the conversion on February 5, 2018, the outstanding principal balance under the Secured December 2017 Convertible Note was reduced to zero.

The Company accounted for the full conversion of the Secured December 2017 Convertible Note using the accounting guidance related to an induced debt conversion. Under the induced conversion guidance, the Company recognized a loss on conversion in the amount of $11,634,000 associated with the change between the debt’s original terms and the induced conversion terms. This loss related to the induced conversion feature was partially offset by a gain on extinguishment of $6,424,000 related to the fair value of the derivative liability on the date of conversion.

The following table reflects the accounting for the activities under the Secured December 2017 Convertible Note as follows (in thousands):

Principal (pre-conversion)	$	6,000
Discount (pre-conversion)		(791	)
Consideration of common stock and warrants provided at conversion		(16,843	)
Derivative liability extinguished		6,424
Loss on extinguishment		5,210
Balance at March 31, 2018	$	-

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.

Advances by LSQ may be made at an advance rate of up to 80% of the face value of the receivables being sold. Upon the sale of the receivable, the Company will not maintain servicing. LSQ may require the Company to repurchase accounts receivable if (i) the payment is disputed by the account debtor, with the purchaser being under no obligation to determine the bona fides of such dispute, (ii) the account debtor has become insolvent or (iii) upon the effective date of the termination of the LSQ Financing. LSQ will retain its security interest in any accounts repurchased from the Company.

The Company will 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 would be 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 agreement contains representations and warranties by the Company and LSQ, certain indemnification provisions in favor of LSQ and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in LSQ’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The Company is in compliance with all terms of the agreement.

18

In June 2018, the Company amended the LSQ Financing arrangement which effectively (i) decreased the invoice purchase fee from 1.00% to a range of 0.40% to 1.00%, (ii) decreased the funds usage fee from 0.035% to a range of 0.020% to 0.035% and (iii) extended the terms of the agreement to June 30, 2019. As of March 31, 2019, $5,276,000 was outstanding under the LSQ Financing.

7. Warrants

The following table summarizes information about the Company’s common stock warrants outstanding as of March 31, 2019 (in thousands, except exercise price data):

			NUMBER OF
			SHARES
			SUBJECT TO
		EXPIRATION	WARRANTS		EXERCISE
DESCRIPTION	ISSUE DATE	DATE	ISSUED		PRICE
In connection with June 2013 Credit Facility (June 2013 Warrants)	June 2013	June 2023 (1)		27	$	8.40
In connection with August 2015 Senior Secured Promissory Notes (August 2015 Warrants)	August 2015	August 2023		4,000	$	1.91
In connection with October 2012 and April 2013 Secured Promissory Notes (November 2016 Warrants)	November 2016	November 2026		125	$	2.38
In connection with June 2017 Consulting Agreement (November 2017 Warrants)	June 2017	June 2027		80	$	1.10
In connection with February 2018 Financing Transaction (February 2018 Warrants 1)	February 2018	December 2020		43,350	$	1.00
In connection with February 2018 Financing Transaction (February 2018 Warrants 2)	February 2018	December 2020		5,065	$	1.25
				52,647

As of March 31, 2019, no warrants have been exercised. The weighted average remaining contractual life and exercise price for these warrants is 1.98 years and $1.10, respectively.

⁽¹⁾ The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.

8. Share-Based Plans

As of March 31, 2019, there were options to purchase 6,965,000 shares of common stock outstanding, 1,217,000 restricted stock units outstanding and 10,151,000 share-based awards available for grant under the outstanding equity incentive plans.

For the three months ended March 31, 2019 and 2018, the Company recognized share-based compensation of $558,000 and $491,000, respectively.

During the three months ended March 31, 2019 and 2018, the Company granted options to purchase 48,000 and 31,000 shares of common stock, respectively, at a weighted average exercise price of $1.59 and $1.87, respectively. During the three months ended March 31, 2019 and 2018 there were no options exercised.

19

The following table summarizes the activity of stock options from December 31, 2018 to March 31, 2019 (in thousands, except weighted average exercise price):

				WEIGHTED-
				AVERAGE
				EXERCISE
	OPTIONS			PRICE
Balances at December 31, 2018		7,136		$	3.31
Options granted		48		$	1.59
Options exercised		-		$	-
Options cancelled		(219	)	$	1.82
Balances at March 31, 2019		6,965		$	3.34

The following table summarizes the activity of restricted stock units from December 31, 2018 to March 31, 2019 (in thousands, except weighted average grant date fair value):

	RESTRICTED UNITS
	OUTSTANDING
Outstanding at December 31, 2018		1,146
Granted		71
Exercised		—
Forfeited		—
Outstanding at March 31, 2019		1,217

				WEIGHTED
				AVERAGE
				GRANT
	SHARES			DATE FAIR
	OUTSTANDING			VALUE
Non-vested at December 31, 2018		404		$	1.40
Granted		71		$	1.53
Vested		(133	)	$	1.42
Forfeited		-		$	-
Non-vested at March 31, 2019		342		$	1.42

During the three and months ended March 31, 2018, the Company granted 105,000 restricted stock units, respectively, in partial satisfaction of incentive compensation due to certain executives as of December 31, 2017. These grants resulted in the reclassification of $205,000 from accrued liabilities to additional paid in capital as of March 31, 2018. There were no such grants during the three months ended March 31, 2019.

9. Commitments and Contingencies

Operating Leases

In June 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 year thereafter.

In November 2018, the Company elected to exercise the first extension option under the lease, extending the lease term for another 60 months and an amended lease agreement was executed on April 25, 2019. The Company recognizes expense under its operating leases on a straight-line basis over the terms of the leases. As of March 31, 2019 and 2018, the Company incurred $287,000 and $151,000, respectively of rent expense, net. See Note 4 for future maturities of the Company’s operating lease commitments.

20

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 April 3, 2018, the Company was named as a defendant in a complaint filed by Piper Jaffray, Inc. (“Piper”) with the Superior Court of the State of Delaware. The Company was informed of and received Piper’s complaint and related documents on April 5, 2018, following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Piper’s complaint alleges one breach of contract claim, specifically, that the Company breached an engagement letter with Piper by failure to pay a $2,000,000 transaction fee, which Piper alleges is due under the engagement letter as a result of the Company’s consummation of its private placement and debt refinancing transactions in February 2018. Piper’s complaint includes a demand for payment the foregoing transaction fee, in addition to interest and costs and expenses incurred in pursuing the action, including reasonable attorneys’ fees. As of March 31, 2019, a trial date for the matter has been scheduled for July 2020. While the Company believes Piper’s complaint is without merit, this matter is at an early stage, and the outcome of this matter is not presently determinable.

10. 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. In connection with the note, the Company incurred $302,000 in financing-related costs. These costs were recorded as deferred financing costs as a component of current and non-current other assets to amortized to interest expense over the term of the note. In connection with the August 2015 Senior Secured Promissory Notes, the Company issued warrants (“August 2015 Warrants”) to purchase 4,000,000 shares of common stock of the Company. The August 2015 Warrants are immediately exercisable at an exercise price of $1.91 per share and may be exercised at a holder’s option at any time on or before August 20, 2023 (subject to certain exceptions). The fair value of the August 2015 Warrants at the date of issuance of $4,610,000 was recorded as a discount to the August 2015 Senior Secured Promissory Notes as a component of non-current other liabilities and amortized to interest expense to related parties over the term of the arrangement.

21

The August 2015 Senior Secured Promissory Notes provide for various events of default, including, among others, default in payment of principal or interest, breach of any representation or warranty by the Company or any subsidiary under any agreement or document delivered in connection with the notes, a continued breach of any other condition or obligation under any loan document, certain bankruptcy, liquidation, reorganization or change of control events, the acquisition by any person or persons acting as group, other than the lenders, of beneficial ownership of 40% or more of the outstanding voting stock of the Company and certain events in which Pamela G. Marrone, Ph.D. ceases to serve as the Company’s Chief Executive Officer. Upon an event of default, the entire principal and interest may be declared immediately due and payable. As of March 31, 2019, the Company was in compliance with its covenants under the August 2015 Senior Secured Promissory Notes.

On February 5, 2018, the holders of the August 2015 Senior Secured Promissory Notes, pursuant to an amendment, converted $35,000,000 of the then outstanding debt into 20,000,000 shares of common stock and warrants to purchase 4,000,000 shares of common stock (such conversion, the “Waddell Debt Conversion”). After the conversion, $5,000,000 in principal remained outstanding. Simultaneously with the Waddell Debt Conversion, the maturity of the August 2015 Senior Secured Promissory Notes was extended to December 31, 2022, and payment of all future interest was deferred to maturity on December 31, 2022 (See Note 6 for further discussion).

In conjunction with the Waddell Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance, including consideration for the treatment of the transaction as a gain given the terms of the agreement. The Company recognized a gain of $9,183,000, including $2,171,000 related to debt discount and other cost, on partial extinguishment of the August 2015 Senior Secured Promissory Notes as of December 31, 2018. Because the Company recognized a gain on the partial extinguishment of debt, the Company was required to include all future interest and additional consideration, which included accrued interest, under the terms of this agreement as a reduction of the gain. As a result, the amount of the debt on the Company’s balance sheet related to the August 2015 Senior Secured Promissory Notes is $7,300,000, as compared to $5,000,000 of contractual principal amount outstanding thereunder. Going forward, subject to future amendments to debt agreement or costs, the Company will not recognize future interest expense on the August 2015 Senior Secured Promissory Notes.

The accounting for the change due to the August 2015 Senior Secured Promissory Notes is as follows (in thousands):

Principal (pre-conversion)	$	40,000
Accrued interest to be paid at maturity		339
Discount (pre-conversion)		(2,171	)
Consideration of common stock and warrants provided at conversion		(21,685	)
Gain on extinguishment		(9,183	)
Principal and future interest at March 31, 2019	$	7,300

11. Subsequent Events

The Company has evaluated its subsequent events from March 31, 2019 through the date these condensed consolidated financial statements were issued, and has determined that there are no subsequent events required to be disclosed in these condensed consolidated financial statements.

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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, 2018, as filed with the Securities and Exchange Commission (the “Annual Report”) on March 29, 2019. Additional information regarding the Company is also available in our other reports filed with the Securities and Exchange Commission, which are also available on our investor relations website, investors.marronebio.com, which we also use, together with our corporate Twitter account, @Marronebio, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. We encourage our investors to monitor and review the information we make public in these locations. The information contained in the foregoing locations are not incorporated by reference into this filing, and the Company’s references to website URLs are intended to be inactive textual references only.

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. 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 pesticides. We also target new markets for which (i) there are no available conventional chemical pesticides, (ii) the use of conventional chemical pesticides may not be desirable (including for organically certified crops) or permissible either because of health and environmental concerns or (iii) because the development of pest resistance has reduced the efficacy of conventional chemical pesticides. Six of our seven product lines are approved by the United States Environmental Protection Agency (“EPA”) and registered as “biopesticides.” Our first non-EPA product is Haven, a plant health product that is a “biostimulant,” which only requires state 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.

Business Strategy

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.

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Our research and development efforts are focused on supporting existing commercial products, including Regalia, Grandevo, Venerate Majestene/Zelto, Haven and Stargus/Amplitude, with a focus on reducing cost of product revenues, further understanding the modes of action, manufacturing support and improving formulations. In addition, our internal efforts in development and commercialization are focused on two promising product candidates, MBI-601 (Ennoble) biofumigant, which is EPA-registered, and MBI-014 (formerly MBI-010), a bioherbicide, which was submitted to the EPA in August 2018. 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 this prioritization plan, 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.

First Quarter 2019 Highlights

The following are the more significant financial results for the three months ended March 31, 2019:

● Revenues increased approximately 101.6% year over year to $8.7 million from $4.3 million for the same period in 2018

● Gross margins increased year over year to 57.2% from 48.2% for the same period in the prior year

● Loss from operations decreased 33.8% compared to the same period in the prior year

Other significant developments for our business during the three months ended March 31, 2019 include the approval of Venerate CG label for use in California, approval of our product Regalia Maxx for use on hemp in Canada, and the continued expansion of our sales and marketing function.

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, inventory valuation, share-based compensation, fair value of financial instruments and warrants, and our going concern assessment have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting and estimates. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), to provide clarity over the accounting for leases, requiring registrants to record all lease liabilities and a corresponding right-of-use asset for the underlying asset. As documented in Note 4 of the condensed consolidated financial statements, the adoption of this standard had a material impact on these financial statements and is expected to have a material impact on our future financial statements.

Key Components of Our Results of Operations

Revenues

Our total revenues were $8.7 million and $4.3 million for the three months ended March 31, 2019 and 2018, respectively. We generate our revenues primarily from product sales, which are principally attributable to sales of our Regalia, Grandevo and Venerate product lines, but also included sales of Majestene, Haven and Stargus. We believe our revenues may largely be impacted by weather, trade tariffs and other factors that affect commodity prices, 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.

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Product Revenues

Product revenues consist of revenues generated primarily from sales to customers, net of rebates and cash discounts. Product revenues constituted 99% and 98% of our total revenues for each of the three months ended March 31, 2019 and 2018, respectively. Product revenues in the United States constituted 94% and 82% of our total revenues for the three months ended March 31, 2019 and 2018, respectively.

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. 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.

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, 2019 and 2018, license revenues constituted 1% and 2% of total revenues, respectively. As of March 31, 2019, including agreements with related parties discussed below, we had received an aggregate of $4.1 million in payments under our strategic collaboration and distribution agreements. There will be an additional $0.8 million in payments under these agreements that we could potentially receive if the testing validation, regulatory progress and commercialization events occur.

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.

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We have entered into in-license technology agreements with respect to the use and commercialization of two of our commercially available product lines, Grandevo and Haven, 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 in-licensed U.S. patent for Grandevo is expected to expire in 2024 but based on a pending in-licensed patent application could expire later than 2024 if issued. The licensed patents for Haven begin to expire in 2019. 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, Zequanox, and Haven 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. While we expect margins to improve on a product-by-product basis, our overall gross margins may vary as we introduce new products. In particular, we may experience downward pressure on overall gross margins as we rollout Haven and Stargus/Amplitude and expand sales of Grandevo and Zequanox. 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 sales mix, sales incentives such as discounts and rebates and average selling prices.

In July 2012, we acquired a manufacturing facility, which we repurposed for manufacturing operations. We began full-scale manufacturing using this facility in 2014 of our products Regalia, Grandevo and Zequanox. We continue to use third party manufacturers for Venerate, Majestene, Haven, and Stargus/Amplitude, and for spray-dried powder formulations of Grandevo and Zequanox. We expect gross margins to improve using this facility as sales volumes increase enough to reduce under absorbed labor and overhead from our facility.

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. Our research, development and patent expenses have historically comprised a significant portion of our operating expenses, amounting to $2.9 million and $2.5 million for the three months ended March 31, 2019 and 2018, respectively. We have utilized a significant portion of our research and development resources to improve margins on existing products and pipeline products to market. We are also seeking collaborations with third parties to develop and commercialize more early stage candidates, on which we have elected not to expend significant resources given our reduced budget.

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.

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Although we expect selling, general, and administrative expenses to remain approximately flat in all departments with the exception of sales and marketing, we have been actively building a sales and marketing organization that provides better ability to educate and support customers and for our product development staff to undertake responsibility for technical sales support, field trials and demonstrations to promote sales growth. In particular, since the previous year, we have been increasing our marketing communications campaigns and putting more “boots on the ground”, which we believe should increase grower demand, or pull-through, and develop new customers, as well as expand business with existing customers.

Interest Expense

As of March 31, 2019, our expenses decreased significantly based on the February 2018 Financing Transactions, including the recognition of one-time gain on extinguishment of debt of $9.2 million which was offset by a change in fair value of derivative liability of $5.5 million and loss on extinguishment of debt of $2.2 million. See Notes 6 and 13 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” in our Annual Report on Form 10-K.

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, 2019, 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.

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Key Components of Our Results of Operations

Results of Operations

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

	MARCH 31,
	2019			2018
Revenues:
Product		99	%		98	%
License		1	%		2	%
Total revenues		100	%		100	%
Cost of product revenues		43	%		52	%
Gross profit		57	%		48	%
Operating Expenses:
Research, development and patent		34	%		59	%
Selling, general and administrative		65	%		116	%
Total operating expenses		99	%		175	%
Loss from operations		-42	%		-127	%
Other income (expense):
Interest expense		-3	%		-26	%
Interest expense to related parties		0	%		-10	%
Change in estimated fair value of financial instruments		0	%		-120	%
Gain on extinguishment of debt, net (1)		0	%		-51	%
Gain on extinguishment of debt, related party (1)		0	%		212	%
Other income (expense), net		0	%		-1	%
Total other expense, net		-3	%		5	%
Loss before income taxes		-45	%		-122	%
Net loss		-45	%		-122	%

(1) The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K.

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Comparison of Three Months Ended March 31, 2019 and 2018

Product Revenues

	MARCH 31,
	2019			2018
	(Dollars in thousands)
Product revenues	$	8,601		$	4,224
% of total revenues		99	%		98	%

Product revenues during the three months ended March 31, 2019 increased by $4.4 million, or 103.6% to the comparative period in 2018, as a result of higher demand for and sales of our products, lead by sales of Regalia, Venerate, and Grandevo product families. We believe demand for our products have increased as a result of our previous investments in resources in sales and marketing.

License Revenues

	MARCH 31,
	2019			2018
	(Dollars in thousands)
License revenues	$	115		$	100
% of total revenues		1	%		2	%

License revenues remained consistent period over period and in line with our expectations.

Cost of Product Revenues and Gross Profit

	MARCH 31,
	2019			2018
	(Dollars in thousands)
Cost of product revenues	$	3,729		$	2,242
% of total revenues		43	%		52	%
Gross profit		4,987			2,082
% of total revenues		57	%		48	%

For the three months ended March 31, 2019, cost of product revenues increased by $1.5 million or 66%. Cost of product revenues as a percentage and gross profit as a percentage of revenue increased based on volume and overall a more favorable product mix realized during the three months ended March 31, 2019 as compared to the same periods in 2018. For the three months March 31, 2019, gross profit increased from 48.2% to 57.2%, from the same period March 31, 2018.

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Research, Development and Patent Expenses

	MARCH 31,
	2019			2018
	(Dollars in thousands)
Research, development and patent	$	2,942		$	2,535
% of total revenues		34	%		59	%

Research, development and patent expenses for the three-month period ended March 31, 2019 increased by $0.4 million, or 16%, 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

	MARCH 31,
	2019			2018
	(Dollars in thousands)
Selling, general administrative expenses	$	5,674		$	5,030
% of total revenues		65	%		116	%

Selling, general and administrative expenses for the three months ended March 31, 2019 increased by $0.6 million, or 13%. The increase for the three months ended March 31, 2019 compared to the first quarter of 2018 was due primarily to increases in salaries, wages and compensation bonus, consistent with the continued focus on expansion of our sales and marketing team of $0.7 million and increases in legal fees of $0.3 million offset by a decrease in audit and other professional consulting fees of $0.5 million.

Other Expense, Net

	MARCH 31,
	2019			2018
	(Dollars in thousands)
Interest expense	$	(306	)	$	(1,119	)
Interest expense to related parties		-			(434	)
Change in estimated fair value of derivative liability		-			(5,177	)
Loss on extinguishment of debt, net		-			(2,196	)
Gain on extinguishment of debt, related party		-			9,183
Other (expense) income, net		18			(31	)
	$	(288	)	$	226

For the three months ended March 31, 2019, interest expense decreased by $0.8 million as compared to the same period in 2018, respectively, primarily due to fees and discounts associated with the convertible debt that was converted into common stock during the three months ended March 31, 2018 as further discussed in Note 6 to the condensed consolidated financial statements.

During the fourth quarter of 2017 and first quarter of 2018, as further discussed in Note 6 to the condensed consolidated financial statements, we made draws on a convertible note. There was a certain feature of this note that was valued as a derivate. An expense of $5.2 million was recognized related to the change in the underlying fair value of this feature from December 31, 2017 to February 5, 2018, the date the feature and the underlying note were extinguished and converted, respectively. There was no comparable expense recognized during the three months ended March 31, 2019. We recognized a loss on extinguishment of debt during the three months ended March 31, 2018 as a result of the conversion of $10 million of outstanding debt into common stock in partial extinguishment of this debt and extinguishment of $6 million in convertible debt. See Note 6 of the condensed consolidated financial statements for further discussion.

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Seasonality and Quarterly Results

In recent years, we have increasingly had higher sales during the first half of the year than the second half, and expect this trend to continue. However, the level of seasonality in our business may change due to a number of factors including, our expansion into new geographical territories, the introduction of new products, the timing of introductions of new formulations of products and the impact of weather and climate change. 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, new trade tariffs, 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. 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.

Our expense levels are based in part on our expectations regarding future sales. As a result, any shortfall in sales relative to our expectations could cause significant fluctuations in our operating results from quarter to quarter, which could result in uncertainty surrounding our level of earnings and possibly a decrease in our stock price.

Liquidity and Capital Resources

Our historical operating results indicate substantial doubt exists related to our ability to continue as a going concern. We believe that our existing cash and cash equivalents of $13.6 million at March 31, 2019, expected revenues and lower operating costs will be sufficient to fund operations as currently planned through at least one year from the date of the issuance of these financial statements. We believe that the actions discussed above are probable of occurring and mitigate the substantial doubt raised by our historical operating results. However, we cannot predict, with certainty, the outcome of our actions to grow revenues or manage or reduce costs. We have based this belief on assumptions and estimates that may prove to be wrong, and we could spend our available financial resources less or more rapidly than currently expected. We may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote our commercially available products, advance product candidates, expand our international presence and commercialization, general capital expenditures and satisfaction of debt obligations. We may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we 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, file for bankruptcy, reorganize, merge with another entity, or cease operations. We incorporated additional information regarding risks related to our capital and liquidity described in Part II— Item 1A— “Risk Factors.”

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.

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We had the following debt arrangements in place as of March 31, 2019 (dollars in thousands):

				PRINCIPAL
	STATED ANNUAL			BALANCE (INCLUDING
DESCRIPTION	INTEREST RATE			ACCRUED INTEREST)		PAYMENT/MATURITY
Promissory Notes (1)		8.00	%	$	2,689	Due December 31, 2022 (5)
Promissory Note (2)		7.50	%	$	8,810	Monthly/June 2036
Promissory Notes (3)		8.00	%	$	5,798	Due December 31, 2022(5)
Secured Borrowing (4)		12.78	%	$	5,293	Varies(6)/June 2019

(1) See Note 6 of the condensed consolidated financial statements.

(2) See Note 10 of the condensed consolidated financial statements.

(3) In February 2018, the maturity date and all interest payments were extended to December 2022.

(4) Payable through the lender’s direct collection of certain accounts receivable through June 2019.

In February 2018, we issued, pursuant to the Securities Purchase Agreement entered into on December 15, 2017, 70,514,000 unregistered shares of our common stock and we also converted $51.0 million in outstanding debt principal (including $6.0 million outstanding under the Secured December 2017 Convertible Note and $45.0 million outstanding under long-term senior secured debt instruments) into a portion of the previously mentioned common shares (the “February Stock and Debt Conversion Transaction”). The gross proceeds to us from the offering were approximately $24.0 million, and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the aggregate net proceeds to the Company totaled $21.8 million. Of the $7.5 million in principal that remained as of March 31, 2019 under these partially converted notes, the maturity dates and future interest payments were extended until the amended maturity date of December 31, 2022. On an annualized basis through 2022, these amendments are expected to save us approximately $4.9 million in cash interest payments. See Notes 6 and 10 of the condensed consolidated financial statements for further discussion of the Company’s debt arrangements.

We may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations. We may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. If we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we 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, file for bankruptcy, reorganize, merge with another entity, or cease operations.

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

	THREE MONTHS ENDED MARCH 31,
	2019			2018
	(in Thousands)
Net cash used in operating activities	$	(7,650	)	$	(9,746	)
Net cash used in investing activities	$	(116	)	$	(362	)
Net cash provided in financing activities	$	3,131		$	24,079
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(4,635	)	$	13,971

Cash Flows from Operating Activities

Net cash used in operating activities of $7.7 million during the three months ended March 31, 2019 primarily resulted from our net loss of $3.9 million and cash used by operating assets and liabilities of $5.0 million. These uses were partially offset by non-cash charges of $1.3 million consisting of $0.5 million of depreciation and amortization, $0.6 million of share-based compensation expense, $0.2 million of amortization of right-of-use assets and $0.1 million of non-cash interest expense.

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Net cash used in operating activities of $9.7 million during the three months ended March 31, 2018 primarily resulted from our net loss of $5.3 million and net non-cash gains on the extinguishment of debt of $9.2 million, and cash used by operating assets and liabilities of $4.3. These uses were partially offset by non-cash of $9 million.

Cash Flows from Investing Activities

Net cash used in investing activities were $0.1 million during the three months ended March 31, 2019 resulting from purchases of property, plant and equipment to support our operations.

Net cash used in investing activities were $0.4 million during the three months ended March 31, 2018 resulting from purchases of property, plant and equipment to support our operations.

Cash Flows from Financing Activities

Net cash provided in financing activities of $3.1 million during the three months ended March 31, 2019 consisted of net reductions and repayment of debt.

Net cash provided in financing activities of $24.1 million during the three months ended March 31, 2018 consisted primarily of $21.8 million in net proceeds from the issuance of common stock, $5.5 million in proceeds from the issuance of debt, and offset by reductions and repayment of debt of $3.3 million.

Contractual Obligations

The following is a summary of our contractual obligations as of March 31, 2019 (in thousands):

	TOTAL		2019		2020 - 2021		2022-2023		2024 AND BEYOND
	(In thousands)
Operating lease obligations	$	6,477	$	813	$	2,387	$	2,519	$	758
Debt		21,497		5,464		562		8,106		7,365
Interest payments		10,174		498		1,268		4,330		4,078
Total	$	38,148	$	6,775	$	4,217	$	14,955	$	12,201

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 June 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 commenced 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 thereafter. In November 2018, the Company elected to exercise the first extension option under the lease, extending the lease term for another 60 months. An amended lease agreement was executed on April 25, 2019.

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.

33

Inflation

We believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2019 and 2018.

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 nine 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 $13.6 million as of March 31, 2019, 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. Recent tariffs have contributed to depressed prices of some commodities.

34

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, 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, our CEO and CFO each concluded that our disclosure controls and procedures were effective as of March 31, 2019.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. Our management assessed, with the oversight of the board of directors, the effectiveness of our internal control over financial reporting as of March 31, 2019. In making this assessment, management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2019.

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 10 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

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, 2018. 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 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 in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2018, 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.

35

ITEM 6. EXHIBITS

The following documents are filed, or furnished, as applicable, as part of this report on Form 10-Q:

INDEX TO EXHIBITS

EXHIBIT NUMBER	EXHIBIT DESCRIPTION
3.1	Fourth Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on March 18, 2019)
3.2	Fifth Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on April 26, 2019)
31.1	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, 2019 and December 31, 2018, (ii) Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2019 and 2018, (iii) Condensed Consolidated Statements of Stockholders Equity for the Three Months ended March 31, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018 and (v) Notes to Condensed Consolidated Financial Statements

36

SIGNATURES

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 10, 2019.

MARRONE BIO INNOVATIONS, INC.

/s/ Pamela G. Marrone

Pamela G. Marrone

Chief Executive Officer

37

EX-31.1

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 10, 2019

/s/ Pamela G. Marrone

Pamela G. Marrone

Chief Executive Officer

EX-31.2

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.;

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 10, 2019

/s/ James B. Boyd

James B. Boyd

President and Chief Financial Officer

EX-32.1

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, 2019 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 10, 2019

By:	/s/ Pamela G. Marrone
Name:	Pamela G. Marrone
Title:	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, 2019 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 10, 2019

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

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.

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 03, 2019
Document And Entity Information
Entity Registrant Name	MARRONE BIO INNOVATIONS INC
Entity Central Index Key	0001441693
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		110,724,611
Trading Symbol	MBII
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2019

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands		Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents		$ 13,586	$ 18,221
Accounts receivable		8,759	2,720
Inventories, net		7,554	8,224
Prepaid expenses and other current assets		1,310	971
Total current assets		31,209	30,136
Property, plant and equipment, net		14,132	14,512
Right of use assets, net		5,126
Restricted cash		1,560	1,560
Other assets		356	359
Total assets		52,383	46,567
Current liabilities:
Accounts payable		2,377	1,692
Accrued liabilities		7,015	6,871
Deferred revenue, current portion		379	438
Lease liability, current portion		752
Debt, current portion, net		5,541	2,318
Total current liabilities		16,064	11,319
Deferred revenue, less current portion		2,327	2,399
Lease liability, less current portion		4,607
Debt, less current portion, net		11,732	11,819
Debt due to related parties		7,300	7,300
Other liabilities		776	794
Total liabilities		42,806	33,631
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at March 31, 2019 and December 31, 2018
Common stock: $0.00001 par value; 250,000 shares authorized, 110,691 shares issued and outstanding as of March 31, 2019 and December 31, 2018		1	1
Additional paid in capital		296,967	296,409
Accumulated deficit	[1]	(287,391)	(283,474)
Total stockholders' equity		9,577	12,936
Total liabilities and stockholders' equity		$ 52,383	$ 46,567

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.00001	$ 0.00001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.00001	$ 0.00001
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	110,691,000	110,691,000
Common stock, shares outstanding	110,691,000	110,691,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Revenues:
Total revenues		$ 8,716	$ 4,324
Cost of product revenues		3,729	2,242
Gross profit		4,987	2,082
Operating Expenses:
Research, development and patent		2,942	2,535
Selling, general and administrative		5,674	5,030
Total operating expenses		8,616	7,565
Loss from operations		(3,629)	(5,483)
Other income (expense):
Interest expense		(306)	(1,119)
Interest expense, related parties			(434)
Change in fair value of financial instruments			(5,177)
Loss on extinguishment of debt, net	[1]		(2,196)
Gain on extinguishment of debt, related party	[1]		9,183
Other income (expense), net		18	(31)
Total other income (expense), net		(288)	226
Net loss	[1]	$ (3,917)	$ (5,257)
Basic and diluted net loss per common share:		$ (0.04)	$ (0.07)
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:		110,691	74,591
Product [Member]
Revenues:
Total revenues		$ 8,601	$ 4,224
License [Member]
Revenues:
Total revenues		$ 115	$ 100

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

XML

Condensed Consolidated Statements of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands		Common Stock [Memeber]	Additional Paid In Capital [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2017			$ 214,921	$ (265,572)	$ (50,651)
Balance, shares at Dec. 31, 2017		31,351
ASC 606 Adjustment				2,311	2,311
Net loss	[1]			(5,257)	(5,257)
Settlement of restricted stock units
Settlement of restricted stock units, shares		228
Issuance of RSUs for 2017 bonuses			205		205
Share-based compensation			491		491
Conversion of related party notes for common stock and warrants			21,685		21,685
Conversion of related party notes for common stock and warrants, shares		20,000
Conversion of secured promissory notes for common stock and warrants			6,196		6,196
Conversion of secured promissory notes for common stock and warrants, shares		5,714
Conversion of convertible notes for common stock and warrants			16,843		16,843
Conversion of convertible notes for common stock and warrants, shares		12,000
Fair value of common stock and warrants issued to placement agent in connection with private placement and note conversion			1,610		1,610
Fair value of common stock and warrants issued to placement agent in connection with private placement and note conversion, shares		800
Issuance of common stock and warrants in private placement, net of offering costs and underwriter commissions		$ 1	20,310		20,311
Issuance of common stock and warrants in private placement, net of offering costs and underwriter commissions, shares		32,000
Balance at Mar. 31, 2018		$ 1	282,261	(268,518)	13,744
Balance, shares at Mar. 31, 2018		102,093
Balance at Dec. 31, 2018		$ 1	296,409	(283,474)	12,936
Balance, shares at Dec. 31, 2018		110,691
Net loss				(3,917)	(3,917)	[1]
Share-based compensation			558		558
Balance at Mar. 31, 2019		$ 1	$ 296,967	$ (287,391)	$ 9,577
Balance, shares at Mar. 31, 2019		110,691

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

XML

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
		Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Cash flows from operating activities
Net loss	[1]	$ (3,917)	$ (5,257)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		455	478
Right of use assets amortization		199
Share-based compensation		558	491
Non-cash interest expense		73	611
Change in fair value of financial instruments			5,177
Loss on extinguishment of debt, net	[1]		2,196
Gain on extinguishment of debt, related party, net	[1]		(9,183)
Net changes in operating assets and liabilities:
Accounts receivable		(6,039)	(567)
Inventories		670	(220)
Prepaid Expenses and other assets		(336)	146
Deferred cost of product revenues			2
Accounts payable		726	(1,085)
Accrued and other liabilities		310	(793)
Accrued interest due to related parties			(1,614)
Lease Liability		(150)
Deferred revenue		(199)	(128)
Net cash used in operating activities		(7,650)	(9,746)
Cash flows from investing activities
Purchases of property, plant and equipment		(116)	(362)
Net cash used in investing activities		(116)	(362)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs			21,820
Proceeds from issuance of debt			2,000
Proceeds from secured borrowings		6,714	3,520
Reductions in secured borrowings		(3,511)	(3,194)
Repayment of debt		(72)	(67)
Net cash provided by financing activities		3,131	24,079
Net increase (decrease) in cash and cash equivalents and restricted cash		(4,635)	13,971
Cash and cash equivalents and restricted cash, beginning of period		19,781	2,833	$ 2,833
Cash and cash equivalents and restricted cash, end of period		15,146	16,804	$ 19,781
Supplemental disclosure of cash flow information
Cash paid for interest		223	2,145
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities		10	200
Embedded derivative liability associated with bridge loan			573
Conversion of debt to equity			10,000
Conversion of bridge loan (convertible note) to equity			6,000
Conversion of debt, related party to equity			35,000
Conversion of accrued liabilities into equity associated with the granting of restricted stock units			$ 205

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

XML

Summary of Business, Basis of Presentation

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Summary of Business, Basis of Presentation

1. Summary of Business, Basis of Presentation

Marrone Bio Innovations, Inc. (the “Company”), formerly Marrone Organic Innovations, Inc., was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. The condensed 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.

Going Concern, Liquidity, and Management Plans

The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue to operate as a going concern, for the 12 months upon the issuance of these condensed consolidated financial statements, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed 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 any inability of the Company to continue as a going concern.

The Company is an early stage company with a limited operating history and has a limited number of commercialized products. As of March 31, 2019, the Company had an accumulated deficit of $287,391,000, has incurred significant losses since inception and expects to continue to incur losses for the foreseeable future. The Company had funded operations primarily with net proceeds from public sales and private placements of equity and debt securities and from 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, 2019, the Company had working capital of $15,145,000, including cash and cash equivalents of $13,586,000. In addition, as of March 31, 2019, the Company had debt and debt due to related parties of $17,273,000 and $7,300,000, respectively, for which the underlying debt agreements contain various financial and non-financial covenants, as well as certain material adverse change clauses. As of March 31, 2019, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements (see Note 6).

The Company’s operating results, including historical prior periods of negative working capital, indicate that substantial doubt exists related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these condensed consolidated financial statements. However, the Company believes that its existing cash and cash equivalents of $10,899,000 at May 9, 2019 together with expected revenues, expected future debt or equity financings and cost management as well as cost reductions will be sufficient to fund operations as currently planned through one year from the date of the issuance of these condensed consolidated financial statements. The Company anticipates securing additional sources of through equity and/or debt financings, collaborative or other funding arrangements with partners, or through other sources of financing, consistent with historic results. The Company cannot predict, with certainty, the outcome of its actions to grow revenue, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. 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 may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations.

The actions discussed above cannot be considered probable of occurring and mitigating the substantial doubt raised by its operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these consolidated financial statements. If the Company becomes unable to continue as a going concern, it may have to liquidate its assets, and stockholders may lose all or part of their investment in the Company’s common stock.

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Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Significant Accounting Policies

2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial information as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2018.

In the opinion of management, the condensed consolidated financial statements as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company used significant estimates in accounting for assumptions and estimates associated with revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize for those transactions with variable considerations, reserves for inventory obsolescence, share-based compensation, right-of-use, fair value of financial instruments, warrants and in its going concern analysis.

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. 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.

The Company’s principal sources of revenues are its Regalia, Grandevo and Venerate product lines. These three product lines accounted for 97% and 91% of the Company’s total revenues for the three months ended March 31, 2019 and 2018, respectively.

Revenues generated from international customers were 7% and 18% for the three months ended March 31, 2019 and 2018, 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
Three months ended March 31,
2019		36	%		16	%		12	%
2018		14	%		23	%		6	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2019 or December 31, 2018, which may or may not correspond with the customers above, consist of the following:

	CUSTOMER			CUSTOMER			CUSTOMER			CUSTOMER
	A			B			C			D
March 31, 2019		35	%		21	%		11	%		4	%
December 31, 2018		52	%		8	%		3	%		24	%

Concentrations of Supplier Dependence

The active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 months of knotweed extract on hand 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.

The Company continues to rely on third parties to formulate Grandevo and Zequanox into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus/Amplitude and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, particularly for drying and for all of its production of Venerate, may adversely affect its ability to satisfy demand and meet delivery obligations, as well as to develop and commercialize new products, on a timely and competitive basis. The Company has not entered into any long-term manufacturing or supply agreements for any of its products, and it may need to enter into additional agreements for the commercial development, manufacturing and sale of its products. There can be no assurance that it can do so on favorable terms, if at all.

Deferred Revenue

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows (in thousands):

	MARCH 31, 2019			DECEMBER 31, 2018
Product revenues	$	398		$	457
Financing costs		600			604
License revenues		1,708			1,776
		2,706			2,837
Less current portion		(379	)		(438	)
	$	2,327		$	2,399

Revenue Recognition

Product Sales. The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. The Company may enter into contracts in which the standalone selling prices (“SSP”) is different from the amount the Company is entitled to bill the customer. As of March 31, 2019, the Company had deferred product revenue in the amount of $398,000 associated primarily with billings in excess of SSP and will be recognized in future periods in conjunction with the transfer of control of such products to the customers.

Licenses Revenues. The Company recognizes license revenues pursuant to strategic collaboration and distribution agreements under which the Company receives payments for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that the Company provides in connection with strategic collaboration and distribution agreements over the term of the agreements, revenues related to the payments received are deferred and recognized over the term of the exclusive distribution period of the respective agreement.

Financing Component Revenues. The Company recognizes a financing component, if material, when the Company receives consideration from the customer, and when the Company expects control of the product or service to be transferred to the customer in a period of greater than one year from the date of receipt of the consideration. As of March 31, 2019 and 2018, the Company recognized $72,000 and $51,000, respectively of financing component revenues within both product and license revenues in the condensed consolidated financial statements.

Revenue recognition requires the Company to make a number of estimates that include variable consideration. For example, customers may receive sales or volume-based pricing incentives or receive incentives for providing the Company with marketing-related information. The Company makes estimates surrounding variable consideration and the net impact to revenues. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives and the likelihood that customers will achieve them. In the event estimates related to variable consideration change, the cumulative effect of these changes is recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material.

From time to time, the Company offers certain product rebates to its distributors and growers, which are estimated and recorded as reductions to product revenues, and an accrued liability is recorded at the later of when the revenues are recorded or the rebate is being offered.

Contract Assets. The Company does not have contract assets since revenue is recognized as control of goods are transferred or as services are performed or such contract assets are incurred or expensed within one year of the recognition of the revenue.

Contract Liabilities. The contract liabilities consist of deferred revenue. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue. Generally all contract liabilities, excluding deferred revenue, are expected to be recognized within one year and are included in accounts payable in the Company’s condensed consolidated balance sheet.

Research, Development and Patent Expenses

Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. For the three months ended March 31, 2019 and 2018, research and development expenses totaled $2,627,000 and $2,287,000, respectively, and patent expenses totaled $315,000 and $248,000, respectively.

Shipping and Handling Costs

Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three months ended March 31, 2019 and 2018 were $281,000 and $174,000, respectively.

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the three months ended March 31, 2019 and 2018 were $191,000 and $206,000, respectively.

Segment Information

The Company is organized as a single operating segment, whereby its chief operating decision maker assesses the performance of and allocates resources to the business as a whole.

Net Loss Per Share

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted net loss per share is the same for all periods presented as the effect of certain potential common stock equivalents, which consist of stock options and warrants to purchase common stock and restricted stock units, 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,
	2019		2018
Stock options outstanding		6,965		5,343
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,217		931
Common shares to be issued in lieu of agent fees		498		498
		61,327		59,497

Recently Adopted Accounting Pronouncements

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.

The Company adopted ASU 2016-02 in the first quarter of 2019 using the modified-retrospective method. This adoption primarily affected the Company’s condensed consolidated balance sheet based on the recording of Right-of-use assets and Lease liability, current and non-current for its operating leases. The adoption of ASU 2016-02, did not change the Company’s historical classification of these leases or the straight-line recognition of related expenses.

See Note 4 for the effects of the adoption of ASU 2016-02 on the Company’s condensed consolidated financial statements as of January 1, 2019 and for the three months ended March 31, 2019. The adoption of this standard had a material impact on the Company’s condensed consolidated financial statements and is expected to continue to have a material impact for the foreseeable future.

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Inventories

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventories

3. Inventories

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

	MARCH 31,		DECEMBER 31,
	2019		2018
Raw materials	$	1,411	$	1,844
Work in progress		1,058		1,580
Finished goods		5,085		4,800
	$	7,554	$	8,224

As of March 31, 2019 and December 31, 2018, the Company had $526,000 and $579,000, respectively, in reserves against its inventories.

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Right-of-Use and Lease Liability

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Right-of-Use and Lease Liability

4. Right-Of-Use and Lease Liability

On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (ASU 2016-02) using the modified retrospective transition method allowing it to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. Under this transition method, the prior comparative period continues to be reported under the accounting standards in effect for that period.

The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and iii) an entity need not reassess any initial direct costs for any existing leases. The Company made an accounting policy election to adopt the short-term lease exception which allows the Company to not recognize on the balance sheet those leases with terms of 12 months or less resulting in short-term lease payments being recognized in the condensed consolidated statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified as operating and are similarly classified as operating lease under the new standard.

Adoption of the new standard resulted in recognition of both right-of-use assets and lease liabilities of approximately $5,324,000 and $5,510,000 as of January 1, 2019, respectively. As the right-of-use assets and lease liabilities were substantially the same at adoption, the Company did not record a cumulative effect adjustment to the opening balance of retained earnings.

The Company’s operating leases have remaining terms ranging from less than one year to six years. The leases are for office space and various office equipment. The Company determines if an arrangement includes a lease at the inception of the agreement and the right-of-use asset and lease liability is determined at the lease commencement date and is based on the present value of estimated lease payments. The Company’s lease agreements contain both fixed and variable lease payments, none of which are based on a rate or an index. Fixed lease payments are included in the determination of the right-of-use asset and lease liability. Variable lease payments that are not based on a rate or index are expensed when incurred. The present value of estimated lease payments is determined utilizing the rate implicit in the lease agreement if that rate can be determined. If the implicit rate cannot be determined, the present value of estimated lease payments is determined utilizing the Company’s incremental borrowing rate. The incremental borrowing rate is determined at the lease commencement date and is estimated utilizing similar or collateralized borrowing instruments adjusted for the terms of leasing arrangement as necessary. Some of the leases include an option to renew that can extend the lease term. For those leases which are reasonably certain to be renewed, the Company included the renewal period in the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of March 31, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 7.04% and 5.5 years, respectively.

The components of lease expense were as follows:

	THREE MONTHS ENDED
	MARCH 31, 2019
	(in thousands)
Operating lease cost	$	297
Short-term lease cost		13
Sublease income		(23	)
	$	287
Other information
Cash paid for amounts included in the measurement of lease liabilities	$	222
Right-of-use assets obtained in exchange for operating lease liabilities	$	199

Maturities of lease liabilities for each future calendar year as of March 31, 2019 are as follows:

	OPERATING
	LEASES
	(in thousands)
2019, remaining 9 months	$	813
2020		1,182
2021		1,205
2022		1,241
2023 and beyond		2,036
Total lease payments		6,477
Less: imputed interest		1,118
Total lease obligation		5,359
Less lease obligation, current portion		752
Lease obligation, non-current portion	$	4,607

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Accrued Liabilities

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Accrued Liabilities

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	MARCH 31,		DECEMBER 31,
	2019		2018
Accrued compensation	$	2,726	$	2,570
Accrued warranty costs		360		320
Accrued legal costs		315		69
Accrued customer incentives		2,432		2,170
Accrued liabilities, other		1,182		1,742
	$	7,015	$	6,871

The Company warrants the specifications 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, 2019 and 2018, the Company recognized $94,000 and $44,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $54,000 for the three months ended March 31, 2019 as a result of the historical usage of warranty reserves being lower than previously estimated and during the three months ended March 31, 2019 the Company settled no warranty claims. 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, 2018	$	320
Warranties issued (released) during the period		40
Settlements made during the period		-
Balance at March 31, 2019	$	360

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Debt

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Debt

6. Debt

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

	MARCH 31,			DECEMBER 31,
	2019			2018
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.	$	3,425		$	3,425
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (7.5% as of March 31, 2019) 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, 2019 and December 31, 2018 of $200 and $205.		8,572			8,639
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.8% annually) payable through the lenders direct collection of certain accounts receivable through June 2019, collateralized by substantially all of the Company’s personal property.		5,276			2,073
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.		7,300			7,300
Debt, including debt due to related parties		24,573			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(5,541	)		(2,318	)
Debt, non-current	$	11,732		$	11,819

As of March 31, 2019, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties for each calendar year, are due as follows (in thousands):

Period ended March 31, 2019	Debt		Debt to Related Party
2019	$	5,464	$	-
2020		270		-
2021		292		-
2022		2,766		5,000
2023		340		-
Thereafter		7,365		-
Total future principal payments		16,497		5,000
Interest payments included in debt balance (1)		975		2,300
	$	17,472	$	7,300

⁽¹⁾ Due to the debt extinguishment requirement, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt.

The following is a reconciliation of interest expense for the debt outstanding during the three months ended (in thousands).

	MARCH 31, 2019
	Interest
Three Months	Expense		Related Party, Net		Non cash
June 2014 Secured Promissory Note		158		—		5
LSQ Financing		76		—		—
ASC 606 Financing Component		68		—		68
Other		4		—		—
	$	306	$	—	$	73

	MARCH 31, 2018
	Interest
Three Months	Expense		Related Party, Net		Non cash
October 2012 and April 2013 Secured Promissory Notes	$	213	$	—	$	42
June 2014 Secured Promissory Notes		152		—		6
Secured December 2017 Convertible Notes (1)		529		—		322
LSQ Financing		152		—		54
August 2015 Senior Secured Promissory Notes		—		434		114
ASC 606 Financing Component		73		—		73
	$	1,119	$	434	$	611

⁽¹⁾ This agreement was terminated in February 2018

Secured Promissory Notes

On October 2, 2012, the Company borrowed $7,500,000 pursuant to senior notes (the “October 2012 Secured Promissory Notes”) with a group of lenders. On April 10, 2013 (“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, the “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.

On February 5, 2018, the Company converted, pursuant to an amendment, dated December 15, 2017, to the October 2012 and April 2013 Secured Promissory Notes, $10,000,000 aggregate principal amount of indebtedness outstanding under the October 2012 and April 2013 Secured Promissory Notes to an aggregate of 5,714,285 shares of common stock and warrants to purchase 1,142,856 shares of common stock (such conversion, the “Snyder Debt Conversion”), such that $2,450,000 of principal under the October 2012 and April 2013 Secured Promissory Notes is outstanding as of March 31, 2019. Simultaneously with the Snyder Debt Conversion, the maturity of the October 2012 and April 2013 Secured Promissory Notes was extended to December 31, 2022 (“Maturity Date”), the interest was reduced from 14% to 8% and all interest payments under the October 2012 and April 2013 Secured Promissory Notes were deferred to the Maturity Date.

The October 2012 and April 2013 Secured Promissory Notes contain representations and warranties by the Company and the lender, certain indemnification provisions in favor of the lenders and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in the lender’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The October 2012 and April 2013 Secured Promissory Notes contain several restrictive covenants. The Company is in compliance with all related covenants, or has received an appropriate waiver of these covenants.

In conjunction with the Snyder Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance. The Company recognized a gain of $3,015,000 for the three ended March 31, 2018 on partial extinguishment of the October 2012 and April 2013 Secured Promissory Notes, which included the recognition of the debt discount. Because the Company recognized a gain on the partial extinguishment of debt, the Company was required to include all future interest and additional consideration, which included accrued interest, under the terms of this agreement as a reduction of the gain. As a result, the amount of the debt on the Company’s consolidated balance sheet related to the October 2012 and April 2013 Secured Promissory Notes is $3,425,000, as compared to $2,450,000 of contractual principal outstanding thereunder. Going forward, subject to future amendments to debt agreement or costs, the Company will not recognize future interest expense on the October 2012 and April 2013 Secured Promissory Notes.

The accounting for the change due to the Snyder Debt Conversion is as follows (in thousands):

Principal (pre-conversion)	$	12,450
Discount (pre-conversion)		(134	)
Consideration of common stock and warrants provided at conversion		(6,196	)
Gain on extinguishment		(2,695	)
Principal and future interest at March 31, 2019	$	3,425

Additionally, in conjunction with the terms of the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes, the Company agreed to pay a fee of 7% of the funded principal amount to the agent that facilitated the 2018 February Financing Transactions between the Company and the collective lenders. As part of the Snyder Debt Conversion, the Company renegotiated the Agent Fee, which resulted in 498,000 shares of the Company’s common stock being issuable to the agent in lieu of a cash payment for services. These shares are issuable at the Maturity Date of the note. The Company has included this liability in other non-current liabilities. The change in the value of the agent fee and the fair value of the common stock granted in lieu of cash was also included in the gain on partial extinguishment of debt as follows:

Agent fee, included in other liabilities, long term (pre-conversion)	$	827
Gain on extinguishment		(319	)
Agent fee payable in common shares	$	508

June 2014 Secured Promissory Note

In June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory Note”) with Five Star Bank that bears interest at 7.5% as of March 31, 2019. 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 $74,997 and adjusted from time-to-time as the interest rate changes, with the final payment due in June 2036. The Company is required to maintain a deposit balance with the Five Star Bank of $1,560,000, which is recorded as restricted cash included in non-current assets.

Under this note the Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than 4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank. The Company is also required to comply with certain affirmative and negative covenants under the loan agreement discussed above. In the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As of March 31, 2019, the Company was in compliance with each of these covenants except, potentially, a requirement that no material adverse situation shall have occurred, given the Company’s current going concern assessment and the requirement that her be no unapproved compensation increases for the Company’s executives for calendar year 2019. However, the Company has obtained a waiver from the lender for any non-compliance through November 15, 2020.

The following table reflects the activity under this note:

Principal balance, net at December 31, 2018	$	8,639
Principal payments		(225	)
Interest		153
Debt discount amortization		5
Principal balance, net at March 31, 2019	$	8,572

Secured Convertible Promissory Note

On October 12, 2017, the Company and Dwight W. Anderson (“Anderson”) entered into a $1,000,000 convertible promissory note, which was restated in its entirety by a convertible promissory note entered into by the Company and Anderson on October 23, 2017 (the “October 2017 Convertible Note”). The October 2017 Convertible Note was an unsecured promissory note in the aggregate principal amount of up to $6,000,000, was subject to Anderson’s approval and due on October 23, 2020 (the “Anderson Maturity Date”).

On December 15, 2017, the Company entered into the Securities Purchase Agreement with an affiliate of Anderson and certain other accredited investors (collectively, the “Buyers”). In conjunction with the transaction contemplated in the Securities Purchase Agreement, Anderson was entitled to convert any portion of the balance outstanding under the October 2017 Convertible Note and any accrued interest into shares of the Company’s common stock at a rate of one share of common stock per $0.50. Anderson’s ability to affect conversions at the $0.50 rate was subject to, among other things, approval of the Company’s shareholders, which was received on January 31, 2018.

On December 22, 2017, the Company and Anderson amended and restated in its entirety the terms of the October 2017 Convertible Note (“Secured December 2017 Convertible Note”). Under the amendment, the Secured December 2017 ConvertibleNote became a secured promissory note and the maturity date was reverted to the original terms, due on October 12, 2020 (the “Maturity Date”). The interest rate and conversion terms of the Secured December 2017 Convertible Note remain unchanged from the terms of the October 2017 Convertible Note as described above. As of December 31, 2017, the outstanding principal balance under the Secured December Convertible Note was $4,000,000, exclusive of a $510,000 discount. In January 2018, the Company borrowed the remaining available principal under the Secured December 2017 Convertible Note of $2,000,000, exclusive of an additional derivative liability discount of $574,000.

On February 5, 2018, the holder converted the entire outstanding principal of $6,000,000 under the Secured December 2017 Convertible Note into 12,000,000 each common stock and warrants units in accordance with the terms of the Securities Purchase Agreement which provided for conversion of the outstanding balance at a rate of $0.50 per common share. Upon the conversion on February 5, 2018, the outstanding principal balance under the Secured December 2017 Convertible Note was reduced to zero.

The Company accounted for the full conversion of the Secured December 2017 Convertible Note using the accounting guidance related to an induced debt conversion. Under the induced conversion guidance, the Company recognized a loss on conversion in the amount of $11,634,000 associated with the change between the debt’s original terms and the induced conversion terms. This loss related to the induced conversion feature was partially offset by a gain on extinguishment of $6,424,000 related to the fair value of the derivative liability on the date of conversion.

The following table reflects the accounting for the activities under the Secured December 2017 Convertible Note as follows (in thousands):

Principal (pre-conversion)	$	6,000
Discount (pre-conversion)		(791	)
Consideration of common stock and warrants provided at conversion		(16,843	)
Derivative liability extinguished		6,424
Loss on extinguishment		5,210
Balance at March 31, 2018	$	-

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.

Advances by LSQ may be made at an advance rate of up to 80% of the face value of the receivables being sold. Upon the sale of the receivable, the Company will not maintain servicing. LSQ may require the Company to repurchase accounts receivable if (i) the payment is disputed by the account debtor, with the purchaser being under no obligation to determine the bona fides of such dispute, (ii) the account debtor has become insolvent or (iii) upon the effective date of the termination of the LSQ Financing. LSQ will retain its security interest in any accounts repurchased from the Company.

The Company will 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 would be 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 agreement contains representations and warranties by the Company and LSQ, certain indemnification provisions in favor of LSQ and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in LSQ’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The Company is in compliance with all terms of the agreement.

In June 2018, the Company amended the LSQ Financing arrangement which effectively (i) decreased the invoice purchase fee from 1.00% to a range of 0.40% to 1.00%, (ii) decreased the funds usage fee from 0.035% to a range of 0.020% to 0.035% and (iii) extended the terms of the agreement to June 30, 2019. As of March 31, 2019, $5,276,000 was outstanding under the LSQ Financing.

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Warrants

3 Months Ended

Mar. 31, 2019

Warrants and Rights Note Disclosure [Abstract]

Warrants

7. Warrants

The following table summarizes information about the Company’s common stock warrants outstanding as of March 31, 2019 (in thousands, except exercise price data):

			NUMBER OF
			SHARES
			SUBJECT TO
		EXPIRATION	WARRANTS		EXERCISE
DESCRIPTION	ISSUE DATE	DATE	ISSUED		PRICE
In connection with June 2013 Credit Facility (June 2013 Warrants)	June 2013	June 2023 (1)		27	$	8.40
In connection with August 2015 Senior Secured Promissory Notes (August 2015 Warrants)	August 2015	August 2023		4,000	$	1.91
In connection with October 2012 and April 2013 Secured Promissory Notes (November 2016 Warrants)	November 2016	November 2026		125	$	2.38
In connection with June 2017 Consulting Agreement (November 2017 Warrants)	June 2017	June 2027		80	$	1.10
In connection with February 2018 Financing Transaction (February 2018 Warrants 1)	February 2018	December 2020		43,350	$	1.00
In connection with February 2018 Financing Transaction (February 2018 Warrants 2)	February 2018	December 2020		5,065	$	1.25
				52,647

As of March 31, 2019, no warrants have been exercised. The weighted average remaining contractual life and exercise price for these warrants is 1.98 years and $1.10, respectively.

⁽¹⁾ The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.

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Share-Based Plans

3 Months Ended

Mar. 31, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Plans

8. Share-Based Plans

As of March 31, 2019, there were options to purchase 6,965,000 shares of common stock outstanding, 1,217,000 restricted stock units outstanding and 10,151,000 share-based awards available for grant under the outstanding equity incentive plans.

For the three months ended March 31, 2019 and 2018, the Company recognized share-based compensation of $558,000 and $491,000, respectively.

During the three months ended March 31, 2019 and 2018, the Company granted options to purchase 48,000 and 31,000 shares of common stock, respectively, at a weighted average exercise price of $1.59 and $1.87, respectively. During the three months ended March 31, 2019 and 2018 there were no options exercised.

The following table summarizes the activity of stock options from December 31, 2018 to March 31, 2019 (in thousands, except weighted average exercise price):

				WEIGHTED-
				AVERAGE
				EXERCISE
	OPTIONS			PRICE
Balances at December 31, 2018		7,136		$	3.31
Options granted		48		$	1.59
Options exercised		-		$	-
Options cancelled		(219	)	$	1.82
Balances at March 31, 2019		6,965		$	3.34

The following table summarizes the activity of restricted stock units from December 31, 2018 to March 31, 2019 (in thousands, except weighted average grant date fair value):

	RESTRICTED UNITS
	OUTSTANDING
Outstanding at December 31, 2018		1,146
Granted		71
Exercised		—
Forfeited		—
Outstanding at March 31, 2019		1,217

				WEIGHTED
				AVERAGE
				GRANT
	SHARES			DATE FAIR
	OUTSTANDING			VALUE
Non-vested at December 31, 2018		404		$	1.40
Granted		71		$	1.53
Vested		(133	)	$	1.42
Forfeited		-		$	-
Non-vested at March 31, 2019		342		$	1.42

During the three and months ended March 31, 2018, the Company granted 105,000 restricted stock units, respectively, in partial satisfaction of incentive compensation due to certain executives as of December 31, 2017. These grants resulted in the reclassification of $205,000 from accrued liabilities to additional paid in capital as of March 31, 2018. There were no such grants during the three months ended March 31, 2019.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

Operating Leases

In June 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 year thereafter.

In November 2018, the Company elected to exercise the first extension option under the lease, extending the lease term for another 60 months and an amended lease agreement was executed on April 25, 2019. The Company recognizes expense under its operating leases on a straight-line basis over the terms of the leases. As of March 31, 2019 and 2018, the Company incurred $287,000 and $151,000, respectively of rent expense, net. See Note 4 for future maturities of the Company’s operating lease commitments.

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 April 3, 2018, the Company was named as a defendant in a complaint filed by Piper Jaffray, Inc. (“Piper”) with the Superior Court of the State of Delaware. The Company was informed of and received Piper’s complaint and related documents on April 5, 2018, following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Piper’s complaint alleges one breach of contract claim, specifically, that the Company breached an engagement letter with Piper by failure to pay a $2,000,000 transaction fee, which Piper alleges is due under the engagement letter as a result of the Company’s consummation of its private placement and debt refinancing transactions in February 2018. Piper’s complaint includes a demand for payment the foregoing transaction fee, in addition to interest and costs and expenses incurred in pursuing the action, including reasonable attorneys’ fees. As of March 31, 2019, a trial date for the matter has been scheduled for July 2020. While the Company believes Piper’s complaint is without merit, this matter is at an early stage, and the outcome of this matter is not presently determinable.

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Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

10. 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. In connection with the note, the Company incurred $302,000 in financing-related costs. These costs were recorded as deferred financing costs as a component of current and non-current other assets to amortized to interest expense over the term of the note. In connection with the August 2015 Senior Secured Promissory Notes, the Company issued warrants (“August 2015 Warrants”) to purchase 4,000,000 shares of common stock of the Company. The August 2015 Warrants are immediately exercisable at an exercise price of $1.91 per share and may be exercised at a holder’s option at any time on or before August 20, 2023 (subject to certain exceptions). The fair value of the August 2015 Warrants at the date of issuance of $4,610,000 was recorded as a discount to the August 2015 Senior Secured Promissory Notes as a component of non-current other liabilities and amortized to interest expense to related parties over the term of the arrangement.

The August 2015 Senior Secured Promissory Notes provide for various events of default, including, among others, default in payment of principal or interest, breach of any representation or warranty by the Company or any subsidiary under any agreement or document delivered in connection with the notes, a continued breach of any other condition or obligation under any loan document, certain bankruptcy, liquidation, reorganization or change of control events, the acquisition by any person or persons acting as group, other than the lenders, of beneficial ownership of 40% or more of the outstanding voting stock of the Company and certain events in which Pamela G. Marrone, Ph.D. ceases to serve as the Company’s Chief Executive Officer. Upon an event of default, the entire principal and interest may be declared immediately due and payable. As of March 31, 2019, the Company was in compliance with its covenants under the August 2015 Senior Secured Promissory Notes.

On February 5, 2018, the holders of the August 2015 Senior Secured Promissory Notes, pursuant to an amendment, converted $35,000,000 of the then outstanding debt into 20,000,000 shares of common stock and warrants to purchase 4,000,000 shares of common stock (such conversion, the “Waddell Debt Conversion”). After the conversion, $5,000,000 in principal remained outstanding. Simultaneously with the Waddell Debt Conversion, the maturity of the August 2015 Senior Secured Promissory Notes was extended to December 31, 2022, and payment of all future interest was deferred to maturity on December 31, 2022 (See Note 6 for further discussion).

In conjunction with the Waddell Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance, including consideration for the treatment of the transaction as a gain given the terms of the agreement. The Company recognized a gain of $9,183,000, including $2,171,000 related to debt discount and other cost, on partial extinguishment of the August 2015 Senior Secured Promissory Notes as of December 31, 2018. Because the Company recognized a gain on the partial extinguishment of debt, the Company was required to include all future interest and additional consideration, which included accrued interest, under the terms of this agreement as a reduction of the gain. As a result, the amount of the debt on the Company’s balance sheet related to the August 2015 Senior Secured Promissory Notes is $7,300,000, as compared to $5,000,000 of contractual principal amount outstanding thereunder. Going forward, subject to future amendments to debt agreement or costs, the Company will not recognize future interest expense on the August 2015 Senior Secured Promissory Notes.

The accounting for the change due to the August 2015 Senior Secured Promissory Notes is as follows (in thousands):

Principal (pre-conversion)	$	40,000
Accrued interest to be paid at maturity		339
Discount (pre-conversion)		(2,171	)
Consideration of common stock and warrants provided at conversion		(21,685	)
Gain on extinguishment		(9,183	)
Principal and future interest at March 31, 2019	$	7,300

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Subsequent Events

3 Months Ended

Mar. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

11. Subsequent Events

The Company has evaluated its subsequent events from March 31, 2019 through the date these condensed consolidated financial statements were issued, and has determined that there are no subsequent events required to be disclosed in these condensed consolidated financial statements.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial information as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, 2018.

In the opinion of management, the condensed consolidated financial statements as of March 31, 2019, and for the three months ended March 31, 2019 and 2018, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company used significant estimates in accounting for assumptions and estimates associated with revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize for those transactions with variable considerations, reserves for inventory obsolescence, share-based compensation, right-of-use, fair value of financial instruments, warrants and in its going concern analysis.

Restricted Cash

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. See Note 6 for further discussion.

Concentrations of Credit Risk

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.

The Company’s principal sources of revenues are its Regalia, Grandevo and Venerate product lines. These three product lines accounted for 97% and 91% of the Company’s total revenues for the three months ended March 31, 2019 and 2018, respectively.

Revenues generated from international customers were 7% and 18% for the three months ended March 31, 2019 and 2018, 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
Three months ended March 31,
2019		36	%		16	%		12	%
2018		14	%		23	%		6	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2019 or December 31, 2018, which may or may not correspond with the customers above, consist of the following:

	CUSTOMER			CUSTOMER			CUSTOMER			CUSTOMER
	A			B			C			D
March 31, 2019		35	%		21	%		11	%		4	%
December 31, 2018		52	%		8	%		3	%		24	%

Concentrations of Supplier Dependence

Concentrations of Supplier Dependence

The active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 months of knotweed extract on hand 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.

The Company continues to rely on third parties to formulate Grandevo and Zequanox into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus/Amplitude and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, particularly for drying and for all of its production of Venerate, may adversely affect its ability to satisfy demand and meet delivery obligations, as well as to develop and commercialize new products, on a timely and competitive basis. The Company has not entered into any long-term manufacturing or supply agreements for any of its products, and it may need to enter into additional agreements for the commercial development, manufacturing and sale of its products. There can be no assurance that it can do so on favorable terms, if at all.

Deferred Revenue

Deferred Revenue

When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows (in thousands):

	MARCH 31, 2019			DECEMBER 31, 2018
Product revenues	$	398		$	457
Financing costs		600			604
License revenues		1,708			1,776
		2,706			2,837
Less current portion		(379	)		(438	)
	$	2,327		$	2,399

Revenue Recognition

Revenue Recognition

Product Sales. The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. The Company may enter into contracts in which the standalone selling prices (“SSP”) is different from the amount the Company is entitled to bill the customer. As of March 31, 2019, the Company had deferred product revenue in the amount of $398,000 associated primarily with billings in excess of SSP and will be recognized in future periods in conjunction with the transfer of control of such products to the customers.

Licenses Revenues. The Company recognizes license revenues pursuant to strategic collaboration and distribution agreements under which the Company receives payments for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that the Company provides in connection with strategic collaboration and distribution agreements over the term of the agreements, revenues related to the payments received are deferred and recognized over the term of the exclusive distribution period of the respective agreement.

Financing Component Revenues. The Company recognizes a financing component, if material, when the Company receives consideration from the customer, and when the Company expects control of the product or service to be transferred to the customer in a period of greater than one year from the date of receipt of the consideration. As of March 31, 2019 and 2018, the Company recognized $72,000 and $51,000, respectively of financing component revenues within both product and license revenues in the condensed consolidated financial statements.

Revenue recognition requires the Company to make a number of estimates that include variable consideration. For example, customers may receive sales or volume-based pricing incentives or receive incentives for providing the Company with marketing-related information. The Company makes estimates surrounding variable consideration and the net impact to revenues. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives and the likelihood that customers will achieve them. In the event estimates related to variable consideration change, the cumulative effect of these changes is recognized as if the revised estimates had been used since revenue was initially recognized under the contract. Such revisions could occur in any reporting period, and the effects may be material.

From time to time, the Company offers certain product rebates to its distributors and growers, which are estimated and recorded as reductions to product revenues, and an accrued liability is recorded at the later of when the revenues are recorded or the rebate is being offered.

Contract Assets. The Company does not have contract assets since revenue is recognized as control of goods are transferred or as services are performed or such contract assets are incurred or expensed within one year of the recognition of the revenue.

Contract Liabilities. The contract liabilities consist of deferred revenue. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue. Generally all contract liabilities, excluding deferred revenue, are expected to be recognized within one year and are included in accounts payable in the Company’s condensed consolidated balance sheet.

Research, Development and Patent Expenses

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, 2019 and 2018, research and development expenses totaled $2,627,000 and $2,287,000, respectively, and patent expenses totaled $315,000 and $248,000, respectively.

Shipping and Handling Costs

Shipping and Handling Costs

Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three months ended March 31, 2019 and 2018 were $281,000 and $174,000, respectively.

Advertising

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the three months ended March 31, 2019 and 2018 were $191,000 and $206,000, respectively.

Segment Information

Segment Information

The Company is organized as a single operating segment, whereby its chief operating decision maker assesses the performance of and allocates resources to the business as a whole.

Net Loss Per Share

Net Loss Per Share

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted net loss per share is the same for all periods presented as the effect of certain potential common stock equivalents, which consist of stock options and warrants to purchase common stock and restricted stock units, 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,
	2019		2018
Stock options outstanding		6,965		5,343
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,217		931
Common shares to be issued in lieu of agent fees		498		498
		61,327		59,497

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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.

The Company adopted ASU 2016-02 in the first quarter of 2019 using the modified-retrospective method. This adoption primarily affected the Company’s condensed consolidated balance sheet based on the recording of Right-of-use assets and Lease liability, current and non-current for its operating leases. The adoption of ASU 2016-02, did not change the Company’s historical classification of these leases or the straight-line recognition of related expenses.

See Note 4 for the effects of the adoption of ASU 2016-02 on the Company’s condensed consolidated financial statements as of January 1, 2019 and for the three months ended March 31, 2019. The adoption of this standard had a material impact on the Company’s condensed consolidated financial statements and is expected to continue to have a material impact for the foreseeable future.

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Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Schedule of Significant Customer's Revenues and Account Receivable Percentage

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
Three months ended March 31,
2019		36	%		16	%		12	%
2018		14	%		23	%		6	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2019 or December 31, 2018, which may or may not correspond with the customers above, consist of the following:

	CUSTOMER			CUSTOMER			CUSTOMER			CUSTOMER
	A			B			C			D
March 31, 2019		35	%		21	%		11	%		4	%
December 31, 2018		52	%		8	%		3	%		24	%

Schedule of Deferred Revenue

The Company’s deferred revenue is broken out as follows (in thousands):

	MARCH 31, 2019			DECEMBER 31, 2018
Product revenues	$	398		$	457
Financing costs		600			604
License revenues		1,708			1,776
		2,706			2,837
Less current portion		(379	)		(438	)
	$	2,327		$	2,399

Schedule of Antidilutive Securities Excluded from Computation of Earnings 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,
	2019		2018
Stock options outstanding		6,965		5,343
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,217		931
Common shares to be issued in lieu of agent fees		498		498
		61,327		59,497

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Inventories (Tables)

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Schedule of Inventories, Net

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

	MARCH 31,		DECEMBER 31,
	2019		2018
Raw materials	$	1,411	$	1,844
Work in progress		1,058		1,580
Finished goods		5,085		4,800
	$	7,554	$	8,224

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Right-of-Use and Lease Liability (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Schedule of Components of Lease Expense

The components of lease expense were as follows:

	THREE MONTHS ENDED
	MARCH 31, 2019
	(in thousands)
Operating lease cost	$	297
Short-term lease cost		13
Sublease income		(23	)
	$	287
Other information
Cash paid for amounts included in the measurement of lease liabilities	$	222
Right-of-use assets obtained in exchange for operating lease liabilities	$	199

Schedule of Maturities of Lease Liabilities

Maturities of lease liabilities for each future calendar year as of March 31, 2019 are as follows:

	OPERATING
	LEASES
	(in thousands)
2019, remaining 9 months	$	813
2020		1,182
2021		1,205
2022		1,241
2023 and beyond		2,036
Total lease payments		6,477
Less: imputed interest		1,118
Total lease obligation		5,359
Less lease obligation, current portion		752
Lease obligation, non-current portion	$	4,607

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Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	MARCH 31,		DECEMBER 31,
	2019		2018
Accrued compensation	$	2,726	$	2,570
Accrued warranty costs		360		320
Accrued legal costs		315		69
Accrued customer incentives		2,432		2,170
Accrued liabilities, other		1,182		1,742
	$	7,015	$	6,871

Schedule of Changes in Accrued Warranty Costs

Changes in the Company’s accrued warranty costs during the period are as follows (in thousands):

Balance at December 31, 2018	$	320
Warranties issued (released) during the period		40
Settlements made during the period		-
Balance at March 31, 2019	$	360

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Debt (Tables)

3 Months Ended

Mar. 31, 2019

Schedule of Debt Including Debt to Related Parties

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

	MARCH 31,			DECEMBER 31,
	2019			2018
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.	$	3,425		$	3,425
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (7.5% as of March 31, 2019) 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, 2019 and December 31, 2018 of $200 and $205.		8,572			8,639
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.8% annually) payable through the lenders direct collection of certain accounts receivable through June 2019, collateralized by substantially all of the Company’s personal property.		5,276			2,073
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.		7,300			7,300
Debt, including debt due to related parties		24,573			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(5,541	)		(2,318	)
Debt, non-current	$	11,732		$	11,819

Schedule of Contractual Future Principal Payments

As of March 31, 2019, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties for each calendar year, are due as follows (in thousands):

Period ended March 31, 2019	Debt		Debt to Related Party
2019	$	5,464	$	-
2020		270		-
2021		292		-
2022		2,766		5,000
2023		340		-
Thereafter		7,365		-
Total future principal payments		16,497		5,000
Interest payments included in debt balance (1)		975		2,300
	$	17,472	$	7,300

⁽¹⁾ Due to the debt extinguishment requirement, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt.

Reconciliation of Interest Expense for Debt Outstanding

The following is a reconciliation of interest expense for the debt outstanding during the three months ended (in thousands).

	MARCH 31, 2019
	Interest
Three Months	Expense		Related Party, Net		Non cash
June 2014 Secured Promissory Note		158		—		5
LSQ Financing		76		—		—
ASC 606 Financing Component		68		—		68
Other		4		—		—
	$	306	$	—	$	73

	MARCH 31, 2018
	Interest
Three Months	Expense		Related Party, Net		Non cash
October 2012 and April 2013 Secured Promissory Notes	$	213	$	—	$	42
June 2014 Secured Promissory Notes		152		—		6
Secured December 2017 Convertible Notes (1)		529		—		322
LSQ Financing		152		—		54
August 2015 Senior Secured Promissory Notes		—		434		114
ASC 606 Financing Component		73		—		73
	$	1,119	$	434	$	611

⁽¹⁾ This agreement was terminated in February 2018

Schedule of Fair Value of Agent Fee

The change in the value of the agent fee and the fair value of the common stock granted in lieu of cash was also included in the gain on partial extinguishment of debt as follows:

Agent fee, included in other liabilities, long term (pre-conversion)	$	827
Gain on extinguishment		(319	)
Agent fee payable in common shares	$	508

Schedule of Debt Activity

The following table reflects the activity under this note:

Principal balance, net at December 31, 2018	$	8,639
Principal payments		(225	)
Interest		153
Debt discount amortization		5
Principal balance, net at March 31, 2019	$	8,572

Snyder Debt Conversion [Member]

Schedule of Debt Conversion

The accounting for the change due to the Snyder Debt Conversion is as follows (in thousands):

Principal (pre-conversion)	$	12,450
Discount (pre-conversion)		(134	)
Consideration of common stock and warrants provided at conversion		(6,196	)
Gain on extinguishment		(2,695	)
Principal and future interest at March 31, 2019	$	3,425

Secured December 2017 Convertible Note [Member]

Schedule of Debt Conversion

The following table reflects the accounting for the activities under the Secured December 2017 Convertible Note as follows (in thousands):

Principal (pre-conversion)	$	6,000
Discount (pre-conversion)		(791	)
Consideration of common stock and warrants provided at conversion		(16,843	)
Derivative liability extinguished		6,424
Loss on extinguishment		5,210
Balance at March 31, 2018	$	-

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Warrants (Tables)

3 Months Ended

Mar. 31, 2019

Warrants and Rights Note Disclosure [Abstract]

Summary of Information About Common Stock Warrants Outstanding

The following table summarizes information about the Company’s common stock warrants outstanding as of March 31, 2019 (in thousands, except exercise price data):

			NUMBER OF
			SHARES
			SUBJECT TO
		EXPIRATION	WARRANTS		EXERCISE
DESCRIPTION	ISSUE DATE	DATE	ISSUED		PRICE
In connection with June 2013 Credit Facility (June 2013 Warrants)	June 2013	June 2023 (1)		27	$	8.40
In connection with August 2015 Senior Secured Promissory Notes (August 2015 Warrants)	August 2015	August 2023		4,000	$	1.91
In connection with October 2012 and April 2013 Secured Promissory Notes (November 2016 Warrants)	November 2016	November 2026		125	$	2.38
In connection with June 2017 Consulting Agreement (November 2017 Warrants)	June 2017	June 2027		80	$	1.10
In connection with February 2018 Financing Transaction (February 2018 Warrants 1)	February 2018	December 2020		43,350	$	1.00
In connection with February 2018 Financing Transaction (February 2018 Warrants 2)	February 2018	December 2020		5,065	$	1.25
				52,647

⁽¹⁾ The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.

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Share-Based Plans (Tables)

3 Months Ended

Mar. 31, 2019

Share-based Payment Arrangement [Abstract]

Summary of Stock Options Activity

The following table summarizes the activity of stock options from December 31, 2018 to March 31, 2019 (in thousands, except weighted average exercise price):

				WEIGHTED-
				AVERAGE
				EXERCISE
	OPTIONS			PRICE
Balances at December 31, 2018		7,136		$	3.31
Options granted		48		$	1.59
Options exercised		-		$	-
Options cancelled		(219	)	$	1.82
Balances at March 31, 2019		6,965		$	3.34

Summary of Restricted Stock Units Activity

The following table summarizes the activity of restricted stock units from December 31, 2018 to March 31, 2019 (in thousands, except weighted average grant date fair value):

	RESTRICTED UNITS
	OUTSTANDING
Outstanding at December 31, 2018		1,146
Granted		71
Exercised		—
Forfeited		—
Outstanding at March 31, 2019		1,217

Summary of Non-vested Restricted Stock Units Activity

				WEIGHTED
				AVERAGE
				GRANT
	SHARES			DATE FAIR
	OUTSTANDING			VALUE
Non-vested at December 31, 2018		404		$	1.40
Granted		71		$	1.53
Vested		(133	)	$	1.42
Forfeited		-		$	-
Non-vested at March 31, 2019		342		$	1.42

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Related Party Transactions (Tables)

3 Months Ended

Mar. 31, 2019

August 2015 Senior Secured Promissory Notes [Member]

Schedule of Debt Conversion

The accounting for the change due to the August 2015 Senior Secured Promissory Notes is as follows (in thousands):

Principal (pre-conversion)	$	40,000
Accrued interest to be paid at maturity		339
Discount (pre-conversion)		(2,171	)
Consideration of common stock and warrants provided at conversion		(21,685	)
Gain on extinguishment		(9,183	)
Principal and future interest at March 31, 2019	$	7,300

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Summary of Business, Basis of Presentation (Details Narrative) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Dec. 31, 2018
Date of incorporation		Jun. 15, 2006
Accumulated deficit	[1]	$ 287,391	$ 283,474
Working capital		15,145
Cash and cash equivalents		13,586	18,221
Debt excluding related parties		17,273
Debt due to related parties		7,300	$ 7,300
Restricted cash		1,560
May 9, 2019 [Member]
Cash and cash equivalents		$ 10,899

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

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Significant Accounting Policies (Details Narrative) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) Number	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Concentration risk, supplier	The active ingredient in the Company's Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company's manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 months of knotweed extract on hand 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.
Deferred cost of product revenues	$ 398
Financing revenues	72		$ 51
Research and development expenses	2,627	$ 2,287
Patent expenses	315	248
Shipping and handling costs	281	174
Advertising costs	$ 191	$ 206
Operating segment | Number	1
Sales Revenue Net [Member] | International [Member]
Customers accounted for percentage of company's total revenues	7.00%	18.00%
Sales Revenue Net [Member] | International [Member] | Three Product [Member]
Customers accounted for percentage of company's total revenues	97.00%	91.00%
Maximum [Member]
Receivables due period	120 days

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Significant Accounting Policies - Schedule of Significant Customer's Revenues and Account Receivable Percentage (Details) - Customer Concentration Risk [Member]	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Customer A [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	36.00%	14.00%
Customer A [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	35.00%		52.00%
Customer B [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	16.00%	23.00%
Customer B [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	21.00%		8.00%
Customer C [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	12.00%	6.00%
Customer C [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	11.00%		3.00%
Customer D [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	4.00%		24.00%

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Significant Accounting Policies - Schedule of Deferred Revenue (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Product revenues	$ 398	$ 457
Financing costs	600	604
License revenues	1,708	1,776
Deferred revenue	2,706	2,837
Less current portion	(379)	(438)
Deferred revenue, less current portion	$ 2,327	$ 2,399

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Significant Accounting Policies - Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	61,327,000	59,497,000
Stock Options Outstanding [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	6,965,000	5,343,000
Warrants to Purchase Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	52,647,000	52,725,000
Restricted Stock Units Outstanding [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	1,217,000	931,000
Common Shares to be Issued in Lieu of Agent Fees [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	498,000	498,000

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Inventories (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Inventory reserve	$ 526	$ 579

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Inventories - Schedule of Inventories, Net (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 1,411	$ 1,844
Work in progress	1,058	1,580
Finished goods	5,085	4,800
Inventories, total	$ 7,554	$ 8,224

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Right-of-Use and Lease Liability (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 02, 2019	Dec. 31, 2018
Leases [Abstract]
Right-of-use assets	$ 5,126	$ 5,324
Lease liabilities	$ 752	$ 5,510
Weighted average incremental borrowing rate	7.04%
weighted average remaining lease term	5 years 6 months

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Right-of-Use and Lease Liability - Schedule of Components of Lease Expense (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Operating lease cost	$ 297
Short-term lease cost	13
Sublease income	(23)
Total lease cost	287
Cash paid for amounts included in the measurement of lease liabilities	222
Right-of-use assets obtained in exchange for operating lease liabilities	$ 199

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Right-of-Use and Lease Liability - Schedule of Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 02, 2019	Dec. 31, 2018
Leases [Abstract]
2019, remaining 9 months	$ 813
2020	1,182
2021	1,205
2022	1,241
2023 and beyond	2,036
Total lease payments	6,477
Less: imputed interest	1,118
Total lease obligation	5,359
Less lease obligation, current portion	752	$ 5,510
Lease obligation, non-current portion	$ 4,607

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Accrued Liabilities (Details Narrative) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Payables and Accruals [Abstract]
Warranty expense	$ 94	$ 44
Warranty reserve	54
Settlement of warrant

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Accrued Liabilities - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Payables and Accruals [Abstract]
Accrued compensation	$ 2,726	$ 2,570
Accrued warranty costs	360	320
Accrued legal costs	315	69
Accrued customer incentives	2,432	2,170
Accrued liabilities, other	1,182	1,742
Accrued liabilities, total	$ 7,015	$ 6,871

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Accrued Liabilities - Schedule of Changes in Accrued Warranty Costs (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Payables and Accruals [Abstract]
Beginning Balance	$ 320
Warranties issued (released) during the period	40
Settlements made during the period
Ending Balance	$ 360

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Debt (Details Narrative) - USD ($)									1 Months Ended		3 Months Ended		12 Months Ended
		Feb. 05, 2018	Dec. 22, 2017	Dec. 15, 2017	Oct. 12, 2017	Mar. 24, 2017	Apr. 10, 2013	Oct. 02, 2012	Jun. 30, 2018	Jun. 30, 2014	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Jan. 31, 2018	Dec. 31, 2017
Debt conversion amount												$ 6,000,000
Warrants to purchase of common stock											52,647,000
Loss on extinguishment of debt, net	[1]											(2,196,000)
Amount of debt, outstanding											17,472,000
Repayment of secured debt											3,511,000	3,194,000
Required deposit balance											1,560,000		$ 1,560,000
LSQ Funding Group L.C [Member]
Debt instrument description									The Company amended the LSQ Financing arrangement which effectively (i) decreased the invoice purchase fee from 1.00% to a range of 0.40% to 1.00%, ii) decreased the funds usage fee from 0.035% to a range of 0.020% to 0.035% and (iii) extended the terms of the agreement to June 30, 2019.
Convertible promissory note											5,276,000
Sale of certain accounts receivable to third-party						$ 7,000,000
Advancement rate of receivables face value						80.00%
Invoice purchase fee percentage						1.00%
Additional monthly funds usage rate						0.035%
Maximum [Member]
Aging collection fee percentage						0.35%
Minimum [Member]
Aging collection fee percentage						0.00%
Secured Debt [Member]
Amount of debt, outstanding											$ 24,573,000		$ 21,437,000
Debt instrument description											The Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than 4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank.
Secured Convertible Debt [Member] | Securities Purchase Agreement [Member] | Dwight W. Anderson [Member]
Conversion price per share				$ 0.50
Common stock price per share description				Company's common stock at a rate of one share of common stock per $0.50.
October 2012 Secured Promissory Notes [Member] | Loan Agreement [Member]
Debt instrument borrowing amount							$ 4,950,000
Issued in partial consideration							3,700,000
Partial conversion for the cancellation amount							1,250,000
October 2012 Secured Promissory Notes [Member] | Loan Agreement [Member] | Maximum [Member]
Debt instrument borrowing amount							$ 5,000,000
October 2012 Secured Promissory Notes [Member] | Secured Debt [Member]
Debt instrument borrowing amount								$ 7,500,000
April 2013 Secured Promissory Notes [Member] | Maximum [Member]
Debt instrument borrowing amount								12,450,000
April 2013 Secured Promissory Notes [Member] | Minimum [Member]
Debt instrument borrowing amount								$ 7,500,000
October 2012 and April 2013 Secured Promissory Notes [Member]
Debt conversion amount		$ 10,000,000
Conversion of debt, shares		5,714,285
Warrants to purchase of common stock		1,142,856
Secured debt											$ 2,450,000
Debt instrument, maturity date		Dec. 31, 2022
Loss on extinguishment of debt, net											319,000	$ 3,015,000
Amount of debt, outstanding											$ 3,425,000
Debt fee percentage											7.00%
Number of shares issued for services											498,000
October 2012 and April 2013 Secured Promissory Notes [Member] | Maximum [Member]
Debt instrument, interest rate		14.00%
October 2012 and April 2013 Secured Promissory Notes [Member] | Minimum [Member]
Debt instrument, interest rate		8.00%
June 2014 Secured Promissory Note [Member] | Secured Debt [Member]
Debt instrument borrowing amount										$ 10,000,000
Debt instrument, maturity date											Jun. 30, 2036		Jun. 30, 2036
Debt instrument, interest rate											7.50%
Amount of debt, outstanding											$ 8,572,000		$ 8,639,000
Repayment of secured debt											74,997
Required deposit balance											1,560,000
Unamortized debt discount											$ 200,000		$ 205,000
June 2014 Secured Promissory Note [Member] | Secured Debt [Member] | Prime Rate [Member]
Debt instrument, interest rate											2.00%
October 2017 Convertible Note [Member] | Secured Convertible Debt [Member] | Dwight W. Anderson [Member]
Debt instrument, maturity date					Oct. 23, 2020
Convertible promissory note					$ 1,000,000
October 2017 Convertible Note [Member] | Secured Convertible Debt [Member] | Maximum [Member] | Dwight W. Anderson [Member]
Unsecured debt					$ 6,000,000
Secured December 2017 Convertible Note [Member]
Debt conversion amount		$ 6,000,000
Conversion of debt, shares		12,000,000
Secured debt														$ 2,000,000
Loss on extinguishment of debt, net		$ 6,424,000									$ 5,210,000
Conversion price per share		$ 0.50
Unamortized debt discount														$ 574,000
Loss on conversion of debt		$ 11,634,000
Secured December 2017 Convertible Note [Member] | Dwight W. Anderson [Member]
Secured debt															$ 4,000,000
Debt instrument, maturity date			Oct. 12, 2020
Unamortized debt discount															$ 510,000

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

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Debt - Schedule of Debt Including Debt to Related Parties (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Debt, including debt due to related parties	$ 17,472
Less debt due to related parties, non-current	(7,300)	$ (7,300)
Debt, non-current	11,732	11,819
Secured Debt [Member]
Debt, including debt due to related parties	24,573	21,437
Less debt due to related parties, non-current	(7,300)	(7,300)
Less current portion	(5,541)	(2,318)
Debt, non-current	11,732	11,819
Secured Debt [Member] | Secured Promissory Notes Interest Rate at 8.00% [Member]
Debt, including debt due to related parties	3,425	3,425
Secured Debt [Member] | June 2014 Secured Promissory Note [Member]
Debt, including debt due to related parties	8,572	8,639
Secured Debt [Member] | Secured Revolving Borrowing Interest Rate at 12.8% Through June 2019 [Member]
Debt, including debt due to related parties	5,276	2,073
Secured Debt [Member] | Senior Secured Promissory Note Interest Rate at 8% [Member]
Debt, including debt due to related parties	$ 7,300	$ 7,300

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Debt - Schedule of Debt Including Debt to Related Parties (Details) (Parenthetical) - Secured Debt [Member] - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Secured Promissory Notes Interest Rate at 8.00% [Member]
Debt instrument, interest rate	8.00%	8.00%
Debt instrument, maturity date	Dec. 31, 2022	Dec. 31, 2022
June 2014 Secured Promissory Note [Member]
Debt instrument, interest rate	7.50%
Debt instrument, maturity date	Jun. 30, 2036	Jun. 30, 2036
Unamortized debt discount	$ 200	$ 205
Debt instrument, payment terms	Payable monthly through June 2036	Payable monthly through June 2036
Debt instrument, prime rate	2.00%	2.00%
Secured Revolving Borrowing Interest Rate at 12.8% Through June 2019 [Member]
Debt instrument, interest rate	12.80%	12.80%
Debt instrument, payment terms	through June 2019	through June 2019
Senior Secured Promissory Note Interest Rate at 8% [Member]
Debt instrument, interest rate	8.00%	8.00%
Debt instrument, maturity date	Dec. 31, 2022	Dec. 31, 2022

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Debt - Schedule of Contractual Future Principal Payments (Details) $ in Thousands	Mar. 31, 2019 USD ($)
2019	$ 5,464
2020	270
2021	292
2022	2,766
2023	340
Thereafter	7,365
Total future principal payments	16,497
Interest payments included in debt balance	975	[1]
Debt, including debt due to related parties	17,472
Related Party [Member]
2019
2020
2021
2022	5,000
2023
Thereafter
Total future principal payments	5,000
Interest payments included in debt balance	2,300	[1]
Debt, including debt due to related parties	$ 7,300

[1] Due to the debt extinguishment requirement, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt.

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Debt - Reconciliation of Interest Expense for Debt Outstanding (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Expense		$ 306	$ 1,119
Related Party, Net			434
Non cash		73	611
Secured Debt [Member] | June 2014 Secured Promissory Notes [Member]
Expense		158	152
Related Party, Net
Non cash		5	6
Secured Debt [Member] | LSQ Financing [Member]
Expense		76	152
Related Party, Net
Non cash			54
Secured Debt [Member] | ASC 606 Financing Component [Member]
Expense		68	73
Related Party, Net
Non cash		68	73
Secured Debt [Member] | Other [Member]
Expense		4
Related Party, Net
Non cash
Secured Debt [Member] | October 2012 and April 2013 Secured Promissory Notes [Member]
Expense			213
Related Party, Net
Non cash			42
Secured Debt [Member] | December 2017 Convertible Note [Member]
Expense	[1]		529
Related Party, Net	[1]
Non cash	[1]		322
Secured Debt [Member] | August 2015 Senior Secured Promissory Notes [Member]
Expense
Related Party, Net			434
Non cash			$ 114

[1] This agreement was terminated in February 2018

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Debt - Schedule of Debt Conversion (Details) - USD ($)			3 Months Ended
		Feb. 05, 2018	Mar. 31, 2019	Mar. 31, 2018
Gain/loss on extinguishment	[1]			$ (2,196,000)
Snyder Debt Conversion [Member]
Principal (pre-conversion)			12,450,000
Discount (pre-conversion)			(134,000)
Consideration of common stock and warrants provided at conversion			(6,196,000)
Gain/loss on extinguishment			(2,695,000)
Principal and future interest			3,425,000
Secured December 2017 Convertible Note [Member]
Principal (pre-conversion)			6,000,000
Discount (pre-conversion)			(791,000)
Consideration of common stock and warrants provided at conversion			(16,843,000)
Derivative liability extinguished			6,424,000
Gain/loss on extinguishment		$ 6,424,000	5,210,000
Principal and future interest

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

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Debt - Schedule of Fair value of Agent Fee (Details) - USD ($)		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Gain on extinguishment	[1]		$ 2,196,000
October 2012 and April 2013 Secured Promissory Notes [Member]
Agent fee, included in other liabilities, long term (pre-conversion)		827,000
Gain on extinguishment		(319,000)	$ (3,015,000)
Agent fee payable in common shares		$ 508,000

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

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Debt - Schedule of Debt Activity (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Principal balance, net at Ending	$ 17,472
June 2014 Secured Promissory Notes [Member]
Principal balance, net at Beginning	8,639
Principal payments	(225)
Interest	153
Debt discount amortization	5
Principal balance, net at Ending	$ 8,572

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Warrants (Details Narrative)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Warrants and Rights Note Disclosure [Abstract]
Number of warrants exercised | shares
Warrant weighted average remaining contractual life	1 year 11 months 23 days
Warrant exercise price | $ / shares	$ 1.10

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Warrants - Summary of Information About Common Stock Warrants Outstanding (Details)	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Class of Warrant or Right [Line Items]
Number of shares subject to warrant issued | shares	52,647,000
Exercise price | $ / shares	$ 1.10
June 2013 Warrants [Member]
Class of Warrant or Right [Line Items]
Issue date	2013-06
Expiration date	2023-06	[1]
Number of shares subject to warrant issued | shares	27,000
Exercise price | $ / shares	$ 8.40
August 2015 Warrants [Member]
Class of Warrant or Right [Line Items]
Issue date	2015-08
Expiration date	2023-08
Number of shares subject to warrant issued | shares	4,000,000
Exercise price | $ / shares	$ 1.91
November 2016 Warrants [Member]
Class of Warrant or Right [Line Items]
Issue date	2016-11
Expiration date	2026-11
Number of shares subject to warrant issued | shares	125,000
Exercise price | $ / shares	$ 2.38
November 2017 Warrants [Member]
Class of Warrant or Right [Line Items]
Issue date	2017-06
Expiration date	2027-06
Number of shares subject to warrant issued | shares	80,000
Exercise price | $ / shares	$ 1.10
February 2018 Warrants 1 [Member]
Class of Warrant or Right [Line Items]
Issue date	2018-02
Expiration date	2020-12
Number of shares subject to warrant issued | shares	43,350,000
Exercise price | $ / shares	$ 1.00
February 2018 Warrants 2 [Member]
Class of Warrant or Right [Line Items]
Issue date	2018-02
Expiration date	2020-12
Number of shares subject to warrant issued | shares	5,065,000
Exercise price | $ / shares	$ 1.25

[1] The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company's acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.

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Warrants - Summary of Information About Common Stock Warrants Outstanding (Details) (Parenthetical)	Mar. 31, 2019
Warrants and Rights Note Disclosure [Abstract]
Subject to acquisition or sales percentage	50.00%

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Share-Based Plans (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Share-based Payment Arrangement [Abstract]
Number of options outstanding	6,965,000		7,136,000
Number of restricted stock units outstanding	1,217,000		1,146,000
Number of shares available for grant	10,151,000
Share based compensation expense	$ 558	$ 491
Number of option granted to purchase common stock	48,000	31,000
Number of options weighted-average exercise price granted	$ 1.59	$ 1.87
Number of restricted stock units granted	71,000	105,000
Reclass from accrued liabilities to additional paid in capital		$ 205,000

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Share-Based Plans - Summary of Stock Options Activity (Details) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Payment Arrangement [Abstract]
Number of Options, beginning balance	7,136,000
Number of Options granted	48,000	31,000
Number of Options exercised
Number of Options cancelled	(219,000)
Number of Options, ending balance	6,965,000
Weighted Average Exercise Price, beginning balance	$ 3.31
Weighted Average Exercise Price, granted	1.59	$ 1.87
Weighted Average Exercise Price, exercised
Weighted Average Exercise Price, cancelled	1.82
Weighted Average Exercise Price, ending balance	$ 3.34

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Share-Based Plans - Summary of Restricted Stock Units Activity (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Payment Arrangement [Abstract]
Restricted Units Outstanding, Beginning balance	1,146,000
Restricted Units Outstanding, Granted	71,000	105,000
Restricted Units Outstanding, Exercised
Restricted Units Outstanding, Forfeited
Restricted Units Outstanding, Ending balance	1,217,000

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Share-Based Plans - Summary of Non- vested Restricted Stock Units Activity (Details) - Restricted Stock Units [Member]	3 Months Ended
	Mar. 31, 2019 $ / shares shares
Shares outstanding, Beginning balance | shares	404,000
Shares outstanding, Granted | shares	71,000
Shares outstanding, Vested | shares	(133,000)
Shares outstanding, Forfeited | shares
Shares outstanding, Ending balance | shares	342,000
Weighted average grant date fair value, Beginning balance | $ / shares	$ 1.40
Weighted average grant date fair value, Granted | $ / shares	1.53
Weighted average grant date fair value, Vested | $ / shares	1.42
Weighted average grant date fair value, Forfeited | $ / shares
Weighted average grant date fair value, Ending balance | $ / shares	$ 1.42

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Commitments and Contingencies (Details Narrative) $ in Thousands		1 Months Ended			3 Months Ended
	Jan. 19, 2016 USD ($) ft²	Feb. 28, 2018 USD ($)	Apr. 30, 2014 USD ($) ft²	Jun. 30, 2013 USD ($) ft²	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)
Commitments And Contingencies [Line Items]
Rental expense, net					$ 287	$ 151
Piper Jaffray, Inc. [Member]
Commitments And Contingencies [Line Items]
Plaintiff's litigation settlement demand		$ 2,000
California [Member]
Commitments And Contingencies [Line Items]
Percentage of annual increase in base rent	5.00%
Area of vacant office space subleased | ft²	3,800
Sublease description	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.
Sublease term	43 months
Sub lease commenced date	Feb. 01, 2016
Sublease agreement, monthly base rent	$ 5
Office and Laboratory Space One [Member]
Commitments And Contingencies [Line Items]
Office facility lease agreement | ft²				27,300
Lease agreement period				60 months
Lease commenced date				Aug. 31, 2014
Monthly base rent				$ 44
Initial base rent term				12 months
Percentage of annual increase in base rent				3.00%
Office and Laboratory Space Two [Member]
Commitments And Contingencies [Line Items]
Office facility lease agreement | ft²			17,400
Lease agreement period			60 months
Lease commenced date			Aug. 31, 2014
Monthly base rent			$ 28
Percentage of annual increase in base rent			3.00%

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Related Party Transactions (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		12 Months Ended
		Feb. 05, 2018	Aug. 20, 2015	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Warrants to purchase of common stock				52,647,000
Warrant exercise price per share				$ 1.10
Gain/loss on extinguishment	[1]				$ (2,196)
Debt due to related parties				7,300		$ 7,300
August 2015 Senior Secured Promissory Notes [Member]
Debt instrument to be issued, principal amount				40,000
Unamortized debt discount				2,171
August 2015 Senior Secured Promissory Notes [Member]
Warrants to purchase of common stock		4,000,000
Number of shares converted amount		$ 35,000
Number of shares converted		20,000,000
Principal remaining outstanding		$ 5,000		5,000
Maturity date		Dec. 31, 2022
Gain/loss on extinguishment						9,183
Unamortized debt discount						$ 2,171
Debt due to related parties				$ 7,300
August 2015 Senior Secured Promissory Notes [Member] | August 2015 Warrants [Member]
Affiliate revenues percent			40.00%
Warrants to purchase of common stock			4,000,000
Warrant exercise price per share			$ 1.91
Fair value of warrant			$ 4,610
Beneficial Owner [Member]
Affiliate revenues percent			5.00%
Legal fees			$ 302
Beneficial Owner [Member] | August 2015 Senior Secured Promissory Notes [Member]
Debt instrument to be issued, principal amount			$ 40,000

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.

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Related Party Transactions - Schedule of Debt Conversion (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Consideration of common stock and warrants provided at conversion			$ (21,685)
Gain on extinguishment	[1]		$ (9,183)
August 2015 Senior Secured Promissory Notes [Member]
Principal (pre-conversion)		40,000
Accrued interest to be paid at maturity		339
Discount (pre-conversion)		(2,171)
Consideration of common stock and warrants provided at conversion		(21,685)
Gain on extinguishment		(9,183)
Principal and future interest		$ 7,300

[1] The above includes revised numbers for the three months ended March 31, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-"Financial Statements and Supplementary Data" of the Annual Report on Form 10-K filed on March 29, 2019.