10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

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

For the quarterly period ended June 30, 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 August 5, 2019
Common Stock, $0.00001 par value	110,726,347

EXPLANATORY NOTE

On August 8, 2019, our Quarterly Report on Form 10-Q (the “Prior Filing”) was inadvertently filed due to technical error by a third party prior to the completion of our review. We are primarily filing this Amendment No. 1 on Form 10-Q/A (this “Amendment”) to include the required eXtensible Business Reporting Language (XBRL) data and certain other information not included in the Prior Filing. We do not believe that any of the other changes in reported information between this Amendment and the Prior Filing will be material to investors, either individually or in the aggregate. This Amendment amends and restates the Prior Filing in its entirety.

TABLE OF CONTENTS

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 (Audited)	3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018	4
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	5
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	7
Notes to Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3. Quantitative and Qualitative Disclosures About Market Risk	37
Item 4. Controls and Procedures	37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	38
Item 1A. Risk Factors	38
Item 6. Exhibits	39
SIGNATURES	40

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Balance Sheets

(In Thousands, Except Par Value)

	JUNE 30, 2019			DECEMBER 31, 2018
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	9,471		$	18,221
Accounts receivable		7,401			2,720
Inventories, net		8,456			8,224
Prepaid expenses and other current assets		1,263			971
Total current assets		26,591			30,136
Property, plant and equipment, net		13,754			14,512
Right of use assets, net		4,922			-
Restricted cash		1,560			1,560
Other assets		520			359
Total assets	$	47,347		$	46,567
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,268		$	1,692
Accrued liabilities		9,503			6,871
Deferred revenue, current portion		359			438
Lease liability, current portion		813			—
Debt, current portion, net		4,459			2,318
Total current liabilities		17,402			11,319
Deferred revenue, less current portion		2,270			2,399
Lease liability, less current portion		4,395			-
Debt, less current portion, net		11,708			11,819
Debt due to related parties		7,300			7,300
Other liabilities		776			794
Total liabilities		43,851			33,631
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at June 30, 2019 and December 31, 2018		—			—
Common stock: $0.00001 par value; 250,000 shares authorized, 110,725 and 110,691 shares issued and outstanding as of June 30, 2019 and December 31, 2018		1			1
Additional paid in capital		297,638			296,409
Accumulated deficit (1)		(294,143	)		(283,474	)
Total stockholders’ equity		3,496			12,936
Total liabilities and stockholders’ equity	$	47,347		$	46,567

⁽¹⁾ The above includes revised numbers for the six months ended June 30, 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 JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
Revenues:
Product	$	6,882		$	5,637		$	15,483		$	9,861
License		115			115			230			215
Total revenues		6,997			5,752			15,713			10,076
Cost of product revenues		3,188			3,030			6,917			5,272
Gross profit		3,809			2,722			8,796			4,804
Operating Expenses:
Research, development and patent		3,634			2,493			6,576			5,027
Selling, general and administrative		6,604			4,746			12,278			9,777
Total operating expenses		10,238			7,239			18,854			14,804
Loss from operations		(6,429	)		(4,517	)		(10,058	)		(10,000	)
Other income (expense):
Interest expense		(353	)		(340	)		(659	)		(1,459	)
Interest expense, related parties		—			(17	)		—			(451	)
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		30			4			48			(27	)
Total other income (expense), net		(323	)		(353	)		(611	)		(127	)
Net loss (1)	$	(6,752	)	$	(4,870	)	$	(10,669	)	$	(10,127	)
Basic and diluted net loss per common share:	$	(0.06	)	$	(0.04	)	$	(0.10	)	$	(0.11	)
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:		110,723			108,647			110,707			91,713

⁽¹⁾ The above includes revised numbers for the six months ended June 30, 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 and Six Months Ended June 30, 2018

(In Thousands)

	COMMON STOCK				ADDITIONAL		ACCUMULATED			TOTAL 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 (1)		20,000		—		21,685		—			21,685
Conversion of secured promissory notes for common stock and warrants (1)		5,714		—		6,196		—			6,196
Conversion of convertible notes for common stock and warrants (1)		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
Net loss		—		—		—		(4,870	)		(4,870	)
Settlement of restricted stock units		11		—		—		—			-
Net settlement of options		3		—				—			-
Share-based compensation		—		—		382		—			382
Issuance of common stock, in follow-on offering, net of offering costs and underwriter commissions		8,366		—		12,665		—			12,665
Balance at June 30, 2018		110,473	$	1	$	295,308	$	(273,388	)	$	21,921

⁽¹⁾ The above includes revised numbers for the six months ended June 30, 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

5

Condensed Consolidated Statements of Stockholder’s Equity

For the Three and Six Months Ended June 30, 2019

(In Thousands)

	COMMON STOCK		ADDITIONAL		ACCUMULATED		TOTAL 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
Net loss		—		—		—		(6,752	)		(6,752	)
Net settlement of options		34		—		42		—			42
Share-based compensation		—		—		606		—			606
Employee stock purchase plan		—		—		23		—			23
Balance at June 30, 2019		110,725	$	1	$	297,638	$	(294,143	)	$	3,496

See accompanying notes.

6

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Statements of Cash Flows

(In Thousands)

	SIX MONTHS ENDED JUNE 30,
	2019			2018
Cash flows from operating activities
Net loss (1)	$	(10,669	)	$	(10,127	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		903			983
Gain on disposal of equipment		(6	)		-
Right of use assets amortization		402			-
Share-based compensation		1,164			873
Non-cash interest expense		145			722
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		(4,681	)		(937	)
Inventories		(232	)		646
Prepaid Expenses and other assets		(453	)		163
Deferred cost of product revenues		—			2
Accounts payable		622			(2,159	)
Accrued and other liabilities		2,800			(1,692	)
Accrued interest due to related parties		—			(1,614	)
Lease liability		(302	)		-
Deferred revenue		(342	)		—
Net cash used in operating activities		(10,649	)		(14,950	)
Cash flows from investing activities
Purchases of property, plant and equipment		(185	)		(478	)
Net cash used in investing activities		(185	)		(478	)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs		—			34,496
Proceeds from issuance of debt		—			2,000
Proceeds from secured borrowings		15,126			9,754
Reductions in secured borrowings		(12,981	)		(8,670	)
Net settlement of options		42			—
Proceeds from employee stock purchase plan		23			—
Repayment of debt		(126	)		(129	)
Net cash provided by financing activities		2,084			37,451
Net (decrease) increase in cash and cash equivalents and restricted cash		(8,750	)		22,023
Cash and cash equivalents and restricted cash, beginning of period		19,781			2,833
Cash and cash equivalents and restricted cash, end of period	$	11,031		$	24,856
Supplemental disclosure of cash flow information
Cash paid for interest	$	504		$	2,481
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities	$	5		$	236
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 six months ended June 30, 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.

7

MARRONE BIO INNOVATIONS, INC.

Notes to Condensed Consolidated Financial Statements

June 30, 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 June 30, 2019, the Company had an accumulated deficit of $294,143,000, 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 June 30, 2019, the Company had working capital of $9,189,000, including cash and cash equivalents of $9,471,000. In addition, as of June 30, 2019, the Company had debt and debt due to related parties of $16,167,000 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 June 30, 2019, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements (see Note 6).

8

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 $8,300,000 at August 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.

In August 2019, the Company entered into a warrant amendment and plan of reorganization agreement (“Warrant Reorganization Agreement”) with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. As of the date of these condensed consolidated financial statements, the Company has delivered a call notice for the exercise of 10 million shares under the February 2018 Warrants.

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.

2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial information as of June 30, 2019, and for the three and six months ended June 30, 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 June 30, 2019, and for the three and six months ended June 30, 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 and six months ended June 30, 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.

9

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 94% and 92% of the Company’s total revenues for the three months ended June 30, 2019 and 2018, respectively and 88% and 92% of the Company’s total revenues for the six months ended June 30, 2019 and 2018, respectively.

Revenues generated from international customers were 9% and 6% for the three months ended June 30, 2019 and 2018, respectively and 8% and 11% for the six months ended June 30, 2019 and 2018, respectively.

Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended June 30, 2019 and 2018 consist of the following:

	CUSTOMER
	A			B			C			D
Three months ended June 30,
2019		16	%		15	%		12	%		4	%
2018		21	%		11	%		15	%		19	%

Customers to which 10% or more of the Company’s total revenues are attributable for the six months ended June 30, 2019 and 2018, which may or may not correspond with the customers for the periods above, consist of the following:

	CUSTOMER
	A			B			C			D
Six months ended June 30,
2019		28	%		12	%		11	%		9	%
2018		18	%		11	%		21	%		11	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either June 30, 2019 or December 31, 2018, which may or may not correspond with any of the customers above, consist of the following:

	CUSTOMER
	A			B			C			D			E			F
June 30, 2019		16	%		15	%		14	%		10	%		10	%		5	%
December 31, 2018		0	%		1	%		52	%		0	%		0	%		24	%

10

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):

	JUNE 30, 2019			DECEMBER 31, 2018
Product revenues	$	378		$	457
Financing costs		611			604
License revenues		1,640			1,776
		2,629			2,837
Less current portion		(359	)		(438	)
	$	2,270		$	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 June 30, 2019, the Company had deferred product revenue in the amount of $378,000 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. For the three and six months ended June 30, 2019 and 2018, the Company recognized an aggregate of $66,000 and $86,000, respectively and $134,000 and $159,000, respectively of financing component revenues in the aggregate within product and license revenues in the condensed consolidated financial statements.

11

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 inception of revenue recognition 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 June 30, 2019 and 2018, research and development expenses totaled $3,390,000 and $2,231,000, respectively, and patent expenses totaled $244,000 and $262,000, respectively. For the six months ended June 30, 2019 and 2018, research and development expenses totaled $6,017,000 and $4,517,000, respectively, and patent expenses totaled $559,000 and $510,000, 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 and six months ended June 30, 2019 and 2018 were $436,000 and $282,000, respectively and $717,000 and $456,000, respectively.

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the three and six months ended June 30, 2019 and 2018 were $185,000 and $316,000, respectively and $376,000 and $602,000, 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):

	JUNE 30,
	2019		2018
Stock options outstanding		6,822		7,256
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,377		1,049
Common shares to be issued in lieu of agent fees		498		498
Employee stock purchase plan		20		—
		61,364		61,528

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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 and six months ended June 30, 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.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of a Securities and Exchange Commission filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018.

In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”). The Company is currently evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its condensed consolidated financial statements and related disclosures.

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3. Inventories

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

	JUNE 30, 2019		DECEMBER 31, 2018
Raw materials	$	893	$	1,844
Work in progress		1,139		1,580
Finished goods		6,424		4,800
	$	8,456	$	8,224

As of June 30, 2019 and December 31, 2018, the Company had $257,000 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.

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 June 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 7.03% and 5.2 years, respectively.

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The components of lease expense were as follows (in thousands):

	THREE MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2019			JUNE 30, 2019
Operating lease cost	$	290		$	587
Short-term lease cost		20			33
Sublease income		(25	)		(48	)
	$	285		$	572

Other information (in thousands)	SIX MONTHS ENDED
	JUNE 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	442
Right-of-use assets obtained in exchange for operating lease liabilities	$	402

Maturities of lease liabilities for each future calendar year as of June 30, 2019 are as follows (in thousands):

	OPERATING
	LEASES
2019, remaining 6 months	$	569
2020		1,182
2021		1,205
2022		1,241
2023 and beyond		2,036
Total lease payments		6,233
Less: imputed interest		1,025
Total lease obligation		5,208
Less lease obligation, current portion		813
Lease obligation, non-current portion	$	4,395

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	JUNE 30, 2019		DECEMBER 31, 2018
Accrued compensation	$	2,672	$	2,570
Accrued warranty costs		375		320
Accrued legal costs		691		69
Accrued customer incentives		3,688		2,170
Accrued liabilities, other		2,077		1,742
	$	9,503	$	6,871

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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 June 30, 2019 and 2018, the Company recognized $75,000 and $61,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $61,000 for the three months ended June 30, 2019 as a result of the historical usage of warranty reserves being lower than previously estimated and during the three months ended June 30, 2019 the Company settled no warranty claims. During the six months ended June 30, 2019 and 2018, the Company recognized $169,000 and $105,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $114,000 for the six months ended June 30, 2019 as a result of the historical usage of warranty reserves being lower than previously estimated and during the six months ended June 30, 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		55
Settlements made during the period		-
Balance at June 30, 2019	$	375

6. Debt

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

	JUNE 30, 2019			DECEMBER 31, 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 June 30, 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 June 30, 2019 and December 31, 2018 of $195 and $205.		8,523			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.		4,219			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		23,467			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(4,459	)		(2,318	)
Debt, non-current	$	11,708		$	11,819

As of June 30, 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 June 30, 2019	Debt		Debt to Related Party
2019, remaining 6 months	$	4,345	$	-
2020		270		-
2021		293		-
2022		2,766		5,000
2023		341		-
Thereafter		7,371		-
Total future principal payments		15,386		5,000
Interest payments included in debt balance (1)		975		2,300
	$	16,361	$	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.

16

The following is a reconciliation of interest expense for the debt outstanding during the three and six months ended June 30, 2019 and 2018 (in thousands).

	JUNE 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Three Months
June 2014 Secured Promissory Note	$	181	$	—	$	6
LSQ Financing		105		—		—
ASC 606 Financing Component		66		—		66
Other		1
	$	353	$	—	$	72

	JUNE 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Three Months
June 2014 Secured Promissory Notes		156		—		5
LSQ Financing		98		—		3
August 2015 Senior Secured Promissory Notes		—		17		17
ASC 606 Financing Component		86		—		86
	$	340	$	17		111

	JUNE 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Six Months
June 2014 Secured Promissory Note	$	339	$	—	$	11
LSQ Financing		181		—		—
ASC 606 Financing Component		134		—		134
Other		5		—		—
	$	659	$	—	$	145

	JUNE 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Six Months
October 2012 and April 2013 Secured Promissory Notes (2)	$	213	$	—	$	42
June 2014 Secured Promissory Notes		308		—		11
Secured December 2017 Convertible Notes (1)		529		—		322
LSQ Financing		250		—		57
August 2015 Senior Secured Promissory Notes (2)		—		451		131
ASC 606 Financing Component		159		—		159
	$	1,459	$	451	$	722

(1)	This agreement was terminated in February 2018.
(2)	This agreement was amended 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 June 30, 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 $3,014,000 for the six months ended June 30, 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 June 30, 2019	$	3,425

18

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 (in thousands):

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 June 30, 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 $76,286 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 June 30, 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 there 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 (in thousands):

Principal balance, net at December 31, 2018	$	8,639
Principal payments		(545	)
Interest		328
Debt discount amortization		10
Principal balance, net at June 30, 2019	$	8,432

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.

19

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 June 30, 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.

Under the initial agreement the Company would also pay to LSQ (i) an invoice purchase fee equal to 1.00% 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).

20

In June 2018, the Company amended the LSQ Financing arrangement and 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 term of the agreement to June 30, 2019. In June 2019, the Company and LSQ Financing mutually agreed to further extend the terms of the LSQ Financing arrangement through August 2019.

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. As of June 30, 2019, $4,219,000 was outstanding under the LSQ Financing.

7. Warrants

The following table summarizes information about the Company’s common stock warrants outstanding as of June 30, 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 June 30, 2019, no warrants have been exercised. The weighted average remaining contractual life and exercise price for these warrants is 1.73 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.

In August 2019, the Company entered into the Warrant Reorganization Agreement with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants.

The August 2019 Warrants will have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and will be first exercisable 180 days after issuance. The August 2019 Warrants will be exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company has not yet completed its evaluation of the accounting treatment for the transaction.

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In August 2019, the Company entered into an agreement with certain holders of the February 2018 Warrants 1, to allow for the purchase of new warrants. The new warrants will have an exercise price of $1.75 and an expiration date of January 1, 2023 and must be held for a period of at least 180 days. As a condition to the purchase of new warrants, the warrant holder would be required to exercise the same number of its February 2018 Warrants 1, as the number of new warrants to be purchase in addition to the consideration paid for the new warrants. The maximum allowable new warrants which can be purchased under this agreement is 36,000,000. The Company has not yet completed its evaluation of the accounting treatment for the transaction.

8. Share-Based Plans

On May 31, 2019, the Company’s shareholders approved an Employee Stock Purchase Plan (the “ESPP”) whereby employees may purchase Company stock through payroll deductions over each six-month period beginning on June 1 and December 1 (the “Offer Period”). The total maximum number of shares available for purchase under the ESPP is 1,000,000. The purchase price of the shares will be 85% of the lower of the fair market value of the shares at the beginning or at the end of the Offer Period. The ESPP is a tax qualified plan under Section 423 of the Internal Revenue Code. All employees, including officers, are eligible to participate in the ESPP. A participant may withdraw all uninvested payment balances credited to their account at any time. An employee whose stock ownership in the Company exceeds 5% of the Company’s outstanding common stock is not eligible to participate in the ESPP. The ESPP is compensatory and the 15% discount will be expensed over the Offer Period. The Company has accounted for the ESPP in accordance with ASC 718, Compensation – Stock Based Compensation. As of June 30, 2019 the Company recorded stock-based compensation expense of approximately $5,000.

As of June 30, 2019, there were options to purchase 6,822,000 shares of common stock outstanding, 1,377,000 restricted stock units outstanding and 10,329,000 share-based awards available for grant under the outstanding equity incentive plans. In July 2019, the Company granted 4,885,000 of options at an average exercise price of $1.44 to certain of its employees. The majority of the options will vest monthly over a period of forty-eight months. The fair value of the options will be based on the Company’s current option pricing model for similar options. The stock-based compensation associated with the grants will be recognize over the vesting period.

For the three and six months ended June 30, 2019 and 2018, the Company recognized share-based compensation of $606,000 and $382,000, respectively and $1,164,000 and $873,000, respectively.

During the three months ended June 30, 2019 and 2018, the Company granted options to purchase 74,000 and 2,075,000 shares of common stock, respectively, at a weighted average exercise price of $1.55 and $1.67, respectively. During the three months ended June 30, 2019 and 2018, 34,000 and 3,000 options, respectively were exercised at a weighted average exercise price of $1.18 and $1.37, respectively.

During the six months ended June 30, 2019 and 2018, the Company granted options to purchase 122,000 and 4,471,000 shares of common stock, respectively, at a weighted average exercise price of $1.57 and $1.78, respectively. During the six months ended June 30, 2019 and 2018, 35,000 and 3,000 options, respectively were exercised at a weighted average exercise price of $1.18 and $1.37, respectively.

The following table summarizes the activity of stock options from December 31, 2018 to June 30, 2019 (in thousands, except weighted average exercise price):

				WEIGHTED-
				AVERAGE
				EXERCISE
	Options			PRICE
Balances at December 31, 2018		7,136		$	3.31
Options granted		122			1.57
Options exercised		(35	)		1.18
Options cancelled		(401	)		1.90
Balances at June 30, 2019		6,822			3.37

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The following table summarizes the activity of restricted stock units from December 31, 2018 to June 30, 2019 (in thousands, except weighted average grant date fair value):

	RESTRICTED UNITS
Outstanding at December 31, 2018		1,146
Granted		230
Exercised		-
Forfeited		-
Outstanding at June 30, 2019		1,376

				WEIGHTED
				AVERAGE
				GRANT
	SHARES			DATE FAIR
	OUTSTANDING			VALUE
Non-vested at December 31, 2018		404		$	1.40
Granted		230		$	1.53
Vested		(317	)	$	1.53
Forfeited		-		$	-
Non-vested at June 30, 2019		317		$	1.41

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 extension of the lease was accounted for in accordance with ASC 842. As of June 30, 2019 and 2018, the Company incurred $287,000 and $151,000, respectively of rent expense, net. See Note 4 for the method of recognition of rent expense on the condensed consolidated financial statements and 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. See Note 4 for the impact of lease income on the condensed consolidated financial statements.

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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 of the foregoing transaction fee, in addition to interest and costs and expenses incurred in pursuing the action, including reasonable attorneys’ fees. As of June 30, 2019, a trial date for the matter has been scheduled for July 2020 and a mediation has been scheduled for August 2019. 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.

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 June 30, 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.

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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 June 30, 2019	$	7,300

11. Subsequent Events

In July 2019, the Company granted 4,885,000 of options at an average exercise price of $1.44 to certain of its employees. The majority of the options will vest monthly over a period of forty-eight months. The fair value of the options will be based on the Company’s current option pricing model for similar options. The stock-based compensation associated with the grants will be recognize over the vesting period. Following these grants, awards with respect to 5,470,335 shares remain available for issuance under the Company’s equity incentive plan.

In August 2019, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of the issued and outstanding equity interest in Pro Farm Technologies OY, a Finnish limited company (“Pro Farm”), for approximately $6.2 million cash consideration and approximately 12.7 million shares of the Company’s common stock to be paid to Pro Farm’s equity holders, debt holders and advisors at closing, and up to approximately $7.5 million in additional shares of the Company’s common stock payable in installments in each year from 2021 through 2024 in connection with the achievement of certain milestones. Pro Farm is an agriculture technology company developing and producing seed treatments and fertilizers that aim to proactively support and enhance general plant physiology. The acquired business is expected to allow the Company to expand its product offering, intellectual portfolio and its global footprint with four international subsidiaries in Finland, Estonia, Brazil and Uruguay. The Company has not yet completed its evaluation of the accounting treatment for the transaction. The transaction is expected to be material to the Company and is expected to close in the third quarter of 2019.

In August 2019, the Company entered into the Warrant Reorganization Agreement with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants.

The August 2019 Warrants will have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and will be first exercisable 180 days after issuance. The August 2019 Warrants will be exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company has not yet completed its evaluation of the accounting treatment for the transaction.

The Company has evaluated its subsequent events from June 30, 2019 through the date these condensed consolidated financial statements were issued, and has determined that other than those identified above there are no additional 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 acquisition of Pro Farm, including the timing, closing and benefits of the acquisition, 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 (bioprotection) 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.

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.

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Second Quarter 2019 Highlights

The following are the more significant financial results for the three months ended June 30, 2019:

● Revenues increased approximately 21.6% year over year to $7 million from $5.8 million for the same period in 2018

● Gross margins increased year over year to 54.4% from 47.3% for the same period in the prior year

● Loss from operations increased 42.2% compared to the same period in the prior year

The following are the more significant financial results for the six months ended June 30, 2019:

● Revenues increased approximately 55.9% year over year to $15.7 million from $10.1 million for the same period in 2018

● Gross margins increased year over year to 56.0% from 47.7% for the same period in the prior year

● Loss from operations increased 0.6% compared to the same period in the prior year

Other significant developments for our business during the three months ended June 30, 2019 include (i) continued focus on growing our international presence with Regalia Maxx approved for use on cannabis in Canada and the execution of our distributor agreement with TerraLink to distribute the product in Western Canada, and (ii) continued focus on building our intellectual property portfolio with allowance from the U.S. Patent and Trademark office for key claims covering the composition and methods of manufacturing for Grandevo WDG and the execution of our collaborative research agreement with Compass Minerals Plant Nutrition.

In addition, in August 2019, we announced the entry into a definitive agreement for the acquisition of Pro Farm Technologies OY (“Pro Farm”), which will expand the Company’s portfolio of bio-based products for integrated pest management and plant health. We have agreed to acquire Pro Farm based on an enterprise value of $31.8 million, with consideration consisting of a combination of $6.2 million of cash and approximately 12.7 million shares of our common stock of to be paid at closing, as well as the potential payment of a total of up to $7.5 million of additional shares of our common payable each year from 2021 through 2024 based on the achievement of agreed commercial milestones. The acquisition of Pro Farm is expected to close in the third quarter of 2019, and is expected to lift market share and create a larger global platform for our company. The cost associated with this transaction was one of the primary factors for the increase in our loss from operations results.

Also in August 2019, we established a $36.6 million financing facility through a right to call the exercise of certain outstanding warrants at $1.00 per share, which we may draw down as needed  at any time the Company’s stock trades above $1.00. New warrants to purchase shares at a higher exercise price of $1.75 will be issued on a one-for-one basis along with every called share under the outstanding warrants.

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 policies 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.

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Key Components of Our Results of Operations

Revenues

Our total revenues were $7.0 million and $5.8 million for the three months ended June 30, 2019 and 2018, respectively and $15.7 million and $10.1 million for the six months ended June 30, 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, Jet-Ag and Stargus. We believe our revenues were 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.

Product Revenues

Product revenues consist of revenues generated primarily from sales to customers, net of rebates and cash discounts. Product revenues constituted 98% of our total revenues for each of the three months ended June 30, 2019 and 2018, and 99% and 98% for the six months ended June 30, 2019 and 2018, respectively. Product revenues in the United States constituted 93% of our total revenues for each of the three months ended June 30, 2019 and 2018, respectively 93% and 88% of our total revenues for the six months ended June 30, 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 do not address 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 each of the three months ended June 30, 2019 and 2018, license revenues constituted 2% of total revenues, respectively. As of June 30, 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 beginning in November 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 $3.6 million and $2.5 million for the three months ended June 30, 2019 and 2018, respectively and $6.6 million and $5 million for the six months ended June 30, 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.

Although we expect selling, general, and administrative expenses to remain approximately flat in most departments, 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.

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Interest Expense

As of June 30, 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 $5.2 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 June 30, 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.

Results of Operations

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

(1) The above includes revised numbers for the six months ended June 30, 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.

Comparison of Three and Six Months Ended June 30, 2019 and 2018

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
Revenues:
Product		98	%		98	%		99	%		98	%
License		2	%		2	%		1	%		2	%
Total revenues		100	%		100	%		100	%		100	%
Cost of product revenues		46	%		53	%		44	%		52	%
Gross profit		54	%		47	%		56	%		48	%
Operating expenses:
Research, development and patent		52	%		43	%		42	%		50	%
Selling, general and administrative		94	%		83	%		78	%		97	%
Total operating expenses		146	%		126	%		120	%		147	%
Loss from operations		-92	%		-79	%		-64	%		-99	%
Other income (expense):
Interest expense		-5	%		-6	%		-4	%		-14	%
Interest expense to related parties		0	%		0	%		0	%		-4	%
Change in estimated fair value of financial instruments		0	%		0	%		0	%		-51	%
Gain on extinguishment of debt, net (1)		0	%		0	%		0	%		-22	%
Gain on extinguishment of debt, related party (1)		0	%		0	%		0	%		91	%
Other income (expense), net		0	%		0	%		0	%		0	%
Total other expense, net		-5	%		-6	%		-4	%		-1	%
Loss before income taxes		-96	%		-85	%		-68	%		-101	%
Net loss (1)		-96	%		-85	%		-68	%		-101	%

⁽¹⁾ The above includes revised numbers for the six months ended June 30, 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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Product Revenues

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Product revenues	$	6,882		$	5,637		$	15,483		$	9,861
% of total revenues		98	%		98	%		99	%		98	%

Product revenues during the three and six months ended June 30, 2019 increased by $1.2 million, or 21.6% and by $5.6 million, or 57.0%, respectively, to the comparative periods in 2018, as a result of higher demand for and sales of our products, led 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

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
	(Dollars in thousands)
License revenues	$	115		$	115		$	230		$	215
% of total revenues		2	%		2	%		1	%		2	%

License revenues remained consistent for each of the three and six months ended June 30, 2019 and 2018, respectively and in line with our expectations.

Cost of Product Revenues and Gross Profit

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Cost of product revenues	$	3,188		$	3,030		$	6,917		$	5,272
% of total revenues		46	%		53	%		44	%		52	%
Gross profit		3,809			2,722			8,796			4,804
% of total revenues		54.4	%		47.3	%		56.0	%		47.7	%

For the three months ended June 30, 2019, cost of product revenues increased by $0.2 million or 5.2%. For the three months ended June 30, 2019, gross profit increased to 54.4% from 47.3% in the same period ended June 30, 2018. The cost of product revenues and gross profit as a percentage of revenue increases were led by higher gross margins achieved for Grandevo sales and an overall increase in sales volume of Regalia, Venerate and Grandevo during the three months ended June 30, 2019 as compared to the same periods in 2018.

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For the six months ended June 30, 2019, cost of product revenues increased by $1.6 million or 31.2%. For the six months ended June 30, 2019, gross profit increased to 56.0% from 47.7%, in the same period ended June 30, 2018. The cost of product revenues and gross profit as a percentage of revenue increases were led by higher gross margins achieved for Grandevo and Venerate sales and an overall increase in sales volume of Regalia and Venerate during the six months ended June 30, 2019 as compared to the same periods in 2018.

Research, Development and Patent Expenses

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Research, development and patent	$	3,634		$	2,493		$	6,576		$	5,027
% of total revenues		52	%		43	%		42	%		50	%

Research, development and patent expenses for the three and six months ended June 30, 2019 increased by $1.1 million, or 45.8% and $1.5 million, or 30.8%, respectively, as we continued to focus our research and development resources on margin improvement, improved formulations of already commercialized products and accelerated the research and development on our pipeline of new products.

Selling, General and Administrative Expenses

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Selling, general administrative expenses	$	6,604		$	4,746		$	12,278		$	9,777
% of total revenues		94	%		83	%		78	%		97	%

Selling, general and administrative expenses for the three months ended June 30, 2019 increased by $1.9 million, or 39.1%. The increase for the three months ended June 30, 2019 compared to the second quarter of 2018 was due primarily to a $0.7 million increase in salaries, wages, stock-based compensation and compensation bonuses and a $1.3 million increase in legal fees, primarily due to acquisition-related activity.

Selling, general and administrative expenses for the six months ended June 30, 2019 increased by $2.5 million, or 25.6%. The increase for the six months ended June 30, 2019 compared to the first half of 2018 was due primarily to a $1.4 million increase in salaries, wages, stock-based compensation and compensation bonuses and a $1.7 million increase in legal fees primarily due to acquisition-related activity, offset by a decrease in audit and other professional consulting fees of $0.4 million.

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Other Expense, Net

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2019			2018			2019			2018
	(Dollars in thousands)
Interest expense	$	(353	)	$	(340	)	$	(659	)	$	(1,459	)
Interest expense to related parties		-			(17	)		-			(451	)
Change in estimated fair value of derivative liability		-			-			-			(5,177	)
Loss on extinguishment of debt, net (1)		-			-			-			(2,196	)
Gain on extinguishment of debt, related party (1)		-			-			-			9,183
Other (expense) income, net		30			4			48			(27	)
	$	(323	)	$	(353	)	$	(611	)	$	(127	)

For the six months ended June 30, 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 six months ended June 30, 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 and six months ended June 30, 2019 or the three months ended June 30, 2018. We recognized a loss on extinguishment of debt during the six months ended June 30, 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. There was no comparable expense recognized during the three and six months ended June 30, 2019 and the three months ended June 30, 2018.

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 upon 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 may 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 current 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.

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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 $9.5 million at June 30, 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.

We had the following debt arrangements in place as of June 30, 2019 (in thousands):

				PRINCIPAL
	STATED ANNUAL			BALANCE (INCLUDING
DESCRIPTION	INTEREST RATE			ACCRUED INTEREST)		PAYMENT/MATURITY
Promissory Notes (1)		8.00	%	$	2,738	Due December 31, 2022
Promissory Note (2)		7.50	%	$	8,749	Monthly/June 2036
Promissory Notes (3)		8.00	%	$	5,898	Due December 31, 2022
Secured Borrowing (4)		12.78	%	$	4,227	Varies/June 2019

(1)	In February 2018, the maturity date and all interest payments were extended to December 2022. See Note 6 of the condensed consolidated financial statements.
(2)	See Note 6 of the condensed consolidated financial statements.
(3)	In February 2018, the maturity date and all interest payments were extended to December 2022. See Note 10 of the condensed consolidated financial statements.
(4)	Payable through the lender’s direct collection of certain accounts receivable through June 2019. See Note 11 of the condensed consolidated financial statements.

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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 June 30, 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):

	SIX MONTHS ENDED JUNE 30,
	2019			2018
	(in Thousands)
Net cash used in operating activities	$	(10,649	)	$	(14,950	)
Net cash used in investing activities	$	(185	)	$	(478	)
Net cash provided in financing activities	$	2,084		$	37,451
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(8,750	)	$	22,023

Cash Flows from Operating Activities

Net cash used in operating activities of $10.6 million during the six months ended June 30, 2019 primarily resulted from our net loss of $10.7 million and cash used by operating assets and liabilities of $2.6 million. These uses were partially offset by non-cash charges of $2.6 million consisting of $0.9 million of depreciation and amortization, $1.2 million of share-based compensation expense, $0.4 million of amortization of right-of-use assets and $0.1 million of non-cash interest expense.

Net cash used in operating activities of $15.0 million during the six months ended June 30, 2018 primarily resulted from our net loss of $10.1 million and net non-cash gains on the extinguishment of debt of $9.3 million, and cash used by operating assets and liabilities of $5.6 million. These uses were partially offset by non-cash charges of $0.8 million consisting of $5.2 million of fair value change of financial instruments, $2.2 million loss on extinguishment of debt, $1.0 million of depreciation and amortization, $0.9 million of share-based compensation expense and $0.7 million of non-cash interest expense. These non-cash charges were offset by a gain of $9.2 million related to gain on extinguishment of debt with related parties. The above includes revised numbers for the six months ended June 30, 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.

Cash Flows from Investing Activities

Net cash used in investing activities were $0.2 million and $0.5 million during the six months ended June 30, 2019 and 2018, respectively, resulting from purchases of property, plant and equipment to support our operations.

Cash Flows from Financing Activities

Net cash provided in financing activities of $2.1 million during the six months ended June 30, 2019 consisted primarily of net reductions and repayment of debt.

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Net cash provided in financing activities of $37.5 million during the six months ended June 30, 2018 consisted primarily of $34.5 million in net proceeds from the issuance of common stock, $11.8 million in proceeds from the issuance of debt, and offset by reductions and repayment of debt of $8.8 million.

Contractual Obligations

The following is a summary of our contractual obligations as of June 30, 2019 (in thousands):

	TOTAL		2019		2020 - 2021		2022-2023		2024 AND BEYOND
	(In thousands)
Operating lease obligations	$	6,233	$	569	$	2,387	$	2,519	$	758
Debt		20,384		4,345		562		8,106		7,371
Interest payments		10,007		330		1,268		4,330		4,078
Total	$	36,624	$	5,244	$	4,217	$	14,955	$	12,207

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.

Inflation

We believe that inflation has not had a material impact on our results of operations for the three and six months ended June 30, 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.”

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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 $9.5 million as of June 30, 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.

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 June 30, 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 June 30, 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 June 30, 2019.

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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

Except as set forth below, we have not identified any material changes to the risk factors previously disclosed in Part I—Item 1A—“Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 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.

We face risks associated with growth and acquisitions.

As part of our business strategy, we regularly evaluate opportunities for growth through expansion of sales and product offerings in existing or new markets, through acquiring other product lines and businesses or through other strategic or commercial transactions. For example, on August 7, 2019, we entered into a definitive purchase agreement for the acquisition of Pro Farm. Although there can be no assurances that all closing conditions will be satisfied, the Pro Farm acquisition is expected to close in the third quarter of 2019. In the future, we may also pursue other expansion opportunities.

Although we only intend to engage in acquisitions that, if consummated, will be accretive to us and our shareholders, acquisitions require significant management attention and resources to integrating new properties, businesses and operations. Additionally, we will need to successfully integrate the additional properties into our operating structure in order to realize the anticipated benefits of the acquisitions. Potential difficulties we may encounter as part of the integration process include the following:

● the inability to successfully incorporate the assets in a manner that permits us to achieve the full revenue and other benefits anticipated to result from the acquisitions;

● complexities associated with managing the combined business, including difficulty addressing possible differences in cultures and management philosophies and the challenge of integrating complex systems, technologies, networks and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies; and

● potential unknown liabilities and unforeseen increased expenses associated with the acquisitions.

In addition, it is possible that the integration process could result in:

● diversion of the attention of our management; and

● the disruption of, or the loss of momentum in, each our ongoing business or inconsistencies in standards, controls, procedures and policies.

Any of the foregoing could adversely affect our ability to maintain relationships with customers, suppliers, employees and other constituencies or our ability to achieve the anticipated benefits, or could reduce our earnings or otherwise adversely affect our business and financial results.

There can be no assurance that we will be able to identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations, including Pro Farm, into our existing operations without substantial costs, delays or other problems.

38

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	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)
10.1*	Marrone Bio Innovations, Inc. Employee Stock Purchase Plan (incorporated by reference to Appendix A of the Definitive Proxy Statement for the 2019 Annual Meeting filed by the Company on April 30, 2019).
10.2	Amended lease agreement April 25, 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 June 30, 2019 and December 31, 2018, (ii) Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2019 and 2018, (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2019 and 2018 and (v) Notes to Condensed Consolidated Financial Statements

* Indicates a management contract or compensatory plan or arrangement.

39

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 August 9, 2019.

MARRONE BIO INNOVATIONS, INC.

/s/ Pamela G. Marrone

Pamela G. Marrone

Chief Executive Officer

40

EX-10.2

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (the “First Amendment”) is made and entered into as Of April 25, 2019 by and between SAN CARLOS RETAIL VENTURE, L.P., a California limited partnership, VERBENA URP PARTNERS, LP, a California limited partnership, FULCRUM URP INVESTORS, LP, a California limited partnership, GRAY & AFFRIME FAMILY LLC, a California limited liability company, and FLORES-LOPEZ ANVARY LLC, a California limited liability company (collectively, ‘‘Landlord”), as successor-in-interest to Seven Davis LLC (“Prior Landlord”) and Marrone Bio Innovations, Inc., a Delaware corporation (the “Tenant”).

RECITALS

A.	Landlord and Tenant entered into a lease agreement dated April 30, 2014 (the “Lease”) pertaining to certain premises located at the University Research Park herein referred to as (the “Project”) consisting of approximately 17,438 rentable square feet known as 1490 Drew Avenue, Davis, California (the “Premises”);
B.	Tenant and Landlord acknowledge the Tenant is currently in possession and occupying the Premises. Tenant desires to exercise the first of two options provided for in the Lease and extend the term of the Lease for five (5) years. Landlord and Tenant desire to amend the current Rent; and
C.	Landlord and Tenant agree to amend the Lease as provided for herein;

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth hereinafter, Landlord and Tenant agree as follows:

1.	Tenant is currently in possession and occupying the Premises. The current term of the Lease expires August 31, 2019.
2.	Term. Landlord and Tenant desire to extend the term of the Lease for a period of five (5) years (the “First Extension Option”). The First Extension Option shall be from September 1, 2019 through August 31, 2024.
3.	Rent. Tenant shall pay to Landlord the following monthly Rent during the First Extension Option:

Term		Monthly Rent		Rent/RSF
9/1/2019	8/31/2020	$	37,491.70	$	2.15
9/1/2020	8/31/2021	$	38,537.98	$	2.21
9/1/2021	8/31/2022	$	39,758.64	$	2.28
9/1/2022	8/31/2023	$	40,979.30	$	2.35
9/1/2023	8/31/2024	$	42,199.96	$	2.42

4.	Option To Extend. Tenant has one remaining option to extend the term of the Lease as defined in Section 42 of the Lease.
5.	Repairs by Landlord. Section 9 of the Lease is hereby modified with the following:
	Landlord agrees to maintain in good condition and repair the Office HVAC System equipment (“Office HVAC”). Landlord shall contract with a service company for the regular (but not less frequently than quarterly) maintenance, repair and/or replacement (when necessary) of the Office HVAC equipment serving the Premises. Such repairs and/or maintenance of the Office HVAC System shall be billed back to the Tenant as defined in Section 6 herein.
	Except for Landlord’s obligations set forth in Section 9 of the Lease and above, Tenant, at its sole cost and expense, shall keep any specific Lab HVAC (“Lab HVAC System”) in good working order, repair and condition. Tenant shall ensure that any and all Lab HVAC System equipment that is installed shall be maintained at all times in a manner to prevent roof leaks, damage, or noise due to vibrations or improper installation, maintenance or operation. Tenant shall have the sole responsibility to contract with a service company for the regular maintenance and repair of the Lab HVAC System.
6.	Operating Expenses and Real Estate Taxes. From and after the First Expense Year as hereinafter defined, in addition to the Monthly Rent, Tenant agrees to pay additional rent as and when provided in this Section 6.
a)	Definitions. For the purposes of this section, the following terms are defined as follows:

i)	“Lease Year.” Each consecutive calendar year of the term.
ii)	“Tenant’s Expense Percentage.” That portion the Rentable Area of the Premises (RSF) bears to the rentable area of the Complex, as defined herein and as applicable to the operating expenses defined in Sections 6 (b) and 6 (c) below. The Complex shall be defined as 7-URP as defined in Exhibit A-1 attached.
iii)	“Operating Expenses” means only the following operating costs actually incurred by Landlord in managing, operating, insuring, repairing, replacing and maintaining of the Complex and the Project, where the Complex is located, as more particularly described in in Sections 6 (b) and 6 (c).
iv)	Base Year. The term “Base Year” shall mean the 12-calendar month period in Year 2019 “grossed-up” to reflect a 95% occupied and fully-assessed Project.
v)	Expense Year. The term “Expense Year” shall mean the 12-calendar month period as set forth herein. The first Expense Year (the “First Expense Year”) shall commence on the first day following the end of the Base Year and shall continue for the next succeeding 12 calendar months. The second and subsequent Expense Years shall commence on the first day following the end of the preceding Expense Year and shall continue for the next succeeding 12 calendar months.

b)

All expenses, costs and amounts of every kind and nature which Landlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, repair, replacement, restoration or operation of the Project and the real property upon which the Premises is located (collectively, the “Project”), or any portion thereof, without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (a) The cost of all reasonable and necessary repairs, maintenance and operation of the common area heating, air conditioning and ventilating (if applicable), HVAC to the Premises (if applicable), parking areas, sidewalks and grounds including, without limitation, all exterior lighting, the cost of parking area repair, restoration, and maintenance including but not limited to, resurfacing, repainting, restriping, and cleaning and the cost of ordinary materials and supplies consumed in connection with any such maintenance, repair, operation and replacement that in accordance with generally accepted accounting principles would not be capitalized, except to the extent the costs are intended to effect economies in the on-site operation or on-site maintenance of the project; (b) The reasonable and customary management fee for Landlord or Landlord’s managing agent (in accordance with the local market place for comparable buildings) not to exceed three percent (3%) of Base Rent, which shall be inclusive of any cost of materials and supplies used in connection with such management, Landlord’s general overhead, and salaries and benefits of Landlord’s personnel, officers and executives; (c) Salary of the on-site employees directly engaged in the operation and maintenance of the Project; (d) Premiums incurred by Landlord for insurance coverage maintained by Landlord that is required by this Lease or that is customarily carried by operators of comparable buildings in the area of the building; (e) Cost of repair, maintenance, operation and replacements with respect to the Premises utility lines contained therein, including, without limitation, electrical and lighting systems, plumbing systems, sanitary and storm drainage systems, and all other systems and equipment of the Project, and the cost of supplies and equipment and maintenance and service contracts in connection therewith, except that Landlord shall first look to any existing warranties and/or guaranties or other responsible third parties to pay such costs; (f) the cost of replacement of corridors, other common or public areas or facilities, and (g) Security guard or patrol services. The foregoing notwithstanding, Landlord shall segregate all costs and expenses exclusive to the Complex and real property upon which the Premises is located from all costs and expenses which are exclusive to other Complexes in the Project. Similarly, in the event certain costs and expenses are provided to more than one Complex in the Project, said costs and expenses shall be allocated to each Complex in an equitable manner.

c)

“Property Taxes” shall include all taxes, assessments, and other governmental charges, general and special, ordinary and extraordinary, of any kind and nature whatsoever, including but not limited to, assessments for public improvements or benefits, which shall during the Term thereof be laid, assessed, levied, imposed upon or become due 11nd payable, subject only to the following: (i) franchise, estate, inheritance, succession, capital levy, transfers, income and excess profits taxes imposed upon Landlord shall be excluded, and (ii) if at any time during the Term of this Lease, a tax or excise on rents or other tax, however described, is levied or assessed against Landlord on account of the rent expressly reserved hereunder, as a substitute in whole or in part for taxes assessed or imposed on land and buildings, such tax or excise on rents or other tax shall be included within the definition, but only to the extent of the amount thereof which is lawfully assessed or imposed as a direct result of Landlord’s ownership of the Premises or of the rents accruing under this Lease. With respect to any assessment which may be levied against or upon the Premises and which under the laws then in force may be evidenced by improvements of other bonds or may be paid in annual installments there shall be included within Property Taxes for each year only such amount as Landlord shall be required to pay for such year. Landlord and Tenant acknowledge that Proposition 13 was adopted by the voters of the State of California in 1978 to limit increases in real estate taxes by limiting reassessments to events such as changes in ownership. The parties hereby confirm and agree that “Property Taxes” for purposes of this Lease shall include taxes, assessments, fees, levies and charges that may be imposed by governmental bodies for services, including, but not limited to, fire protection, street, sidewalk and road maintenance and improvements, refuse removal and other governmental services because of the limitation on increases in real estate taxes under Proposition I 3.

i)

Other Property Taxes. Tenant shall pay, before delinquency, all taxes and similar charges levied upon or assessed against Tenant’s equipment. furniture. fixtures, inventory, and other personal property situated on the Premises during the Term of this Lease, and upon demand shall reimburse Landlord for any and all taxes payable by Landlord (other than state and federal income taxes measured on the net income of Landlord from all sources) upon, measured by OT reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located on the Premises or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, regardless of whether title to such improvements shall be in Landlord or Tenant.

ii)

General. So long as Tenant’s obligations hereunder are not materially adversely affected thereby, Landlord reserves the right to reasonably change, from time to time, the manner or timing of the foregoing payments. Although this Lease contemplates the computation of Property Taxes on a cash basis, Landlord may make reasonable and appropriate accrual adjustments and Landlord reserves the right to change to a full accrual system of accounting. No delay by Landlord in providing the statement (or separate statements) shall be deemed a default by Landlord or a waiver of Landlord’s right to require payment of Tenant’s obligations for actual or estimated Property Taxes.

d)

Increases in Operating Expenses and Property Taxes as Additional Rent. Beginning with the First Expense Year, if the amount of the Operating Expenses and Property Taxes, as defined in Section 6(b) and 6(c) above, paid by Landlord for the first comparison Expense Year is in excess of the Base Year Operating Expenses and Property Taxes, then Tenant shall pay its proportionate share (Tenant’s Expense Percentage) of such increase in equal monthly amounts as provided in paragraph (e) below.

e)

Landlord shall endeavor to give to Tenant by the first day of December prior to the beginning of each Lease Year a statement of estimated Additional Rent for the following Lease Year. The amount of the annual estimated Additional Rent owed pursuant to this paragraph shall be payable in monthly installments along with the installments of Base Rent due after receipt of the statement. Landlord shall endeavor to give to Tenant by the thirty-first day March following the end of each Lease Year a statement of the actual Additional Rent payable by Tenant pursuant to this paragraph. Landlord shall provide a statement of reasonable detail along with any and all amounts due or payable and shall be paid by Tenant within thirty (30) days of receipt of said statement. However, failure by Landlord to give such statement by said date shall not constitute a waiver by Landlord of its right to require payment of additional rent.

7.	Brokers. Landlord and Tenant each warrant and represent to the other party that it has not voluntarily incurred, on its behalf or on behalf of both Landlord and Tenant, any obligation to pay a commission or finder’s fee to any real estate broker or other person or entity in connection with this Lease, except for the Landlord’s Broker herein listed. The parties acknowledge that Jim Gray and Nahz Anvary of Kidder Matthews are agents for the Landlord and such commission due will be paid by the Landlord. Landlord and Tenant shall each indemnify, defend and hold the other party harmless from claims for any commission or finders’ fee charges by any real estate broker or other person or entity arising from an agreement, whether express or implied, between the indemnifying party and such broker or other person or entity or otherwise arising from the conduct of the indemnifying party.
8.	Exhibit D of the Lease “Rules and Regulations” is hereby deleted and replaced with the Exhibit B herein attached on the last page of this Agreement.
9.	Section 30 of the Lease, “Notices” is hereby deleted and replaced with the following:
	Notices. Any notice or other written instrument relating to this Lease may be delivered personally or by email to the party to whom such notice is addressed, or may be mailed by registered or certified mail to such party at the following address or at such other address as such party from time to time may designate by written notice:

TO LANDLORD:	University Research Park C/O Fulcrum Property Corp., Property Manager 1530 J Street, Suite 200 Sacramento, CA 95814 Email: renee@fulcrumproperty.com
TO TENANT:	Marrone Bio Innovations, Inc. Attn: Chief Financial Officer 1490 Drew Avenue Davis, CA 95618

All notices shall be in writing and shall be deemed to have been given when delivered personally, by email or by facsimile (with confirmation of receipt), twenty four (24) hours after deposited with an overnight courier service for next day delivery or three (3) days after deposited in the United States mail, registered or certified, postage prepaid, and addressed as noted above.

10. CASp. Pursuant to California Civil Code section 1938, Landlord states that, as of the execution of this First Amendment, the Premises has not undergone inspection by a “Certified Access Specialist” (“CASp”) to determine whether the Premises meet all applicable construction-related accessibility standards under California Civil Code section 55.53. Additionally, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that Section 1938 of California Civil Code, as amended, provides as follows:

“A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or Landlord may not prohibit the Tenant or Tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the Tenant or Tenant, if requested by the Tenant or Tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”

a.	In the event that Tenant elects to have a CASp inspection of the Premises performed, Tenant shall provide Landlord with at least thirty (30) days prior written notice of the date of such inspection. Additionally, Tenant acknowledges and agrees that Tenant shall be solely responsible for all costs, expenses and fees incurred in obtaining such CASp inspection of the Premises.
b.	In the event that a CASp inspection (whether performed at the election of Tenant or otherwise) discloses that the Premises do not meet all applicable construction-related accessibility standards and related laws and codes, or any violations of said standards, laws or codes are found to exist, then Tenant shall be responsible, at Tenant’s sole cost and expense, for performing any and all required repairs, alterations, modifications, and improvements: (i} to the Premises (including but not limited to all structural elements), and (ii) to the Common Areas to the extent arising from or triggered by Tenant’s specific use of the Premises or from any work, improvements or alterations (including Tenant’s Work) made by or on behalf of, or for the benefit of, Tenant.
c.	In the event that Tenant is required to undertake any repairs, work, alterations, modifications or improvements to the Premises and/or the Common Areas pursuant to the provisions of this Section 13, Tenant agrees that promptly following completion thereof, Tenant shall cause, at Tenant’s sole cost and expense, a CASp to certify the Premises (and the Common Areas, as applicable) as meeting all applicable construction-related accessibility standards and related laws and codes, and pursuant to California Civil Code Section 55.53.
d.	In the event a CASp inspection of the Premises is performed, the results of such inspection, including any reports, surveys or other documentation prepared in connection with the inspection, shall remain confidential and Tenant shall not disclose the results of such inspection to any other party, except to the extent the same must be disclosed by order of governmental authority with appropriate jurisdiction, or pursuant to applicable law. This Section 13 shall survive the termination or expiration of the Term of the Lease.

11.	Interpretation. Capitalized terms used in this Agreement shall have the meaning ascribed to them in the Lease unless otherwise specifically defined herein.
12.	Acknowledgement. Tenant acknowledges that as of the date hereof to the best of Tenant’s current actual knowledge, Landlord is not in breach of any of its obligations to Tenant under the Lease and Tenant further acknowledges that it has no off-sets, demands or claims against Landlord.
13.	Counterparts. This Lease may be executed in multiple counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same agreement binding upon the parties, notwithstanding that all the parties are not signatories to the same counterpart. In order to facilitate the agreements contemplated by this Lease, signatures transmitted by facsimile or signatures transmitted via e-mail in a “PDF” format may be used in place of original signatures on this Lease. Each party intends to be bound by such party’s facsimile or “PDF” format signature on this Lease, is aware that the other parties are relying on such party’s facsimile or “PDF” format signature, and hereby waives any defenses to the enforcement of this Lease based upon the form of signature. Promptly following any facsimile transmittal or e-mail transmittal of” PDF” format signatures, the parties shall deliver to the other parties the original executed Lease by reputable overnight courier.
	Except as expressly modified by this First Amendment, each and every term of the Lease shall remain in full force and effect without further modification.

<signatures on following page>

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date and year first set forth above.

“LANDLORD” SAN CARLOS RETAIL VENTURE, L.P., a California limited partnership, VERBENA URP PARTNERS, LP, a California limited partnership, FULCRUM URP INVESTORS, LP, a California limited partnership, GRAY & AFFRIME FAMILY LLC, a California limited liability company, and FLORES-LOPEZ ANVARY LLC, a California limited liability company By: Fulcrum Property Corp., a California corporation, as Property Manager
By:	/s/ Mark Friedman
	Mark Friedman, President
Date:	April 26, 2019
“TENANT”
MARRONE BIO INNOVATIONS, INC.,
a Delaware corporation
By:	/s/ Linda Moore
Its:	EVP and General Counsel
Date:	April 25, 2019

 

EXHIBIT “B”

RULES AND REGULATIONS

Tenant agrees to comply with (and require all of Tenant’s employees, agents and contractors to comply with) the following rules and regulations and all other reasonable rules and regulations set by Landlord from time to time for the operation of the Project or the Premises. In the event of any conflict of inconsistency between the rules and regulations and the terms and provisions of the Lease, the terms and provisions of the Lease shall control.

a.	Tenant shall promptly comply with all laws, ordinances, and lawful orders and regulations affecting the Premises hereby leased, and the cleanliness, safety, occupation and use of same.
b.	Tenant agrees to abide by reasonable rules established by Landlord for general cleanliness of the Project. Tenant sha11 keep the Premises wider its control, including the sidewalks adjacent to the Premises, if any, clean and free from rubbish and dirt at all times. Tenant shall keep its entrance doors and window glass clean. All garbage and refuse shall be kept in the kind of container approved by Landlord’s fire and casualty consultants. It shall be removed from the Premises daily and deposited in mass disposal containers in the manner prescribed from time to time by Landlord. Landlord shall provide or designate a service for collection of this garbage and refuse from the designated mass disposal containers. Said service shall be at Tenant’s expense and may be included in the common area charges.
c.	Except as otherwise provided in the Lease, Tenant shall not keep or display any merchandise or signs on, or otherwise obstruct the sidewalks or areaways adjacent to the Premises without the written consent of Landlord. Tenant sha11 maintain the windows in a neat and clean condition and no signs shall be posted on windows. All signs visible from the exterior of the · Premises shall be professionally made. Landlord shall have the right, without giving prior notice to Tenant and without any liability for damage to the Premises or property kept or stored thereon, reasonably caused thereby, to remove any of such signs or merchandise from the Premises.
d.	Except as otherwise provided in the Lease, nothing is to be attached or placed on the exterior walls of the Premises without Landlord’s prior written approval.
e.	Tenant shall not perform any acts or carry on any practices which may injure the building or be a nuisance or menace to other Tenants in the Project. No loudspeakers, televisions, phonographs, radios, flashing lights, machinery or other devices shall be used in a manner so as to be heard or seen outside of the Premises without the prior written consent of Landlord. Tenant shall not carry on any trade or occupation or operate any instrument or apparatus or equipment which emits an odor which may be deemed offensive in nature.
f.	Tenant shall not use the plumbing facilities for any purpose other than that which they are constructed, and no grease or foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage or damage (whether on or off the Premises) resulting therefrom shall be borne by Tenant.
g.	Tenant shall complete, or cause to be completed, substantially all deliveries, loading, or unloading, and services to the Premises prior to 10:00 A.M. of each day. Landlord reserves the right to further regulate the activities of Tenant in regard to deliveries and servicing of the Premises and Tenant agrees to abide by such further reasonable regulations of Landlord.

h.	Tenant shall not use or permit the use of any portion of the Premises as, lodging rooms, or for any unlawful purpose or purposes.
i.	No auction, fire, going out of business, or bankruptcy sales may be conducted on the Premises without the previous written consent of Landlord.
j.	In connection with the use of the common areas, no person shall, without the prior written consent of Landlord, except in the ordinary course of Tenant’s business:

(1)	vend, peddle or solicit orders for sale or distribution of any merchandise, device, service, periodical, book, pamphlet or other matter whatsoever;
(2)	exhibit any sign, placard, banner, notice or other written material;
(3)	distribute any circular, booklet, handbill, placard or other material;
(4)	parade, patrol, picket, demonstrate or engage in any conduct that might tend to interfere with or impede the use of any common area by any customer, business invitee or employee, create a disturbance, attract attention or harass, annoy, disparage or be detrimental to the interest of any of the establishments within the Project;
(5)	use any common area for any purpose when none of the establishments within the Project is open for business or employment; and
(6)	panhandle, beg or solicit funds.

SECOND AMENDMENT TO LEASE

THIS SECOND AMENDMENT TO LEASE (the “Second Amendment”) is made and entered into as of April 25, 2019 by and between SAN CARLOS RETAIL VENTURE, L.P., a California limited partnership, VERBENA URP PARTNERS, LP, a California limited partnership, FULCRUM URP INVESTORS, LP, a California limited partnership, GRAY & AFFRIME FAMILY LLC, a California limited liability company, and FLORES-LOPEZ ANVARY LLC, a California limited liability company (collectively, “Landlord’’), as successor-in-interest to Six Davis LLC (“Prior Landlord”) and Marrone Bio Innovations, Inc., a Delaware corporation (the “Tenant”).

RECITALS

A.	Landlord and Tenant entered into a lease agreement dated September 9, 2013 as amended by the First Amendment to Lease dated April 30, 2014 (collectively the “Lease”) pertaining to certain premises located at the University Research Park herein referred to as (the “Project”) consisting of approximately the combined square footage of 28,432 rentable square feet known as 1530 Drew Avenue and 1540 Drew Avenue located in Davis, California (the “Premises”);
B.	For purposes of calculating the Rent and other charges herein defined, the rentable square footage shall be 27,335 RSF;
C.	Tenant and Landlord acknowledge the Tenant is currently in possession and occupying the Premises. Tenant desires to exercise the first of two options provided for in the Lease and extend the term of the Lease for five (5) years. Landlord and Tenant desire to amend the current Rent; and
D.	Landlord and Tenant agree to amend the Lease as provided for herein;

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth hereinafter, Landlord and Tenant agree as follows:

I.	Tenant is currently in possession and occupying the Premises. The current term of the Lease expires August 31, 2019.
2.	Term. Landlord and Tenant desire to extend the term of the Lease for a period of five (5) years (the “First Extension Option”). The First Extension Option shall be from September 1, 2019 through August 31, 2024.
3.	Rent. Tenant shall pay to Landlord the following monthly Rent during the First Extension Option:

Term		Monthly Rent		Rent/R.SF
9/1/2019	8/31/2020	$	58,770.25	$	2.15
9/1/2020	8/31/2021	$	60,410.35	$	2.21
9/1/2021	8/31/2022	$	62,323.80	$	2.28
9/1/2022	8/31/2023	$	64,237.25	$	2.35
9/1/2023	8/31/2024	$	66,150.70	$	2.42

4.	Option To Extend. Tenant has one remaining option to extend the term of the Lease as defined in Section 42 of the Lease.
5.	Repairs by Landlord. Section 9 of the Lease is hereby modified with the following:
	Landlord agrees to maintain in good condition and repair the Office HVAC System equipment (“Office HVAC”). Landlord shall contract with a service company for the regular (but not less frequently than quarterly) maintenance, repair and/or replacement (when necessary) of the Office HVAC equipment serving the Premises. Such repairs and/or maintenance of the Office HVAC System shall be billed back to the Tenant as defined in Section 6 herein.
	Except for Landlord’s ob1igations set forth in Section 9 of the Lease and above, Tenant, at its sole cost and expense, shall keep any specific Lab HVAC (“Lab HVAC System”) in good working order, repair and condition. Tenant shall ensure that any and all Lab HVAC System equipment that is installed shall be maintained at all times in a manner to prevent roof leaks, damage, or noise due to vibrations or improper installation, maintenance or operation. Tenant shall have the sole responsibility to contract with a service company for the regular maintenance and repair of the Lab HVAC System.

6.	Operating Expenses and Real Estate Taxes. From and after the First Expense Year as hereinafter defined, in addition to the Monthly Rent, Tenant agrees to pay additional rent as and when provided in this Section 6.
a)	Definitions. For the purposes of this section, the following terms are defined as follows:

i)	“Lease Year.” Each consecutive calendar year of the term.
ii)	“Tenant’s Expense Percentage.” That portion the Rentable Area of the Premises (RSF) bears to the rentable area of the Complex, as defined herein and as applicable to the operating expenses defined in Sections 6 (b) and 6 (c) below. The Complex shall be defined as 6-URP as defined in Exhibit A-1 attached.
iii)	“Operating Expenses” means only the following operating costs actually incurred by Landlord in managing, operating, insuring, repairing, replacing and maintaining of the Complex and the Project, where the Complex is located, as more particularly described in in Sections 6 (b) and 6 (c).
iv)	Base Year. The term “Base Year” shall mean the 12-calendar month period in Year 2019 “grossed-up” to reflect a 95% occupied and fully-assessed Project.
v)	Expense Year. The term “Expense Year” shall mean the 12-calendar month period as set forth herein. The first Expense Year (the “First Expense Year”) shall commence on the first day following the end of the Base Year and shall continue for the next succeeding 12 calendar months. The second and subsequent Expense Years shall commence on the first day following the end of the preceding Expense Year and shall continue for the next succeeding 12 calendar months.

b)

All expenses, costs and amounts of every kind and nature which Landlord pays during any Expense Year because of or in connection with the ownership, management, maintenance, repair, replacement, restoration or operation of the Project and the real property upon which the Premises is located (collectively, the “Project”), or any portion thereof, without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (a) The cost of all reasonable and necessary repairs, maintenance and operation of the common area heating, air conditioning and ventilating (if applicable), HVAC to the Premises (if applicable), parking areas, sidewalks and grounds including, without limitation, all exterior lighting, the cost of parking area repair, restoration, and maintenance including but not limited to, resurfacing, repainting, restriping, and cleaning and the cost of ordinary materials and supplies consumed in connection with any such maintenance, repair, operation and replacement that in accordance with generally accepted accounting principles would not be capitalized, except to the extent the costs are intended to effect economies in the on-site operation or on-site maintenance of the project; (b) The reasonable and customary management fee for Landlord or Landlord’s managing agent (in accordance with the local market place for comparable buildings) not to exceed three percent (3%) of Base Rent, which shall be inclusive of any cost of materials and supplies used in connection with such management, Landlord’s general overhead, and salaries and benefits of Landlord’s personnel, officers and executives; (c) Salary of the on-site employees directly engaged in the operation and maintenance of the Project; (d) Premiums incurred by Landlord for insurance coverage maintained by Landlord that is required by this Lease or that is customarily carried by operators of comparable buildings in the area of the building; (e) Cost of repair, maintenance, operation and replacements with respect to the Premises utility lines contained therein, including, without limitation, electrical and lighting systems, plumbing systems, sanitary and storm drainage systems, and all other systems and equipment of the Project, and the cost of supplies and equipment and maintenance and service contracts in connection therewith, except that Landlord shall first look to any existing warranties and/or guaranties or other responsible third parties to pay such costs; (f) the cost of replacement of corridors, other common or public areas or facilities, and (g) Security guard or patrol services. The foregoing notwithstanding, Landlord shall segregate all costs and expenses exclusive to the Complex and real property upon which the Premises is located from all costs and expenses which are exclusive to other Complexes in the Project. Similarly, in the event certain costs and expenses are provided to more than one Complex in the Project, said costs and expenses shall be allocated to each Complex in an equitable manner.

c)

“Property Taxes” shall include all taxes, assessments, and other governmental charges, general and special, ordinary and extraordinary, of any kind and nature whatsoever, including but not limited to, assessments for public improvements or benefits, which shall during the Term thereof be laid, assessed, levied, imposed upon or become due and payable, subject only to the following: (i) franchise, estate, inheritance, succession, capital levy, transfers, income and excess profits taxes imposed upon Landlord shall be excluded, and (ii) if at any time during the Term of this Lease, a tax or excise on rents or other tax, however described, is levied or assessed against Landlord on account of the rent expressly reserved hereunder, as a substitute in whole or in part for taxes assessed or imposed on land and buildings, such tax or excise on rents or other tax shall be included within the definition, but only to the extent of the amount thereof which is lawfully assessed or imposed as a direct result of Landlord’s ownership of the Premises or of the rents accruing under this Lease. With respect to any assessment which may be levied against or upon the Premises and which under the laws then in force may be evidenced by improvements of other bonds or may be paid in annual installments there shall be included within Property Taxes for each year only such amount as Landlord shall be required to pay for such year. Landlord and Tenant acknowledge that Proposition 13 was adopted by the voters of the State of California in 1978 to limit increases in real estate taxes by limiting reassessments to events such as changes in ownership. The parties hereby confirm and agree that “Property Taxes” for purposes of this Lease shall include taxes, assessments, fees, levies and charges that may be imposed by governmental bodies for services, including, but not limited to, fire protection, street, sidewalk and road maintenance and improvements, refuse removal and other governmental services because of the limitation on increases in real estate taxes under Proposition 13.

i)

Other Property Taxes. Tenant shall pay, before delinquency, all taxes and similar charges levied upon or assessed against Tenant’s equipment, furniture, fixtures, inventory, and other personal property situated on the Premises during the Term of this Lease, and upon demand shall reimburse Landlord for any and all taxes payable by Landlord (other than state and federal income taxes measured on the net income of Landlord from an sources) upon, measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located on the Premises or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, regardless of whether title to !such improvements shall be in Landlord or Tenant.

ii)

General. So long as Tenant’s obligations hereunder are not materially adversely affected thereby, Landlord reserves the right to reasonably change, from time to time, the manner or timing of the foregoing payments. Although this Lease contemplates the computation of Property Taxes on a cash basis, Landlord may make reasonable and appropriate accrual adjustments and Landlord reserves the right to change to a full accrual system of accounting. No delay by Landlord in providing the statement (or separate statements) shall be deemed a default by Landlord or a waiver of Landlord’s right to require payment of Tenant’s obligations for actual or estimated Property Taxes.

d)

Increases in Operating Expenses and Property Taxes as Additional Rent. Beginning with the First Expense Year, if the amount of the Operating Expenses and Property Taxes, as defined in Section 6(b) and 6(c) above, paid by Landlord for the first comparison Expense Year is in excess of the Base Year Operating Expenses and Property Taxes, then Tenant shall pay its proportionate share (Tenant’s Expense Percentage) of such increase in equal monthly amounts as provided in paragraph (e) below.

e)

Landlord shall endeavor to give to Tenant by the first day of December prior to the beginning of each Lease Year a statement of estimated Additional Rent for the following Lease Year. The amount of the annual estimated Additional Rent owed pursuant to this paragraph shall be payable in monthly installments along with the installments of Base Rent due after receipt of the statement. Landlord shall endeavor to give to Tenant by the thirty-first day March following the end of each Lease Year a statement of the actual Additional Rent payable by Tenant pursuant to this paragraph. Landlord shall provide a statement of reasonable detail along with any and all amounts due or payable and shall be paid by Tenant within thirty (30) days of receipt of said statement. However, failure by Landlord to give such statement by said date shall not constitute a waiver by Landlord of its right to require payment of additional rent.

7.	Brokers. Landlord and Tenant each warrant and represent to the other party that it has not voluntarily incurred, on its behalf or on behalf of both Landlord and Tenant, any obligation to pay a commission or finder’s fee to any real estate broker or other person or entity in connection with this Lease, except for the Landlord’s Broker herein listed. The parties acknowledge that Jim Gray and Nahz Anvary of Kidder Matthews are agents for the Landlord and such commission due will be paid by the Landlord. Landlord and Tenant shall each indemnify, defend and hold the other party harmless from claims for any commission or finders’ fee charges by any real estate broker or other person or entity arising from an agreement, whether express or implied, between the indemnifying party and such broker or other person or entity or otherwise arising from the conduct of the indemnifying party.
8.	Exhibit D of the Lease “Rules and Regulations” is hereby deleted and replaced with the Exhibit B herein attached on the last page of this Agreement.
9.	Section 30 of the Lease, “Notices” is hereby deleted and replaced with the following:

Notices. Any notice or other written instrument relating to this Lease may be delivered personally or by email to the party to whom such notice is addressed, or may be mailed by registered or certified mail to such party at the following address or at such other address as such party from time to time may designate by written notice:

TO LANDLORD:	University Research Park C/O Fulcrum Property Corp., Property Manager 1530 J Street, Suite 200 Sacramento, CA 95814 Email: renee@fulcrumproperty.com
TO TENANT:	Marrone Bio Innovations, Inc. Attn: Chief Financial Officer 1490 Drew Avenue Davis, CA 95618

All notices shall be in writing and shall be deemed to have been given when delivered personally, by email or by facsimile (with confirmation of receipt), twenty four (24) hours after deposited with an overnight courier service for next day delivery or three (3) days after deposited in the United States mail, registered or certified, postage prepaid, and addressed as noted above.

10.

Section 44 of the Lease, “Storage Space” is hereby deleted in its entirety.

11.

CASp. Pursuant to California Civil Code section 1938, Landlord states that, as of the execution of this Second Amendment, the Premises has not undergone inspection by a “Certified Access Specialist” (“CASp”) to determine whether the Premises meet all applicable construction-related accessibility standards under California Civil Code section 55.53. Additionally, Landlord hereby discloses to Tenant, and Tenant hereby acknowledges, that Section 1938 of California Civil Code, as amended, provides as follows:

“A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or Landlord may not prohibit the Tenant or Tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the Tenant or Tenant, if requested by the Tenant or Tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”

a. In the event that Tenant elects to have a CASp inspection of the Premises performed, Tenant shall provide Landlord with at least thirty (30) days prior written notice of the date of such inspection. Additionally, Tenant acknowledges and agrees that Tenant shall be solely responsible for all costs, expenses and fees incurred in obtaining such CASp inspection of the Premises.

b.	In the event that a CASp inspection (whether performed at the election of Tenant or otherwise) discloses that the Premises do not meet all applicable construction-related accessibility standards and related laws and codes, or any violations of said standards, laws or codes are found to exist, then Tenant shall be responsible, at Tenant’s sole cost and expense, for performing any and all required repairs, alterations, modifications, and improvements: (i) to the Premises (including but not limited to all structural elements), and (ii) to the Common Areas to the extent arising from or triggered by Tenant’s specific use of the Premises or from any work, improvements or alterations (including Tenant’s Work) made by or on behalf of, or for the benefit of, Tenant.
c.	In the event that Tenant is required to undertake any repairs, work, alterations, modifications or improvements to the Premises and/or the Common Areas pursuant to the provisions of this Section 13, Tenant agrees that promptly following completion thereof, Tenant shall cause, at Tenant’s sole cost and expense, a CASp to certify the Premises (and the Common Areas, as applicable) as meeting all applicable construction-related accessibility standards and related laws and codes, and pursuant to California Civil Code Section 55.53.
d.	In the event a CASp inspection of the Premises is performed, the results of such inspection, including any reports, surveys or other documentation prepared in connection with the inspection, shall remain confidential and Tenant sha11 not disclose the results of such inspection to any other party, except to the extent the same must be disclosed by order of governmental authority with appropriate jurisdiction, or pursuant to applicable law. This Section 13 shall survive the termination or expiration of the Term of the Lease.

12.	Interpretation. Capitalized terms used in this Agreement shall have the meaning ascribed to them in the Lease unless otherwise specifically defined herein.
13.	Acknowledgement. Tenant acknowledges that as of the date hereof to the best of Tenant’s current actual knowledge, Landlord is not in breach of any of its obligations to Tenant under the Lease and Tenant further acknowledges that it has no off-sets, demands or claims against Landlord.
14.	Counterparts. This Lease may be executed in multiple counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same agreement binding upon the parties, notwithstanding that all the parties are not signatories to the same counterpart. In order to facilitate the agreements contemplated by this Lease, signatures transmitted by facsimile or signatures transmitted via e-mail in a “PDF” format may be used in place of original signatures on this Lease. Each party intends to be bound by such party’s facsimile or “PDF” format signature on this Lease, is aware that the other parties are relying on such party’s facsimile or “PDF” format signature, and hereby waives any defenses to the enforcement of this Lease based upon the form of signature. Promptly following any facsimile transmittal or e-mail transmittal of “PDF” format signatures, the parties shall deliver to the other parties the original executed Lease by reputable overnight courier.
	Except as expressly modified by this Second Amendment, each and every term of the Lease shall remain in full force and effect without further modification.

<signatures on following page>

IN WITNESS WHE REOF, the parties hereto have executed this Amendment as of the date and year first set forth above.

“LANDWRD” SAN CARLOS RETAIL VENTURE, L.P., a California limited partnership, VERBENA URP PARTNERS, LP, a California limited partnership, FULCRUM URP INVESTORS, LP, a California limited partnership, GRAY & AFFRIME FAMILY LLC, a California limited liability company, and FWRES-LOPEZ ANVARY LLC, a California limited liability company By: Fulcrum Property Corp., a California corporation, as Property Manager
By:	/s/ Mark Friedman
	Mark Friedman, President
Date:	May 6, 2019
“TENANT”
MARRONE BIO INNOVATIONS, INC.,
a Delaware corporation
By:	/s/ Linda Moore
Its:	EVP and General Counsel
Date:	April 25, 2019

 

 

EXHIBIT “B”

RULES AND REGULATIONS

Tenant agrees to comply with (and require all of Tenant’s employees, agents and contractors to comply with) the following rules and regulations and all other reasonable rules and regulations set by Landlord from time to time for the operation of the Project or the Premises. In the event of any conflict of inconsistency between the rules and regulations and the terms and provisions of the Lease, the terms and provisions of the Lease shall control.

a.	Tenant shall promptly comply with all laws, ordinances, and lawful orders and regulations affecting the Premises hereby leased, and the cleanliness, safety, occupation and use of same.
b.	Tenant agrees to abide by reasonable rules established by Landlord for general cleanliness of the Project. Tenant shall keep the Premises under its control. including the sidewalks adjacent to the Premises, if any, clean and free from rubbish and dirt at all times. Tenant shall keep its entrance doors and window glass clean. All garbage and refuse shall be kept in the kind of container approved by Landlord’s fire and casualty consultants. It shall be removed from the Premises daily and deposited in mass disposal containers in the manner prescribed from time to time by Landlord. Landlord shall provide or designate a service for collection of this garbage and refuse from the designated mass disposal containers. Said service shall be at Tenant’s expense and may be included in the common area charges.
c.	Except as otherwise provided in the Lease, Tenant shall not keep or display any merchandise or signs on, or otherwise obstruct the sidewalks or areaways adjacent to the Premises without the written consent of Landlord. Tenant shall maintain the windows in a neat and clean condition and no signs shall be posted on windows. All signs visible from the exterior of the Premises shall be professionally made. Landlord shall have the right, without giving prior notice to Tenant and without any liability for damage to the Premises or property kept or stored thereon, reasonably caused thereby, to remove any of such signs or merchandise from the Premises.
d.	Except as otherwise provided in the Lease, nothing is to be attached or placed on the exterior walls of the Premises without Landlord’s prior written approval.
e.	Tenant shal1 not perform any acts or carry on any practices which may injure the building or be a nuisance or menace to other Tenants in the Project. No loudspeakers, televisions, phonographs, radios, flashing lights, machinery or other devices shall be used in a manner so as to be heard or seen outside of the Premises without the prior written consent of Landlord. Tenant shall not carry on any trade or occupation or operate any instrument or apparatus or equipment which emits an odor which may be deemed offensive in nature.
f.	Tenant shall not use the plumbing facilities for any purpose other than that which they are constructed, and no grease or foreign substance of any kind shall be thrown therein, and the expense of any breakage, stoppage or damage (whether on or off the Premises) resulting therefrom shall be borne by Tenant.
g.	Tenant shall complete, or cause to be completed, substantially all deliveries, loading, or unloading, and services to the Premises prior to 10:00 A.M. of each day. Landlord reserves the right to further regulate the activities of Tenant in regard to deliveries and servicing of the Premises and Tenant agrees to abide by such further reasonable regulations of Landlord.

h.	Tenant shall not use or permit the use of any portion of the Premises as, lodging rooms, or for any unlawful purpose or purposes.
i.	No auction, fire, going out of business, or bankruptcy sales may be conducted on the Premises without the previous written consent of Landlord.
j.	In connection with the use of the common areas, no person shall, without the prior written consent of Landlord, except in the ordinary course of Tenant’s business:

(1)	vend, peddle or solicit orders for sale or distribution of any merchandise, device, service, periodical, book, pamphlet or other matter whatsoever;
(2)	exhibit any sign, placard, banner, notice or other written material;
(3)	distribute any circular, booklet, handbill, placard or other material;
(4)	parade, patrol, picket, demonstrate or engage in any conduct that might tend to interfere with or impede the use of any common area by any customer, business invitee or employee, create a disturbance, attract attention or harass, annoy, disparage or be detrimental to the interest of any of the establishments within the Project;
(5)	use any common area for any purpose when none of the establishments within the Project is open for business or employment; and panhandle, beg or solicit funds.

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: August 9, 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 June 30, 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: August 9, 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 June 30, 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: August 9, 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	6 Months Ended
	Jun. 30, 2019	Aug. 05, 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	Jun. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		110,726,347
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands		Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents		$ 9,471	$ 18,221
Accounts receivable		7,401	2,720
Inventories, net		8,456	8,224
Prepaid expenses and other current assets		1,263	971
Total current assets		26,591	30,136
Property, plant and equipment, net		13,754	14,512
Right of use assets, net		4,922
Restricted cash		1,560	1,560
Other assets		520	359
Total assets		47,347	46,567
Current liabilities:
Accounts payable		2,268	1,692
Accrued liabilities		9,503	6,871
Deferred revenue, current portion		359	438
Lease liability, current portion		813
Debt, current portion, net		4,459	2,318
Total current liabilities		17,402	11,319
Deferred revenue, less current portion		2,270	2,399
Lease liability, less current portion		4,395
Debt, less current portion, net		11,708	11,819
Debt due to related parties		7,300	7,300
Other liabilities		776	794
Total liabilities		43,851	33,631
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at June 30, 2019 and December 31, 2018
Common stock: $0.00001 par value; 250,000 shares authorized, 110,725 and 110,691 shares issued and outstanding as of June 30, 2019 and December 31, 2018		1	1
Additional paid in capital		297,638	296,409
Accumulated deficit	[1]	(294,143)	(283,474)
Total stockholders' equity		3,496	12,936
Total liabilities and stockholders' equity		$ 47,347	$ 46,567

[1] The above includes revised numbers for the six months ended June 30, 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	Jun. 30, 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	110,725,000	110,691,000
Common stock, shares outstanding	110,725,000	110,691,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues:
Total revenues		$ 6,997	$ 5,752	$ 15,713	$ 10,076
Cost of product revenues		3,188	3,030	6,917	5,272
Gross profit		3,809	2,722	8,796	4,804
Operating Expenses:
Research, development and patent		3,634	2,493	6,576	5,027
Selling, general and administrative		6,604	4,746	12,278	9,777
Total operating expenses		10,238	7,239	18,854	14,804
Loss from operations		(6,429)	(4,517)	(10,058)	(10,000)
Other income (expense):
Interest expense		(353)	(340)	(659)	(1,459)
Interest expense, related parties			(17)		(451)
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		30	4	48	(27)
Total other income (expense), net		(323)	(353)	(611)	(127)
Net loss	[1]	$ (6,752)	$ (4,870)	$ (10,669)	$ (10,127)
Basic and diluted net loss per common share:		$ (0.06)	$ (0.04)	$ (0.10)	$ (0.11)
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:		110,723	108,647	110,707	91,713
Product [Member]
Revenues:
Total revenues		$ 6,882	$ 5,637	$ 15,483	$ 9,861
License [Member]
Revenues:
Total revenues		$ 115	$ 115	$ 230	$ 215

[1] The above includes revised numbers for the six months ended June 30, 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 Stockholder's 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
Conversion of related party notes for common stock and warrants	[1]		21,685		21,685
Conversion of related party notes for common stock and warrants , shares	[1]	20,000
Conversion of secured promissory notes for common stock and warrants	[1]		6,196		6,196
Conversion of secured promissory notes for common stock and warrants , shares	[1]	5,714
Conversion of convertible notes for common stock and warrants	[1]		16,843		16,843
Conversion of convertible notes for common stock and warrants, shares	[1]	12,000
Fair value of common stock and warrants issued to placement agent in connection with private			1,610		1,610
Fair value of common stock and warrants issued to placement agent in connection with private , 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, 2017			214,921	(265,572)	(50,651)
Balance, shares at Dec. 31, 2017		31,351
Net loss	[1]				(10,127)
Balance at Jun. 30, 2018		$ 1	295,308	(273,388)	21,921
Balance, shares at Jun. 30, 2018		110,473
Balance at Mar. 31, 2018		$ 1	282,261	(268,518)	13,744
Balance, shares at Mar. 31, 2018		102,093
Net loss				(4,870)	(4,870)	[1]
Settlement of restricted stock units
Settlement of restricted stock units, shares		11
Net settlement of options
Net settlement of options, shares		3
Share-based compensation			382		382
Issuance of common stock, in follow-on offering, net of offering costs and underwriter commissions			12,665		12,665
Issuance of common stock, in follow-on offering, net of offering costs and underwriter commissions, shares		8,366
Balance at Jun. 30, 2018		$ 1	295,308	(273,388)	21,921
Balance, shares at Jun. 30, 2018		110,473
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)
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
Balance at Dec. 31, 2018		$ 1	296,409	(283,474)	12,936
Balance, shares at Dec. 31, 2018		110,691
Net loss	[1]				(10,669)
Balance at Jun. 30, 2019		$ 1	297,638	(294,143)	3,496
Balance, shares at Jun. 30, 2019		110,725
Balance at Mar. 31, 2019		$ 1	296,967	(287,391)	9,577
Balance, shares at Mar. 31, 2019		110,691
Net loss				(6,752)	(6,752)	[1]
Net settlement of options			42		42
Net settlement of options, shares		34
Share-based compensation			606		606
Employee stock purchase plan			23		23
Employee stock purchase plan, shares
Balance at Jun. 30, 2019		$ 1	$ 297,638	$ (294,143)	$ 3,496
Balance, shares at Jun. 30, 2019		110,725

[1] The above includes revised numbers for the six months ended June 30, 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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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands		3 Months Ended							6 Months Ended				12 Months Ended
		Jun. 30, 2019		Mar. 31, 2019	Jun. 30, 2018		Mar. 31, 2018		Jun. 30, 2019		Jun. 30, 2018		Dec. 31, 2018
Cash flows from operating activities
Net loss		$ (6,752)	[1]	$ (3,917)	$ (4,870)	[1]	$ (5,257)	[1]	$ (10,669)	[1]	$ (10,127)	[1]
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization									903		983
Gain on disposal of equipment									(6)
Right of use assets amortization									402
Share-based compensation		606			382				1,164		873
Non-cash interest expense									145		722
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									(4,681)		(937)
Inventories									(232)		646
Prepaid Expenses and other assets									(453)		163
Deferred cost of product revenues											2
Accounts payable									622		(2,159)
Accrued and other liabilities									2,800		(1,692)
Accrued interest due to related parties											(1,614)
Lease liability									(302)
Deferred revenue									(342)
Net cash used in operating activities									(10,649)		(14,950)
Cash flows from investing activities
Purchases of property, plant and equipment									(185)		(478)
Net cash used in investing activities									(185)		(478)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs											34,496
Proceeds from issuance of debt											2,000
Proceeds from secured borrowings									15,126		9,754
Reductions in secured borrowings									(12,981)		(8,670)
Net settlement of options									42
Proceeds from employee stock purchase plan									23
Repayment of debt									(126)		(129)
Net cash provided by financing activities									2,084		37,451
Net (decrease) increase in cash and cash equivalents and restricted cash									(8,750)		22,023
Cash and cash equivalents and restricted cash, beginning of period				$ 19,781			$ 2,833		19,781		2,833		$ 2,833
Cash and cash equivalents and restricted cash, end of period		$ 11,031			$ 24,856				11,031		24,856		$ 19,781
Supplemental disclosure of cash flow information
Cash paid for interest									504		2,481
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities									5		236
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 six months ended June 30, 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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Summary of Business, Basis of Presentation

6 Months Ended

Jun. 30, 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 June 30, 2019, the Company had an accumulated deficit of $294,143,000, 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 June 30, 2019, the Company had working capital of $9,189,000, including cash and cash equivalents of $9,471,000. In addition, as of June 30, 2019, the Company had debt and debt due to related parties of $16,167,000 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 June 30, 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 $8,300,000 at August 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.

In August 2019, the Company entered into a warrant amendment and plan of reorganization agreement (“Warrant Reorganization Agreement”) with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. As of the date of these condensed consolidated financial statements, the Company has delivered a call notice for the exercise of 10 million shares under the February 2018 Warrants.

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

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Significant Accounting Policies

2. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial information as of June 30, 2019, and for the three and six months ended June 30, 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 June 30, 2019, and for the three and six months ended June 30, 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 and six months ended June 30, 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 94% and 92% of the Company’s total revenues for the three months ended June 30, 2019 and 2018, respectively and 88% and 92% of the Company’s total revenues for the six months ended June 30, 2019 and 2018, respectively.

Revenues generated from international customers were 9% and 6% for the three months ended June 30, 2019 and 2018, respectively and 8% and 11% for the six months ended June 30, 2019 and 2018, respectively.

Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended June 30, 2019 and 2018 consist of the following:

	CUSTOMER
	A			B			C			D
Three months ended June 30,
2019		16	%		15	%		12	%		4	%
2018		21	%		11	%		15	%		19	%

Customers to which 10% or more of the Company’s total revenues are attributable for the six months ended June 30, 2019 and 2018, which may or may not correspond with the customers for the periods above, consist of the following:

	CUSTOMER
	A			B			C			D
Six months ended June 30,
2019		28	%		12	%		11	%		9	%
2018		18	%		11	%		21	%		11	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either June 30, 2019 or December 31, 2018, which may or may not correspond with any of the customers above, consist of the following:

	CUSTOMER
	A			B			C			D			E			F
June 30, 2019		16	%		15	%		14	%		10	%		10	%		5	%
December 31, 2018		0	%		1	%		52	%		0	%		0	%		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):

	JUNE 30, 2019			DECEMBER 31, 2018
Product revenues	$	378		$	457
Financing costs		611			604
License revenues		1,640			1,776
		2,629			2,837
Less current portion		(359	)		(438	)
	$	2,270		$	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 June 30, 2019, the Company had deferred product revenue in the amount of $378,000 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. For the three and six months ended June 30, 2019 and 2018, the Company recognized an aggregate of $66,000 and $86,000, respectively and $134,000 and $159,000, respectively of financing component revenues in the aggregate within 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 inception of revenue recognition 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 June 30, 2019 and 2018, research and development expenses totaled $3,390,000 and $2,231,000, respectively, and patent expenses totaled $244,000 and $262,000, respectively. For the six months ended June 30, 2019 and 2018, research and development expenses totaled $6,017,000 and $4,517,000, respectively, and patent expenses totaled $559,000 and $510,000, 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 and six months ended June 30, 2019 and 2018 were $436,000 and $282,000, respectively and $717,000 and $456,000, respectively.

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the three and six months ended June 30, 2019 and 2018 were $185,000 and $316,000, respectively and $376,000 and $602,000, 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):

	JUNE 30,
	2019		2018
Stock options outstanding		6,822		7,256
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,377		1,049
Common shares to be issued in lieu of agent fees		498		498
Employee stock purchase plan		20		—
		61,364		61,528

 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 and six months ended June 30, 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.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of a Securities and Exchange Commission filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018.

In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”). The Company is currently evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its condensed consolidated financial statements and related disclosures.

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Inventories

6 Months Ended

Jun. 30, 2019

Inventory Disclosure [Abstract]

Inventories

3. Inventories

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

	JUNE 30, 2019		DECEMBER 31, 2018
Raw materials	$	893	$	1,844
Work in progress		1,139		1,580
Finished goods		6,424		4,800
	$	8,456	$	8,224

As of June 30, 2019 and December 31, 2018, the Company had $257,000 and $579,000, respectively, in reserves against its inventories.

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Right-of-Use and Lease Liability

6 Months Ended

Jun. 30, 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 June 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 7.03% and 5.2 years, respectively.

The components of lease expense were as follows (in thousands):

	THREE MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2019			JUNE 30, 2019
Operating lease cost	$	290		$	587
Short-term lease cost		20			33
Sublease income		(25	)		(48	)
	$	285		$	572

Other information (in thousands)	SIX MONTHS ENDED
	JUNE 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	442
Right-of-use assets obtained in exchange for operating lease liabilities	$	402

Maturities of lease liabilities for each future calendar year as of June 30, 2019 are as follows (in thousands):

	OPERATING
	LEASES
2019, remaining 6 months	$	569
2020		1,182
2021		1,205
2022		1,241
2023 and beyond		2,036
Total lease payments		6,233
Less: imputed interest		1,025
Total lease obligation		5,208
Less lease obligation, current portion		813
Lease obligation, non-current portion	$	4,395

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Accrued Liabilities

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Accrued Liabilities

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	JUNE 30, 2019		DECEMBER 31, 2018
Accrued compensation	$	2,672	$	2,570
Accrued warranty costs		375		320
Accrued legal costs		691		69
Accrued customer incentives		3,688		2,170
Accrued liabilities, other		2,077		1,742
	$	9,503	$	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 June 30, 2019 and 2018, the Company recognized $75,000 and $61,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $61,000 for the three months ended June 30, 2019 as a result of the historical usage of warranty reserves being lower than previously estimated and during the three months ended June 30, 2019 the Company settled no warranty claims. During the six months ended June 30, 2019 and 2018, the Company recognized $169,000 and $105,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by $114,000 for the six months ended June 30, 2019 as a result of the historical usage of warranty reserves being lower than previously estimated and during the six months ended June 30, 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		55
Settlements made during the period		-
Balance at June 30, 2019	$	375

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Debt

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Debt

6. Debt

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

	JUNE 30, 2019			DECEMBER 31, 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 June 30, 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 June 30, 2019 and December 31, 2018 of $195 and $205.		8,523			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.		4,219			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		23,467			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(4,459	)		(2,318	)
Debt, non-current	$	11,708		$	11,819

As of June 30, 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 June 30, 2019	Debt		Debt to Related Party
2019, remaining 6 months	$	4,345	$	-
2020		270		-
2021		293		-
2022		2,766		5,000
2023		341		-
Thereafter		7,371		-
Total future principal payments		15,386		5,000
Interest payments included in debt balance (1)		975		2,300
	$	16,361	$	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 and six months ended June 30, 2019 and 2018 (in thousands).

	JUNE 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Three Months
June 2014 Secured Promissory Note	$	181	$	—	$	6
LSQ Financing		105		—		—
ASC 606 Financing Component		66		—		66
Other		1
	$	353	$	—	$	72

	JUNE 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Three Months
June 2014 Secured Promissory Notes		156		—		5
LSQ Financing		98		—		3
August 2015 Senior Secured Promissory Notes		—		17		17
ASC 606 Financing Component		86		—		86
	$	340	$	17		111

	JUNE 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Six Months
June 2014 Secured Promissory Note	$	339	$	—	$	11
LSQ Financing		181		—		—
ASC 606 Financing Component		134		—		134
Other		5		—		—
	$	659	$	—	$	145

	JUNE 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Six Months
October 2012 and April 2013 Secured Promissory Notes (2)	$	213	$	—	$	42
June 2014 Secured Promissory Notes		308		—		11
Secured December 2017 Convertible Notes (1)		529		—		322
LSQ Financing		250		—		57
August 2015 Senior Secured Promissory Notes (2)		—		451		131
ASC 606 Financing Component		159		—		159
	$	1,459	$	451	$	722

(1)	This agreement was terminated in February 2018.
(2)	This agreement was amended 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 June 30, 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 $3,014,000 for the six months ended June 30, 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 June 30, 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 (in thousands):

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 June 30, 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 $76,286 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 June 30, 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 there 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 (in thousands):

Principal balance, net at December 31, 2018	$	8,639
Principal payments		(545	)
Interest		328
Debt discount amortization		10
Principal balance, net at June 30, 2019	$	8,432

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 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 June 30, 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.

Under the initial agreement the Company would also pay to LSQ (i) an invoice purchase fee equal to 1.00% 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).

In June 2018, the Company amended the LSQ Financing arrangement and 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 term of the agreement to June 30, 2019. In June 2019, the Company and LSQ Financing mutually agreed to further extend the terms of the LSQ Financing arrangement through August 2019.

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. As of June 30, 2019, $4,219,000 was outstanding under the LSQ Financing.

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Warrants

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2019, no warrants have been exercised. The weighted average remaining contractual life and exercise price for these warrants is 1.73 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.

In August 2019, the Company entered into the Warrant Reorganization Agreement with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants.

The August 2019 Warrants will have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and will be first exercisable 180 days after issuance. The August 2019 Warrants will be exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company has not yet completed its evaluation of the accounting treatment for the transaction.  

In August 2019, the Company entered into an agreement with certain holders of the February 2018 Warrants 1, to allow for the purchase of new warrants. The new warrants will have an exercise price of $1.75 and an expiration date of January 1, 2023 and must be held for a period of at least 180 days. As a condition to the purchase of new warrants, the warrant holder would be required to exercise the same number of its February 2018 Warrants 1, as the number of new warrants to be purchase in addition to the consideration paid for the new warrants. The maximum allowable new warrants which can be purchased under this agreement is 36,000,000. The Company has not yet completed its evaluation of the accounting treatment for the transaction.

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Share-Based Plans

6 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Plans

8. Share-Based Plans

On May 31, 2019, the Company’s shareholders approved an Employee Stock Purchase Plan (the “ESPP”) whereby employees may purchase Company stock through payroll deductions over each six-month period beginning on June 1 and December 1 (the “Offer Period”). The total maximum number of shares available for purchase under the ESPP is 1,000,000. The purchase price of the shares will be 85% of the lower of the fair market value of the shares at the beginning or at the end of the Offer Period. The ESPP is a tax qualified plan under Section 423 of the Internal Revenue Code. All employees, including officers, are eligible to participate in the ESPP. A participant may withdraw all uninvested payment balances credited to their account at any time. An employee whose stock ownership in the Company exceeds 5% of the Company’s outstanding common stock is not eligible to participate in the ESPP. The ESPP is compensatory and the 15% discount will be expensed over the Offer Period. The Company has accounted for the ESPP in accordance with ASC 718, Compensation – Stock Based Compensation. As of June 30, 2019 the Company recorded stock-based compensation expense of approximately $5,000.

As of June 30, 2019, there were options to purchase 6,822,000 shares of common stock outstanding, 1,377,000 restricted stock units outstanding and 10,329,000 share-based awards available for grant under the outstanding equity incentive plans. In July 2019, the Company granted 4,885,000 of options at an average exercise price of $1.44 to certain of its employees. The majority of the options will vest monthly over a period of forty-eight months. The fair value of the options will be based on the Company’s current option pricing model for similar options. The stock-based compensation associated with the grants will be recognize over the vesting period.

For the three and six months ended June 30, 2019 and 2018, the Company recognized share-based compensation of $606,000 and $382,000, respectively and $1,164,000 and $873,000, respectively.

During the three months ended June 30, 2019 and 2018, the Company granted options to purchase 74,000 and 2,075,000 shares of common stock, respectively, at a weighted average exercise price of $1.55 and $1.67, respectively. During the three months ended June 30, 2019 and 2018, 34,000 and 3,000 options, respectively were exercised at a weighted average exercise price of $1.18 and $1.37, respectively.

During the six months ended June 30, 2019 and 2018, the Company granted options to purchase 122,000 and 4,471,000 shares of common stock, respectively, at a weighted average exercise price of $1.57 and $1.78, respectively. During the six months ended June 30, 2019 and 2018, 35,000 and 3,000 options, respectively were exercised at a weighted average exercise price of $1.18 and $1.37, respectively.

The following table summarizes the activity of stock options from December 31, 2018 to June 30, 2019 (in thousands, except weighted average exercise price):

				WEIGHTED-
				AVERAGE
				EXERCISE
	Options			PRICE
Balances at December 31, 2018		7,136		$	3.31
Options granted		122			1.57
Options exercised		(35	)		1.18
Options cancelled		(401	)		1.90
Balances at June 30, 2019		6,822			3.37

The following table summarizes the activity of restricted stock units from December 31, 2018 to June 30, 2019 (in thousands, except weighted average grant date fair value):

	RESTRICTED UNITS
Outstanding at December 31, 2018		1,146
Granted		230
Exercised		-
Forfeited		-
Outstanding at June 30, 2019		1,376

				WEIGHTED
				AVERAGE
				GRANT
	SHARES			DATE FAIR
	OUTSTANDING			VALUE
Non-vested at December 31, 2018		404		$	1.40
Granted		230		$	1.53
Vested		(317	)	$	1.53
Forfeited		-		$	-
Non-vested at June 30, 2019		317		$	1.41

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Commitments and Contingencies

6 Months Ended

Jun. 30, 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 extension of the lease was accounted for in accordance with ASC 842. As of June 30, 2019 and 2018, the Company incurred $287,000 and $151,000, respectively of rent expense, net. See Note 4 for the method of recognition of rent expense on the condensed consolidated financial statements and 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. See Note 4 for the impact of lease income on the condensed consolidated financial statements.

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 of the foregoing transaction fee, in addition to interest and costs and expenses incurred in pursuing the action, including reasonable attorneys’ fees. As of June 30, 2019, a trial date for the matter has been scheduled for July 2020 and a mediation has been scheduled for August 2019. 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

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2019	$	7,300

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

11. Subsequent Events

In July 2019, the Company granted 4,885,000 of options at an average exercise price of $1.44 to certain of its employees. The majority of the options will vest monthly over a period of forty-eight months. The fair value of the options will be based on the Company’s current option pricing model for similar options. The stock-based compensation associated with the grants will be recognize over the vesting period. Following these grants, awards with respect to 5,470,335 shares remain available for issuance under the Company’s equity incentive plan.

In August 2019, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) to acquire 100% of the issued and outstanding equity interest in Pro Farm Technologies OY, a Finnish limited company (“Pro Farm”), for approximately $6.2 million cash consideration and approximately 12.7 million shares of the Company’s common stock to be paid to Pro Farm’s equity holders, debt holders and advisors at closing, and up to approximately $7.5 million in additional shares of the Company’s common stock payable in installments in each year from 2021 through 2024 in connection with the achievement of certain milestones. Pro Farm is an agriculture technology company developing and producing seed treatments and fertilizers that aim to proactively support and enhance general plant physiology. The acquired business is expected to allow the Company to expand its product offering, intellectual portfolio and its global footprint with four international subsidiaries in Finland, Estonia, Brazil and Uruguay. The Company has not yet completed its evaluation of the accounting treatment for the transaction. The transaction is expected to be material to the Company and is expected to close in the third quarter of 2019.

In August 2019, the Company entered into the Warrant Reorganization Agreement with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants.

The August 2019 Warrants will have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and will be first exercisable 180 days after issuance. The August 2019 Warrants will be exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company has not yet completed its evaluation of the accounting treatment for the transaction.

The Company has evaluated its subsequent events from June 30, 2019 through the date these condensed consolidated financial statements were issued, and has determined that other than those identified above there are no additional subsequent events required to be disclosed in these condensed consolidated financial statements.

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Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial information as of June 30, 2019, and for the three and six months ended June 30, 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 June 30, 2019, and for the three and six months ended June 30, 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 and six months ended June 30, 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 94% and 92% of the Company’s total revenues for the three months ended June 30, 2019 and 2018, respectively and 88% and 92% of the Company’s total revenues for the six months ended June 30, 2019 and 2018, respectively.

Revenues generated from international customers were 9% and 6% for the three months ended June 30, 2019 and 2018, respectively and 8% and 11% for the six months ended June 30, 2019 and 2018, respectively.

Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended June 30, 2019 and 2018 consist of the following:

	CUSTOMER
	A			B			C			D
Three months ended June 30,
2019		16	%		15	%		12	%		4	%
2018		21	%		11	%		15	%		19	%

Customers to which 10% or more of the Company’s total revenues are attributable for the six months ended June 30, 2019 and 2018, which may or may not correspond with the customers for the periods above, consist of the following:

	CUSTOMER
	A			B			C			D
Six months ended June 30,
2019		28	%		12	%		11	%		9	%
2018		18	%		11	%		21	%		11	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either June 30, 2019 or December 31, 2018, which may or may not correspond with any of the customers above, consist of the following:

	CUSTOMER
	A			B			C			D			E			F
June 30, 2019		16	%		15	%		14	%		10	%		10	%		5	%
December 31, 2018		0	%		1	%		52	%		0	%		0	%		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):

	JUNE 30, 2019			DECEMBER 31, 2018
Product revenues	$	378		$	457
Financing costs		611			604
License revenues		1,640			1,776
		2,629			2,837
Less current portion		(359	)		(438	)
	$	2,270		$	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 June 30, 2019, the Company had deferred product revenue in the amount of $378,000 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. For the three and six months ended June 30, 2019 and 2018, the Company recognized an aggregate of $66,000 and $86,000, respectively and $134,000 and $159,000, respectively of financing component revenues in the aggregate within 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 inception of revenue recognition 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 June 30, 2019 and 2018, research and development expenses totaled $3,390,000 and $2,231,000, respectively, and patent expenses totaled $244,000 and $262,000, respectively. For the six months ended June 30, 2019 and 2018, research and development expenses totaled $6,017,000 and $4,517,000, respectively, and patent expenses totaled $559,000 and $510,000, 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 and six months ended June 30, 2019 and 2018 were $436,000 and $282,000, respectively and $717,000 and $456,000, respectively.

Advertising

Advertising

The Company expenses advertising costs as incurred. Advertising costs for the three and six months ended June 30, 2019 and 2018 were $185,000 and $316,000, respectively and $376,000 and $602,000, 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):

	JUNE 30,
	2019		2018
Stock options outstanding		6,822		7,256
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,377		1,049
Common shares to be issued in lieu of agent fees		498		498
Employee stock purchase plan		20		—
		61,364		61,528

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 and six months ended June 30, 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.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of a Securities and Exchange Commission filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018.

In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”) and in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”). The Company is currently evaluating ASU 2016-13 and the related ASU 2019-04 and ASU 2019-05 to determine the impact to its condensed consolidated financial statements and related disclosures.

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Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 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 the three months ended June 30, 2019 and 2018 consist of the following:

	CUSTOMER
	A			B			C			D
Three months ended June 30,
2019		16	%		15	%		12	%		4	%
2018		21	%		11	%		15	%		19	%

Customers to which 10% or more of the Company’s total revenues are attributable for the six months ended June 30, 2019 and 2018, which may or may not correspond with the customers for the periods above, consist of the following:

	CUSTOMER
	A			B			C			D
Six months ended June 30,
2019		28	%		12	%		11	%		9	%
2018		18	%		11	%		21	%		11	%

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either June 30, 2019 or December 31, 2018, which may or may not correspond with any of the customers above, consist of the following:

	CUSTOMER
	A			B			C			D			E			F
June 30, 2019		16	%		15	%		14	%		10	%		10	%		5	%
December 31, 2018		0	%		1	%		52	%		0	%		0	%		24	%

Schedule of Deferred Revenue

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

	JUNE 30, 2019			DECEMBER 31, 2018
Product revenues	$	378		$	457
Financing costs		611			604
License revenues		1,640			1,776
		2,629			2,837
Less current portion		(359	)		(438	)
	$	2,270		$	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):

	JUNE 30,
	2019		2018
Stock options outstanding		6,822		7,256
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,377		1,049
Common shares to be issued in lieu of agent fees		498		498
Employee stock purchase plan		20		—
		61,364		61,528

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Inventories (Tables)

6 Months Ended

Jun. 30, 2019

Inventory Disclosure [Abstract]

Schedule of Inventories, Net

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

	JUNE 30, 2019		DECEMBER 31, 2018
Raw materials	$	893	$	1,844
Work in progress		1,139		1,580
Finished goods		6,424		4,800
	$	8,456	$	8,224

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Right-of-Use and Lease Liability (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Schedule of Components of Lease Expense

The components of lease expense were as follows (in thousands):

	THREE MONTHS ENDED			SIX MONTHS ENDED
	JUNE 30, 2019			JUNE 30, 2019
Operating lease cost	$	290		$	587
Short-term lease cost		20			33
Sublease income		(25	)		(48	)
	$	285		$	572

Other information (in thousands)	SIX MONTHS ENDED
	JUNE 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	442
Right-of-use assets obtained in exchange for operating lease liabilities	$	402

Schedule of Maturities of Lease Liabilities

Maturities of lease liabilities for each future calendar year as of June 30, 2019 are as follows (in thousands):

	OPERATING
	LEASES
2019, remaining 6 months	$	569
2020		1,182
2021		1,205
2022		1,241
2023 and beyond		2,036
Total lease payments		6,233
Less: imputed interest		1,025
Total lease obligation		5,208
Less lease obligation, current portion		813
Lease obligation, non-current portion	$	4,395

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Accrued Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	JUNE 30, 2019		DECEMBER 31, 2018
Accrued compensation	$	2,672	$	2,570
Accrued warranty costs		375		320
Accrued legal costs		691		69
Accrued customer incentives		3,688		2,170
Accrued liabilities, other		2,077		1,742
	$	9,503	$	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		55
Settlements made during the period		-
Balance at June 30, 2019	$	375

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Debt (Tables)

6 Months Ended

Jun. 30, 2019

Schedule of Debt Including Debt to Related Parties

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

	JUNE 30, 2019			DECEMBER 31, 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 June 30, 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 June 30, 2019 and December 31, 2018 of $195 and $205.		8,523			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.		4,219			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		23,467			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(4,459	)		(2,318	)
Debt, non-current	$	11,708		$	11,819

Schedule of Contractual Future Principal Payments

As of June 30, 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 June 30, 2019	Debt		Debt to Related Party
2019, remaining 6 months	$	4,345	$	-
2020		270		-
2021		293		-
2022		2,766		5,000
2023		341		-
Thereafter		7,371		-
Total future principal payments		15,386		5,000
Interest payments included in debt balance (1)		975		2,300
	$	16,361	$	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 and six months ended June 30, 2019 and 2018 (in thousands).

	JUNE 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Three Months
June 2014 Secured Promissory Note	$	181	$	—	$	6
LSQ Financing		105		—		—
ASC 606 Financing Component		66		—		66
Other		1
	$	353	$	—	$	72

	JUNE 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Three Months
June 2014 Secured Promissory Notes		156		—		5
LSQ Financing		98		—		3
August 2015 Senior Secured Promissory Notes		—		17		17
ASC 606 Financing Component		86		—		86
	$	340	$	17		111

	JUNE 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Six Months
June 2014 Secured Promissory Note	$	339	$	—	$	11
LSQ Financing		181		—		—
ASC 606 Financing Component		134		—		134
Other		5		—		—
	$	659	$	—	$	145

	JUNE 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Six Months
October 2012 and April 2013 Secured Promissory Notes (2)	$	213	$	—	$	42
June 2014 Secured Promissory Notes		308		—		11
Secured December 2017 Convertible Notes (1)		529		—		322
LSQ Financing		250		—		57
August 2015 Senior Secured Promissory Notes (2)		—		451		131
ASC 606 Financing Component		159		—		159
	$	1,459	$	451	$	722

(1)	This agreement was terminated in February 2018.
(2)	This agreement was amended 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 (in thousands):

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 (in thousands):

Principal balance, net at December 31, 2018	$	8,639
Principal payments		(545	)
Interest		328
Debt discount amortization		10
Principal balance, net at June 30, 2019	$	8,432

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 June 30, 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 June 30, 2018	$	-

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Warrants (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2019, no warrants have been exercised. The weighted average remaining contractual life and exercise price for these warrants is 1.73 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 (Tables)

6 Months Ended

Jun. 30, 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 June 30, 2019 (in thousands, except weighted average exercise price):

				WEIGHTED-
				AVERAGE
				EXERCISE
	Options			PRICE
Balances at December 31, 2018		7,136		$	3.31
Options granted		122			1.57
Options exercised		(35	)		1.18
Options cancelled		(401	)		1.90
Balances at June 30, 2019		6,822			3.37

Summary of Restricted Stock Units Activity

he following table summarizes the activity of restricted stock units from December 31, 2018 to June 30, 2019 (in thousands, except weighted average grant date fair value):

	RESTRICTED UNITS
Outstanding at December 31, 2018		1,146
Granted		230
Exercised		-
Forfeited		-
Outstanding at June 30, 2019		1,376

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		230		$	1.53
Vested		(317	)	$	1.53
Forfeited		-		$	-
Non-vested at June 30, 2019		317		$	1.41

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Related Party Transactions (Tables)

6 Months Ended

Jun. 30, 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 June 30, 2019	$	7,300

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Summary of Business, Basis of Presentation (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands			6 Months Ended
		Aug. 14, 2019	Jun. 30, 2019	Aug. 09, 2019	Dec. 31, 2018
Date of incorporation			Jun. 15, 2006
Accumulated deficit	[1]		$ 294,143		$ 283,474
Working capital			9,189
Cash and cash equivalents			9,471		18,221
Debt excluding related parties			16,167
Debt due to related parties			7,300		$ 7,300
Restricted cash			$ 1,560
Number of warrant shares exercised			52,647,000
February 2018 Warrants [Member] | Warrant Reorganization Agreement [Member]
Number of warrant shares exercised			10,000,000
Subsequent Event [Member]
Cash and cash equivalents				$ 8,300,000
Subsequent Event [Member] | Warrant Reorganization Agreement [Member]
Stock trades price per share		$ 1.00
Subsequent Event [Member] | February 2018 Warrants [Member] | Maximum [Member]
Number of warrant shares exercised		36,600,000
Subsequent Event [Member] | February 2018 Warrants [Member] | Warrant Reorganization Agreement [Member]
Warrants term description		The Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021
Stock trades price per share		$ 1.00

[1] The above includes revised numbers for the six months ended June 30, 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		6 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) Number	Jun. 30, 2018 USD ($)
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	$ 378		$ 378
Revenue recognized	66	$ 86	66	$ 86
Financing component revenues	134	159	134	159
Research and development expenses	3,390	2,231	6,017	4,517
Patent expenses	244	262	559	510
Shipping and handling costs	436	282	717	456
Advertising costs	$ 185	$ 316	$ 376	$ 602
Operating segment | Number			1
Sales Revenue Net [Member] | International Customers [Member]
Customers accounted for percentage of company's total revenues	9.00%	6.00%	8.00%	11.00%
Sales Revenue Net [Member] | International Customers [Member] | Three Product [Member]
Customers accounted for percentage of company's total revenues	94.00%	92.00%	88.00%	92.00%
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		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Customer A [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	16.00%	21.00%	28.00%	18.00%
Customer A [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable			16.00%		0.00%
Customer B [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	15.00%	11.00%	12.00%	11.00%
Customer B [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable			15.00%		1.00%
Customer C [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	12.00%	15.00%	11.00%	21.00%
Customer C [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable			14.00%		52.00%
Customer D [Member] | Sales Revenue Net [Member]
Customers accounted for percentage of company's total revenues and accounts receivable	4.00%	19.00%	9.00%	11.00%
Customer D [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable			10.00%		0.00%
Customer E [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable			10.00%		0.00%
Customer F [Member] | Accounts Receivable [Member]
Customers accounted for percentage of company's total revenues and accounts receivable			5.00%		24.00%

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Significant Accounting Policies - Schedule of Deferred Revenue (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Accounting Policies [Abstract]
Product revenues	$ 378	$ 457
Financing costs	611	604
License revenues	1,640	1,776
Deferred revenue	2,629	2,837
Less current portion	(359)	(438)
Deferred revenue, less current portion	$ 2,270	$ 2,399

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Significant Accounting Policies - Schedule of Anti-dilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	61,364,000	61,528,000
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	6,822,000	7,256,000
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	1,377,000	1,049,000
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
Employee Stock Purchase Plan [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	20,000

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Inventories (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Inventory reserve	$ 257	$ 579

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Inventories - Schedule of Inventories, Net (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 893	$ 1,844
Work in progress	1,139	1,580
Finished goods	6,424	4,800
Inventories, total	$ 8,456	$ 8,224

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Right-of-Use and Lease Liability (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 02, 2019	Dec. 31, 2018
Leases [Abstract]
Right-of-use assets	$ 4,922	$ 5,324
Lease liabilities	$ 813	$ 5,510
Weighted average incremental borrowing rate	7.03%
weighted average remaining lease term	5 years 2 months 12 days

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Right-of-Use and Lease Liability - Schedule of Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Operating lease cost	$ 290	$ 587
Short-term lease cost	20	33
Sublease income	(25)	(48)
Total lease cost	$ 285	572
Cash paid for amounts included in the measurement of lease liabilities		442
Right-of-use assets obtained in exchange for operating lease liabilities		$ 402

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Right-of-Use and Lease Liability - Schedule of Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Jan. 02, 2019	Dec. 31, 2018
Leases [Abstract]
2019, remaining 6 months	$ 569
2020	1,182
2021	1,205
2022	1,241
2023 and beyond	2,036
Total lease payments	6,233
Less: imputed interest	1,025
Total lease obligation	5,208
Less lease obligation, current portion	813	$ 5,510
Lease obligation, non-current portion	$ 4,395

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Accrued Liabilities (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Payables and Accruals [Abstract]
Warranty expense	$ 75	$ 61	$ 169	$ 105
Reduction in warranty expense	$ 61		$ 114

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Accrued Liabilities - Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2019	Dec. 31, 2018
Payables and Accruals [Abstract]
Accrued compensation	$ 2,672	$ 2,570
Accrued warranty costs	375	320
Accrued legal costs	691	69
Accrued customer incentives	3,688	2,170
Accrued liabilities, other	2,077	1,742
Accrued liabilities, total	$ 9,503	$ 6,871

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Accrued Liabilities - Schedule of Changes in Accrued Warranty Costs (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2019 USD ($)
Payables and Accruals [Abstract]
Beginning Balance	$ 320
Warranties issued (released) during the period	55
Settlements made during the period
Ending Balance	$ 375

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Debt (Details Narrative) - USD ($)									1 Months Ended		3 Months Ended		6 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	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018	Jan. 31, 2018	Dec. 31, 2017
Debt conversion amount														$ 6,000,000
Number of warrant shares exercised											52,647,000		52,647,000
Gain/loss on extinguishment of debt	[1]													(2,196,000)
Amount of debt, outstanding											16,361,000		16,361,000
Repayment of secured debt													12,981,000	8,670,000
Required deposit balance											1,560,000		1,560,000		$ 1,560,000
LSQ Funding Group L.C [Member]
Debt instrument description									The Company amended the LSQ Financing arrangement and 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											4,219,000		4,219,000
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											23,467,000		$ 23,467,000		$ 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
October 2012 Secured Promissory Notes and April 2013 Secured Promissory Notes [Member] | Minimum [Member]
Debt instrument borrowing amount								7,500,000
October 2012 Secured Promissory Notes and April 2013 Secured Promissory Notes [Member] | Maximum [Member]
Debt instrument borrowing amount								$ 12,450,000
October 2012 and April 2013 Secured Promissory Notes [Member]
Debt conversion amount		$ 10,000,000
Conversion of debt, shares		5,714,285
Number of warrant shares exercised		1,142,856
Secured debt											2,450,000		$ 2,450,000
Debt instrument, maturity date		Dec. 31, 2022
Gain/loss on extinguishment of debt													319,000	$ 3,014,000
Amount of debt, outstanding											$ 3,425,000		$ 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] | Extended Maturity [Member]
Debt instrument, maturity date														Dec. 31, 2022
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, maturity date													Jun. 30, 2036		Jun. 30, 2036
Debt instrument, interest rate											7.50%		7.50%
Amount of debt, outstanding											$ 8,523,000		$ 8,523,000		$ 8,639,000
Unamortized debt discount											$ 195,000		$ 195,000		$ 205,000
June 2014 Secured Promissory Note [Member] | Secured Debt [Member] | Business Loan Agreement [Member]
Debt instrument borrowing amount										$ 10,000,000
Debt instrument, maturity date													Jun. 30, 2036
Debt instrument, interest rate											7.50%		7.50%
Repayment of secured debt													$ 76,286
Required deposit balance											$ 1,560,000		1,560,000
Unamortized debt discount
June 2014 Secured Promissory Note [Member] | Secured Debt [Member] | Business Loan Agreement [Member] | Prime Rate [Member]
Debt instrument, interest rate											2.00%		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
Gain/loss on extinguishment of debt		$ 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 six months ended June 30, 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	Jun. 30, 2019	Dec. 31, 2018
Debt, including debt due to related parties	$ 16,361
Less debt due to related parties, non-current	(7,300)	$ (7,300)
Debt, non-current	11,708	11,819
Secured Debt [Member]
Debt, including debt due to related parties	23,467	21,437
Less debt due to related parties, non-current	(7,300)	(7,300)
Less current portion	(4,459)	(2,318)
Debt, non-current	11,708	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	8,523	8,639
Secured Debt [Member] | Secured Revolving Borrowing Interest Rate at 12.8% Through June 2019 [Member]
Debt, including debt due to related parties	4,219	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	6 Months Ended	12 Months Ended
	Jun. 30, 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	$ 195	$ 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	Jun. 30, 2019 USD ($)
2019, remaining 6 months	$ 4,345
2020	270
2021	293
2022	2,766
2023	341
Thereafter	7,371
Total future principal payments	15,386
Interest payments included in debt balance	975	[1]
Debt, including debt due to related parties	16,361
Related Party [Member]
2019, remaining 6 months
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		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Expense		$ 353	$ 340	$ 659	$ 1,459
Related Party, Net			17		451
Non cash		72	111	145	722
Secured Debt [Member] | June 2014 Secured Promissory Notes [Member]
Expense		181	156	339	308
Related Party, Net
Non cash		6	5	11	11
Secured Debt [Member] | LSQ Financing [Member]
Expense		105	98	181	250
Related Party, Net
Non cash			3		57
Secured Debt [Member] | ASC 606 Financing Component [Member]
Expense		66	86	134	159
Related Party, Net
Non cash		66	86	134	159
Secured Debt [Member] | Other [Member]
Expense		1		5
Related Party, Net
Non cash
Secured Debt [Member] | August 2015 Senior Secured Promissory Notes [Member]
Expense						[1]
Related Party, Net			17		451	[1]
Non cash			$ 17		131	[1]
Secured Debt [Member] | October 2012 and April 2013 Secured Promissory Notes [Member]
Expense	[1]				213
Related Party, Net	[1]
Non cash	[1]				42
Secured Debt [Member] | Secured December 2017 Convertible Note [Member]
Expense	[2]				529
Related Party, Net	[2]
Non cash	[2]				$ 322

[1] This agreement was amended in February 2018.

[2] This agreement was terminated in February 2018.

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Debt - Schedule of Debt Conversion (Details) - USD ($)			3 Months Ended		6 Months Ended
		Feb. 05, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 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 six months ended June 30, 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		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 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)	$ (3,014,000)
Agent fee payable in common shares				$ 508,000

[1] The above includes revised numbers for the six months ended June 30, 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	6 Months Ended
	Jun. 30, 2019 USD ($)
Principal balance, net at Ending	$ 16,361
June 2014 Secured Promissory Notes [Member]
Principal balance, net at Beginning	8,639
Principal payments	(545)
Interest	328
Debt discount amortization	10
Principal balance, net at Ending	$ 8,432

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Warrants (Details Narrative) - $ / shares			6 Months Ended
	Aug. 14, 2019	Aug. 14, 2019	Jun. 30, 2019
Number of warrants exercised
Warrant weighted average remaining contractual life			1 year 8 months 23 days
Warrant exercise price			$ 1.10
Warrants expiration date description			In August 2019, the Company entered into a warrant amendment and plan of reorganization agreement ("Warrant Reorganization Agreement") with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company's stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants ("August 2019 Warrants") to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants.
Maximum allowable new warrants purchased under agreement			52,647,000
Subsequent Event [Member] | August 2019 Warrants [Member]
Warrant exercise price	$ 1.75	$ 1.75
Warrants expiration date	Jan. 01, 2023	Jan. 01, 2023
Subsequent Event [Member] | February 2018 Warrants One [Member]
Warrant exercise price	$ 1.75	$ 1.75
Warrants expiration date	Jan. 01, 2023	Jan. 01, 2023
Stock trades price per share	$ 1.00
Maximum allowable new warrants purchased under agreement	36,000,000	36,000,000
Subsequent Event [Member] | Warrant Reorganization Agreement [Member]
Warrants expiration date description		In August 2019, the Company entered into the Warrant Reorganization Agreement with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, upon request by the Company, and to the extent of the Company's request, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants ("August 2019 Warrants") to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants. The August 2019 Warrants will have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and will be first exercisable 180 days after issuance. The August 2019 Warrants will be exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company has not yet completed its evaluation of the accounting treatment for the transaction.
Stock trades price per share		$ 1.00
Subsequent Event [Member] | Warrant Reorganization Agreement [Member] | Maximum [Member]
Number of warrants exercised	36,600,000

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Warrants - Summary of Information About Common Stock Warrants Outstanding (Details)	6 Months Ended
	Jun. 30, 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)	Jun. 30, 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	1 Months Ended	3 Months Ended		6 Months Ended
	Jul. 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	May 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense		$ 606	$ 382	$ 1,164	$ 873
Number of options outstanding		6,822,000		6,822,000			7,136,000
Number of restricted stock units outstanding		1,377,000		1,377,000
Number of shares available for grant		10,329,000		10,329,000
Number of option granted to purchase common stock		74,000	2,075,000	122,000	4,471,000
Number of options weighted-average exercise price granted		$ 1.55	$ 1.67	$ 1.57	$ 1.78
Number of option exercised		34,000	3,000	35,000	3,000
Number of options exercised weighted average exercise price		$ 1.18	$ 1.37	$ 1.18	$ 1.37
Subsequent Event [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of option granted to purchase common stock	4,885,000
Number of options weighted-average exercise price granted	$ 1.44
Options vesting period	48 months
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total maximum number of shares available for purchase under the plan						1,000,000
Percentage of purchase price of share on fair market value of share						85.00%
Percentage of discount expensed						15.00%
Stock based compensation expense				$ 5,000

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Share-Based Plans - Summary of Stock Options Activity (Details) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Payment Arrangement [Abstract]
Number of Options, beginning balance			7,136,000
Number of Options granted	74,000	2,075,000	122,000	4,471,000
Number of Options exercised	34,000	3,000	35,000	3,000
Number of Options cancelled			(401,000)
Number of Options, ending balance	6,822,000		6,822,000
Weighted Average Exercise Price, beginning balance			$ 3.31
Weighted Average Exercise Price, granted	$ 1.55	$ 1.67	1.57	$ 1.78
Weighted Average Exercise Price, exercised	1.18	$ 1.37	1.18	$ 1.37
Weighted Average Exercise Price, cancelled			1.90
Weighted Average Exercise Price, ending balance	$ 3.37		$ 3.37

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Share-Based Plans - Summary of Restricted Stock Units Activity (Details)	6 Months Ended
	Jun. 30, 2019 shares
Restricted Units Outstanding, Granted	230,000
Restricted Units Outstanding, Forfeited
Restricted Units Outstanding, Ending balance	1,377,000
Restricted Stock Units [Member]
Restricted Units Outstanding, Beginning balance	1,146,000
Restricted Units Outstanding, Granted	230,000
Restricted Units Outstanding, Exercised
Restricted Units Outstanding, Forfeited
Restricted Units Outstanding, Ending balance	1,376,000

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Share-Based Plans - Summary of Non- vested Restricted Stock Units Activity (Details)	6 Months Ended
	Jun. 30, 2019 $ / shares shares
Share-based Payment Arrangement [Abstract]
Shares outstanding, Beginning balance | shares	404,000
Shares outstanding, Granted | shares	230,000
Shares outstanding, Vested | shares	(317,000)
Shares outstanding, Forfeited | shares
Shares outstanding, Ending balance | shares	317,000
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	1.53
Weighted average grant date fair value, Forfeited | $ / shares
Weighted average grant date fair value, Ending balance | $ / shares	$ 1.41

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Commitments and Contingencies (Details Narrative) $ in Thousands		1 Months Ended				6 Months Ended
	Jan. 19, 2016 USD ($) ft²	Nov. 30, 2018	Feb. 28, 2018 USD ($)	Apr. 30, 2014 USD ($) ft²	Jun. 30, 2013 USD ($) ft²	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)
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%
Lease extended term		60 months

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Related Party Transactions (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands				3 Months Ended		6 Months Ended		12 Months Ended
		Feb. 05, 2018	Aug. 20, 2015	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Number of warrant shares exercised				52,647,000		52,647,000
Warrant exercise price per share				$ 1.10		$ 1.10
Gain/loss on extinguishment of debt	[1]						$ (2,196)
Debt due to related parties				7,300		7,300		$ 7,300
August 2015 Senior Secured Promissory Notes [Member]
Debt instrument to be issued, principal amount				40,000		40,000
Unamortized debt discount				2,171		2,171
August 2015 Senior Secured Promissory Notes [Member]
Number of warrant shares exercised		4,000,000
Number of shares converted amount		$ 35,000
Number of shares converted		20,000,000
Principal remaining outstanding		$ 5,000		5,000		5,000
Gain/loss on extinguishment of debt								9,183
Unamortized debt discount								$ 2,171
Debt due to related parties				$ 7,300		$ 7,300
August 2015 Senior Secured Promissory Notes [Member] | Extended Maturity [Member]
Maturity date		Dec. 31, 2022
August 2015 Senior Secured Promissory Notes [Member] | August 2015 Warrants [Member]
Affiliate revenues percent			40.00%
Number of warrant shares exercised			4,000,000
Warrant exercise price per share			$ 1.91
Fair value of warrant			$ 4,610
Purchase Agreement [Member] | Beneficial Owner [Member]
Affiliate revenues percent			5.00%
Legal fees			$ 302
Purchase Agreement [Member] | 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 six months ended June 30, 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			6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2018	Jun. 30, 2019	Jun. 30, 2018
Consideration of common stock and warrants provided at conversion	[1]			$ (21,685)
Gain on extinguishment	[1]					$ (9,183)
August 2015 Senior Secured Promissory Notes [Member]
Principal (pre-conversion)		40,000			40,000
Accrued interest to be paid at maturity					339
Discount (pre-conversion)		$ (2,171)			(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 six months ended June 30, 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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Subsequent Events (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands			1 Months Ended	3 Months Ended		6 Months Ended
	Aug. 14, 2019	Aug. 14, 2019	Jul. 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Number of option granted to purchase common stock				74,000	2,075,000	122,000	4,471,000
Number of options weighted-average exercise price granted				$ 1.55	$ 1.67	$ 1.57	$ 1.78
Warrants expiration date description						In August 2019, the Company entered into a warrant amendment and plan of reorganization agreement ("Warrant Reorganization Agreement") with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company's stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants ("August 2019 Warrants") to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants.
Number of warrants exercised
Warrant exercise price				$ 1.10		$ 1.10
Subsequent Event [Member] | August 2019 Warrants [Member]
Warrant exercise price	$ 1.75	$ 1.75
Warrants expiration date	Jan. 01, 2023	Jan. 01, 2023
Subsequent Event [Member] | Share Purchase Agreement [Member]
Issued and outstanding equity interest	100.00%	100.00%
Acqisition of cash consideration, amount	$ 6,200
Acqisition of cash consideration, shares	12,700,000
Subsequent Event [Member] | Share Purchase Agreement [Member] | Maximum [Member]
Acqisition of cash consideration, amount	$ 7,500
Subsequent Event [Member] | Warrant Reorganization Agreement [Member]
Warrants expiration date description		In August 2019, the Company entered into the Warrant Reorganization Agreement with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, upon request by the Company, and to the extent of the Company's request, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants ("August 2019 Warrants") to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares may be issued pursuant to the August 2019 Warrants, to the extent the Company exercises its rights to require exercise of the February 2018 Warrants. The August 2019 Warrants will have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and will be first exercisable 180 days after issuance. The August 2019 Warrants will be exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company has not yet completed its evaluation of the accounting treatment for the transaction.
Stock trades price per share		$ 1.00
Subsequent Event [Member] | Warrant Reorganization Agreement [Member] | Maximum [Member]
Number of warrants exercised	36,600,000
Subsequent Event [Member] | Employees [Member]
Number of option granted to purchase common stock			4,885,000
Number of options weighted-average exercise price granted			$ 1.44
Number of shares reserve for future issuance			5,470,335
Options vesting period			48 months