UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices and zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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.
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).
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 | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
| Class | Shares Outstanding at May 9, 2022 | |
| Common Stock, $0.00001 par value |
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
| ITEM 1. | FINANCIAL STATEMENTS (UNAUDITED) |
MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Balance Sheets
(In Thousands, Except Par Value)
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right of use assets, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Restricted cash | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue, current portion | ||||||||
| Lease liability, current portion | ||||||||
| Debt, current portion, net | ||||||||
| Total current liabilities | ||||||||
| Deferred revenue, less current portion | ||||||||
| Lease liability, less current portion | ||||||||
| Debt, less current portion, net | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock: $ par value; shares authorized and shares issued or outstanding at March 31, 2022 and December 31, 2021 | ||||||||
| Common stock: $ par value; shares authorized, and shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes.
| 3 |
MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Product | $ | $ | ||||||
| License | ||||||||
| Total revenues | ||||||||
| Cost of product revenues | ||||||||
| Gross profit | ||||||||
| Operating Expenses: | ||||||||
| Research, development and patent | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Change in fair value of contingent consideration | ||||||||
| Other income, net | ( | ) | ||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Net loss before income taxes | ( | ) | ( | ) | ||||
| Income tax expense | ( | ) | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per common share: | $ | ( | ) | $ | ( | ) | ||
| Weighted-average shares outstanding used in computing basic and diluted net loss per common share: | ||||||||
See accompanying notes.
| 4 |
MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Statements of Stockholder’s Equity
For the Three Months Ended March 31, 2022 and 2021
(In Thousands)
(Unaudited)
| COMMON STOCK | ADDITIONAL PAID IN | ACCUMULATED | TOTAL STOCKHOLDERS’ | |||||||||||||||||
| SHARES | AMOUNT | CAPITAL | DEFICIT | EQUITY | ||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Employee stock purchase plan | — | |||||||||||||||||||
| Settlement of restricted stock units | ||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| COMMON STOCK | ADDITIONAL PAID IN | ACCUMULATED | TOTAL STOCKHOLDERS’ | |||||||||||||||||
| SHARES | AMOUNT | CAPITAL | DEFICIT | EQUITY | ||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Net settlement of options | ||||||||||||||||||||
| Share-based compensation | — | |||||||||||||||||||
| Employee stock purchase plan | — | |||||||||||||||||||
| Settlement of restricted stock units | ||||||||||||||||||||
| Exercise of warrants | ||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes
| 5 |
MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Change in inventory reserves | ( | ) | ( | ) | ||||
| Right of use assets amortization | ||||||||
| Share-based compensation | ||||||||
| Non-cash interest expense | ||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ||||
| Net changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid Expenses and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued and other liabilities | ( | ) | ( | ) | ||||
| Lease Liability | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Payment of consideration in connection with previous asset purchase | ( | ) | ||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from secured borrowings | ||||||||
| Repayment in secured borrowings | ( | ) | ( | ) | ||||
| Repayment of debt | ( | ) | ( | ) | ||||
| Net settlement of options | ||||||||
| Proceeds from employee stock purchase plan | ||||||||
| Exercise of warrants | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash, beginning of period | ||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities | ||||||||
| Property, plant and equipment included in accounts payable and accrued liabilities | $ | $ | ||||||
| Right of use assets (non-cash) acquired | $ | $ | ||||||
| Accrued liabilities related to equity compensation for earned but not granted | $ | $ | ||||||
See accompanying notes.
| 6 |
MARRONE BIO INNOVATIONS, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 2022
(Unaudited)
1. Summary of Business, Basis of Presentation
Marrone
Bio Innovations, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on
The accompanying condensed consolidated financial information as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, 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, 2021.
In the opinion of management, the condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The Company is a growth-oriented agricultural company that supports environmentally sustainable farming practices through the discovery, development and sale of innovative biological products for crop protection, crop health and crop nutrition. The Company’s portfolio of 18 products helps customers operate more sustainably while increasing their return on investment. The Company’s products are used globally and can be applied as foliar treatments or as seed-and-soil treatments, either on their own or in combination with other agricultural products. The Company targets the major markets that use conventional chemical products, including certain agricultural markets where its biological products are used as alternatives for, or mixed with, conventional chemical products. The Company also targets new markets for which (i) there are no available conventional chemical products or (ii) the use of conventional chemical products may not be desirable or permissible either because of health and environmental concerns (including for organically certified crops) or because the development of pest resistance has reduced the efficacy of conventional chemical products. The Company’s products are sold through distributors and other commercial partners to growers around the world for use in integrated pest management systems that improve efficacy and increase yields while protecting the environment. The Company’s products are often used in conjunction with or as an alternative to other agricultural solutions to control pests and enhance plant nutrition and health. The Company’s bioprotection products help farmers manage pests and plant diseases, the Company’s plant health products help farmers reduce crop stress, and both the Company’s plant health and bionutrition products to increase yields and quality. The Company delivers EPA-approved and registered biological crop protection products and other biological products that address the global demand for effective, safe and environmentally responsible products.
| 7 |
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, although there is substantial doubt about its ability to continue as a going concern for 12 months after the issuance of these condensed consolidated financial statements. This assessment 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 the Company’s substantial doubt about its ability to continue as a going concern.
The
Company has a limited number of commercialized products and has incurred significant losses since inception, and expects to continue
to incur losses for the foreseeable future. The Company’s historical operating results, including prior periods of negative use
of operating cash flows and debt maturities due within the 12 months of the balance sheet date indicate that substantial doubt exists
related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these condensed
consolidated financial statements. As of March 31, 2022, the Company had a working capital deficit of $
The Company expects it will exceed its current ratio and maximum debt-to-worth requirement under the June 2014 Secured Promissory Note with Five Star Bank, and the June 2014 Secured Promissory Note contains a material adverse change clause that could be invoked by the lender as a result of the uncertainty related to the Company’s ability to continue as a going concern. If the lender were to declare an event of default, the entire amount of borrowings related to all debt agreements at that time would have to be reclassified as current in the condensed consolidated financial statements. The lender has waived its right to deem recurring losses, liquidity, going concern, and financial condition a material adverse change through March 31, 2023. As a result, the long-term portion of the June 2014 Secured Promissory Note has not been reclassified to current in these condensed consolidated financial statements as of March 31, 2022. Further, a violation of a covenant in one debt agreement will cause the Company to be in violation of certain covenants under each of its other debt agreements. Breach of covenants included in the Company’s debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances, will have a material adverse effect upon the Company and would likely require the Company to seek to renegotiate these debt arrangements with the lenders. If such negotiations are unsuccessful, the Company may be required to seek protection from creditors through bankruptcy proceedings. The Company’s inability to maintain compliance with its debt covenants could have a negative impact on the Company’s financial condition and ability to continue as a going concern.
The
Company believes that its existing cash and cash equivalents of $
| 8 |
2. Significant Accounting Policies
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, and forecasted estimates and assumptions related to impairment analysis for goodwill and contingent considerations related to Pro Farm, and assumptions and estimates associated with its going concern analysis.
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and debt. The Company deposits its cash and cash equivalents with high credit quality domestic financial institutions with locations in the U.S. and internationally. Such deposits may exceed federal or national 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
The
Company’s principal sources of revenues are its Regalia, Grandevo, Venerate and UPB-110 ST product lines. These four product lines
accounted for
Revenues
generated from international customers were
| 9 |
Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended March 31, 2022 and 2021 consist of the following:
| CUSTOMER | ||||||||||||||||
| A | B | C | D | |||||||||||||
| Three months ended March 31, | ||||||||||||||||
| 2022 | % | % | % | % | ||||||||||||
| 2021 | % | % | % | % | ||||||||||||
Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2022 or December 31, 2021, which may or may not correspond with any of the customers above, consist of the following:
| CUSTOMER | ||||||||||||||||
| A | B | C | D | |||||||||||||
| March 31, 2022 | % | % | % | % | ||||||||||||
| December 31, 2021 | % | % | % | % | ||||||||||||
Concentrations of Supplier Dependence
The Company continues to rely on third parties to formulate Grandevo into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, 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.
Products
produced by the Company’s Pro Farm subsidiary, including UBP and Foramin, are partially sourced by suppliers from a
manufacturing plant in Russia, in which the Company owns a
| 10 |
Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows (in thousands):
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash, less current portion | ||||||||
| Total cash, cash equivalents and 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. (Refer to Note 6 of these condensed consolidated financial statements.)
Intangible Assets
The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company’s intangible assets include customer relationships, patents, trademarks, and in process research and development acquired in 2019 in connection with its asset acquisition of the Jet-Ag and Jet-Oxide product lines and the Company’s acquisition of Pro Farm.
Long-Lived Assets
Impairment losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount by which the carrying value of the asset or asset group exceeds its estimated fair value.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired.
Fair Value
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:
● Level 1—Quoted prices in active markets for identical assets or liabilities.
● Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
| 11 |
Deferred Revenue
When the Company receives consideration, or such consideration is unconditionally due, from a customer prior to transferring control of goods or services to the customer under the terms of a sales contract, the Company records deferred revenue, which represents a contract liability. The Company recognizes deferred revenue as net sales after the Company has transferred control of the goods or services to the customer and all revenue recognition criteria are met. The Company’s deferred revenue is broken out as follows (in thousands):
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| Product revenues | $ | $ | ||||||
| Financing costs | ||||||||
| License revenues | ||||||||
| Total deferred revenues | ||||||||
| Less current portion | ( | ) | ( | ) | ||||
| Long term portion | $ | $ | ||||||
Research, Development and Patent Expenses
Research
and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and
lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations
as incurred. For the three months ended March 31, 2022 and 2021, research and development expenses totaled $
Shipping and Handling Costs
Amounts
billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included
as a component of cost of product revenues. Shipping and handling costs for the three months ended March 31, 2022 and 2021 were $
Advertising
The
Company expenses advertising costs as incurred and has included these expenses as a component of selling, general and administrative
costs. Advertising costs for the three months ended March 31, 2022 and 2021 were $
Depreciation and Amortization
The Company depreciates and amortizes its capitalized property, plant, and equipment and intangible assets over the useful life of each asset utilizing a straight-line method of expensing. All depreciation and amortization expenses are included in the “Selling, general, and administrative” caption in the condensed consolidated statement of operations.
| 12 |
For
the three months ended March 31, 2022 and 2021, the total amount of depreciation expense was $
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 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, and contingent shares to be issued in the future are anti-dilutive due to the Company’s net loss position. Anti-dilutive common stock equivalents are excluded from diluted net loss per share. The following table sets forth the potential shares of common stock as of the end of each period presented that are not included in the calculation of diluted net loss per share because to do so would be anti-dilutive (in thousands):
| MARCH 31, | MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| Stock options outstanding | ||||||||
| Warrants to purchase common stock | ||||||||
| Restricted stock units outstanding | ||||||||
| Common shares to be issued in lieu of agent fees | ||||||||
| Employee stock purchase plan | ||||||||
| Maximum contingent consideration shares to be issued | ||||||||
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of consolidated financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of an SEC filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” (“ASU No. 2018-19”), in April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”), in November 2019, the FASB issued Accounting Standards Update No. 2019-10, Financial Instruments—Credit Losses, (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Date (“ASU 2019-10”) and Accounting Standards Update No. 2019-11, Financial Instruments—Credit Losses (“ASU 2019-11”), and in February 2020, the FASB issued Accounting Standards Update No. 2020-02, Financial Instruments—Credit Losses, (Topic 326) and Leases (Topic 842) (“ASU 2020-02”). ASU 2020-02, delayed the effective date for certain entities including entities meeting the SEC’s definition of a Smaller Reporting Company. The Company adopted the ASU on January 1, 2022 on a prospective basis. The adoption of ASU 2016-13 had no significant impact on the Company’s condensed consolidated financial statements.
| 13 |
In May 2021, the FASB issued Accounting Standards Update No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Based Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU No. 2021-04”), which clarified an issuer’s accounting for modification or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The provisions of ASU No. 2021-04 are effective for annual reporting periods beginning after December 15, 2021, and interim reporting periods within those annual periods, with early adoption permitted, including adoption in any interim period for public business entities for periods for which consolidated financial statements have not yet been issued or made available for issuance. The Company adopted the ASU on January 1, 2022 on a prospective basis. The adoption of ASU 2021-04 had no significant impact on the Company’s condensed consolidated financial statements.
3. Inventory
Inventories consist of the following (in thousands):
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished goods | ||||||||
| $ | $ | |||||||
As
of March 31, 2022 and December 31, 2021, the Company had $
4. Right-Of-Use Assets and Lease Liability
The components of lease expense were as follows for each of the comparative three months ended March 31, 2022 and 2021 (in thousands):
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Total operating lease costs: | $ | $ | ||||||
| 14 |
Maturities of lease liabilities for each future calendar year as of March 31, 2022 are as follows (in thousands):
| OPERATING | ||||
| LEASES | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Total lease obligation | ||||
| Less lease obligation, current portion | ||||
| Lease obligation, non-current portion | $ | |||
5. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued compensation | $ | $ | ||||||
| Accrued warranty costs | ||||||||
| Accrued customer incentives | ||||||||
| Accrued liabilities, acquisition related | ||||||||
| Loan-related fees | ||||||||
| Accrued liabilities, other | ||||||||
| Accrued Liabilities | $ | $ | ||||||
Contingent Consideration
As of March 31, 2022, the contingent consideration in connection with the Company’s acquisition of Pro Farm was accounted for as a liability at its fair value. The following table provides a reconciliation of the activity for the contingent consideration measured between the most recent reporting period and as of the balance sheet date based on the fair value using significant inputs including the unobservable inputs (Level 3) (in thousands):
| CONTINGENT | ||||
| CONSIDERATION | ||||
| LIABILITY | ||||
| Fair value at December 31, 2021 | $ | |||
| Change in estimated fair value recorded of contingent consideration | ( | ) | ||
| Fair value at March 31, 2022 | ||||
The change in fair value for the reporting period was driven by the result of the unobservable fair value model, a Monte Carlo simulation in a risk-neutral framework assuming Geometric Browning Motion. The most significant input to the model was the estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2022 – 2023. The following represents other inputs used in determining the fair value of the contingent consideration liability:
| MARCH 31, | ||||
| 2022 | ||||
| Discount Rate | % | |||
| Volatility | % | |||
| Credit spread | % | |||
| Risk-free rate | % | |||
| 15 |
Discount Rate. Discount rate is based on an adjusted weighted cost of capital contribution considering an estimated operational leverage ratio and a risk-free rate, each (other than the risk-free rate) determined by publicly traded peer group median.
Estimated Volatility Factor. Volatility factor is based on the adjusted weighted cost of capital, operating asset volatility, operating leverage ratio and risk-free interest rate, each (other than the risk-free rate) determined by publicly traded peer group median.
Credit Spread. Credit spread based on the Company’s financial ratio in comparison with those of publicly traded peer group.
Interest Rate. Interest rate based on US Constant Maturity Treasury rates for the same period as the period of performance of 2022 to 2023.
The
change in the fair value estimate is recognized in the Company’s condensed consolidated statement of operations in Other Income
(expense) under caption Change in fair value of contingent consideration. The contingent consideration will be determined at each reporting
period and will be settled with the issuance of the Company’s common shares. As of March 31, 2022, the total maximum amount of
contingent consideration shares that can be issued in the future is
6. Debt
Debt, including debt due to related parties, consists of the following (in thousands):
| MARCH 31, | DECEMBER 31, | |||||||
| 2022 | 2021 | |||||||
| Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at | $ | $ | ||||||
| Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus | ||||||||
| Secured revolving borrowing (“LSQ Financing”) bearing interest at ( | ||||||||
| Senior secured promissory notes (“August 2015 Senior Secured Promissory Notes”) bearing interest at | ||||||||
| Research loan facility (“2018 Research Facility”) bearing interest at | ||||||||
| Debt | $ | $ | ||||||
| Less current portion | ( | ) | ( | ) | ||||
| Debt, non-current | $ | $ | ||||||
| 16 |
As of March 31, 2022, aggregate contractual future principal payments on the Company’s debt are due as follows (in thousands):
| PERIOD ENDING DECEMBER 31, | ||||
| 2022 (remaining nine months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total future principal payments | ||||
| Interest payments included in debt balance (1) | ||||
| Total future debt payments | $ | |||
| 1) |
October 2012 and April 2013 Secured Promissory Notes
As
of March 31, 2022, there have been no changes to the previously reported total principal amount outstanding under the October 2012 and
April 2013 Secured Promissory Note, which continues to be $
As of March 31, 2022, the Company is in compliance with all financial covenants.
June 2014 Secured Promissory Note
In
June 2014, the Company borrowed $
The following table reflects the activity under this note (in thousands):
| 2022 | 2021 | |||||||
| Principal balance, net at January 1, | $ | $ | ||||||
| Principal payments | ( | ) | ( | ) | ||||
| Interest | ||||||||
| Debt discount amortization | ||||||||
| Principal balance, net at March 31, | $ | $ | ||||||
| 17 |
August 2015 Senior Secured Promissory Notes
As
of March 31, 2020, there have been no changes to the previously reported total principal amount outstanding under the August 2015 Senior
Secured Promissory Notes, which continues to be $
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
LSQ Financing
In
January 2020, the Company entered into a Second Amendment to the Company’s Invoice Purchase Agreement with LSQ. The amendment,
among other things, (i) increased the amount of eligible customer invoices which LSQ may elect to purchase from the Company to up to
$
As
of March 31, 2022, the Company was in compliance with all financial covenants of the agreement. For the three months ended March 31,
2022 and 2021, the Company recorded interest expense of approximately $
As of March 31, 2022, there were options to purchase shares of common stock outstanding, restricted stock units outstanding and share-based awards available for grant under the outstanding equity incentive plans.
For the three months ended March 31, 2022 and 2021, the Company recognized share-based compensation of $ and $, respectively.
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In
February 2022, the Company granted awards under a newly implemented long-term incentive program (“LTIP”). Under the LTIP,
grants to certain executive officers in a total aggregate amount of restricted stock units and, options to purchase
shares of the Company’s common stock were
issued under the 2013 Plan. The awards vest in equal monthly installments over three years, subject to the recipient’s continued
employment by the Company through the applicable vesting date, provided that, in lieu of the terms of any change in control agreement
in place between the Company and the recipient, in the event that any recipient is terminated without Cause (as defined in the applicable
recipient’s Change In Control Agreement) or resigns for Good Reason (as defined in the applicable recipient’s Change In Control
Agreement) within twelve months of a Change in Control (as defined in the recipient’s Change In Control Agreement), %
of the unvested portion of each Executive Award will become immediately vested. The options to purchase common stock were granted
at an exercise price of $
| WEIGHTED- | ||||||||
| AVERAGE | ||||||||
| SHARES | EXERCISE | |||||||
| OUTSTANDING | PRICE | |||||||
| Balances at December 31, 2021 | $ | |||||||
| Options granted | $ | |||||||
| Options exercised | $ | |||||||
| Options cancelled | ( | ) | $ | |||||
| Balances at March 31, 2022 | $ | |||||||
Also under the LTIP, in February 2022, the Company granted restricted stock units to certain other employees at a grant date market value of $. .
| WEIGHTED | ||||||||
| AVERAGE | ||||||||
| GRANT | ||||||||
| SHARES | DATE FAIR | |||||||
| OUTSTANDING | VALUE | |||||||
| Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Settled | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Outstanding at March 31, 2022 | $ | |||||||
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The following table summarizes the activity of non-vested restricted stock units from December 31, 2021 to March 31, 2022 (in thousands, except weighted average grant date fair value):
| WEIGHTED | ||||||||
| AVERAGE | ||||||||
| GRANT | ||||||||
| SHARES | DATE FAIR | |||||||
| OUTSTANDING | VALUE | |||||||
| Nonvested at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Nonvested at March 31, 2022 | $ | |||||||
8. Merger Agreement
On March 16, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bioceres Crop Solutions Corp., a Cayman Islands exempted company (“Bioceres”), and BCS Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Bioceres (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Bioceres (“NewCo”). Consummation of the Merger is subject to the approval of the Company’s stockholders, the receipt of required regulatory approvals and satisfaction of other customary closing conditions.
The board of directors of the Company (the “Board”) has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, (ii) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to and in the best interests of the Company and its stockholders, (iii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and (iv) resolved to recommend adoption of the Merger Agreement by the Company’s stockholders. The Merger Agreement was also unanimously approved by the board of directors of Bioceres.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $ per share, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by Bioceres, the Company or any direct or indirect wholly owned subsidiary of Bioceres or the Company, in each case immediately prior to the Effective Time, shall be cancelled and extinguished and automatically converted into the right to receive (the “Exchange Ratio”) validly issued, fully paid and nonassesable ordinary shares, par value $ per share, of Bioceres and, if applicable, cash in lieu of fractional Bioceres ordinary shares (the “Merger Consideration”).
The Merger Agreement also specifies the treatment of the Company’s outstanding equity awards in connection with the Merger, which shall be treated as follows at the Effective Time:
(i) each outstanding restricted stock unit award relating to shares of Company Common Stock (a “Company RSU”) (that is not a Company RSU that provides for settlement and issuance of shares of Company Common Stock in connection with a change in control of the Company (a “Change in Control Settled RSU”) that is unvested immediately prior to the Effective Time and does not vest as a result of the consummation of the transactions contemplated by the Merger Agreement shall be assumed by Bioceres (each, an “Assumed RSU”), with each such Assumed RSU being subject to substantially the same terms and conditions, except that the number of Bioceres ordinary shares subject to each Assumed RSU Award shall be equal to the product of (x) the number of shares of Company Common Stock underlying such unvested Company RSU as of immediately prior to the Effective Time (with any performance milestones deemed achieved based on maximum level of performance) multiplied by (y) the Exchange Ratio;
(ii) each outstanding Company RSU that is vested immediately prior to the Effective Time (taking into account any acceleration of vesting as a result of the consummation of the transactions contemplated by the Merger Agreement), each Change in Control Settled RSU (whether or not vested) and each unvested Company RSU held by a non-employee director of the Company will be settled immediately before the Effective Time by way of the issuance of one share of Company Common Stock for each such Company RSU and such shares of Company Common Stock will be converted into the right to receive the Merger Consideration;
(iii) each outstanding option to purchase Company Common Stock (a “Company Option”) that is unvested as of immediately prior to the Effective Time (and does not vest as a result of the consummation of the transactions contemplated by the Merger Agreement) and each Company Option that is outstanding and vested as of immediately prior to the Effective Time (or vests as a result of the consummation of the transactions contemplated by the Merger Agreement) for which the exercise price per share is equal to or greater than the Cash Equivalent Consideration (as defined in the Merger Agreement) (a “Rolled Vested Option”), shall be assumed by Bioceres (each, an “Assumed Option”), with each such Assumed Option being subject to substantially the same terms and conditions, except that (A) the number of Bioceres ordinary shares subject to each Assumed Option shall be equal to the product of (x) the number of shares of Company Common Stock underlying such Company Option as of immediately prior to the Effective Time multiplied by (y) the Exchange Ratio, and (B) the per share exercise price of each Assumed Option shall be equal to the quotient determined by dividing (x) the exercise price per share at which such Company Option was exercisable immediately prior to the Effective Time by (y) the Exchange Ratio;
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(iv) each Company Option, other than a Rolled Vested Option, that is outstanding and vested as of immediately prior to the Effective Time (or vests as a result of the consummation of the transactions contemplated by the Merger Agreement) shall be cancelled and converted into the right to receive the Merger Consideration in respect of each “net” share underlying such Company Option, which is the quotient obtained by dividing (A) the product of (x) the excess of the Cash Equivalent Consideration (as defined in the Merger Agreement) over the per share exercise price of such Company Option multiplied by (y) the number of shares subject to such Company Option by (B) the Cash Equivalent Consideration (as defined in the Merger Agreement); and
(v) with respect to the employee stock purchase plan (the “ESPP”), the Company shall make any pro rata adjustments necessary to reflect a shortened offer period under the ESPP and treat any shortened offer period as a fully effective and completed offer period for all purposes pursuant to the ESPP, cause the exercise, no later than one business day, prior to the date on which the Effective Time occurs, of each outstanding purchase right pursuant to the ESPP, and then terminate the ESPP.
The Merger Agreement contains representations and warranties of the Company and Bioceres relating to their respective businesses and public filings, in each case generally subject to a materiality qualifier. Additionally, the Merger Agreement provides for pre-closing covenants of the Company, including (i) covenants relating to conducting its business in the ordinary course consistent with past practice and refraining from taking certain types of actions without Bioceres’s consent, (ii) covenants relating to removing certain inventory from certain jurisdictions and (iii) certain restrictions on the Company’s ability to solicit alternative acquisition proposals from third parties, and/or to provide information to third parties and to engage in discussions with third parties, in each case, in connection with alternative acquisition proposals, subject to certain exceptions (the “No-Shop”).
The consummation of the Merger is subject to certain closing conditions, including (i) the approval of the Company’s stockholders (the “Company Stockholder Approval”), (ii) the expiration or termination of all waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and receipt of any other specified merger control consents or clearances, (ii) the effectiveness of the registration statement to be filed by Bioceres with the SEC pursuant to the Merger Agreement, (iii) the approval for listing on Nasdaq of Bioceres’s ordinary shares to be issued as Merger Consideration in connection with the Merger, subject to official notice of issuance, (iv) the absence of any judgment or law issued by any governmental entity enjoining or otherwise prohibiting the consummation of the Merger, and (vii) other customary conditions specified in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, each of the Company and Bioceres is required to use reasonable best efforts to consummate the Merger, including with respect to satisfaction of the relevant closing conditions.
Prior to obtaining the Company Stockholder Approval, the Board may, in certain limited circumstances, withdraw or modify its recommendation that the Company’s stockholders adopt the Merger Agreement or recommend or otherwise declare advisable any Superior Proposal (as defined in the Merger Agreement) (a “Company Recommendation Change”), subject to complying with notice and other specified conditions, including giving Bioceres the opportunity to propose revisions to the terms of the transaction contemplated by the Merger Agreement during a matching right period. Notwithstanding a Company Recommendation Change, unless Bioceres terminates the Merger Agreement, the Company is still required to convene the meeting of its stockholders.
The Merger Agreement also provides for certain termination rights of Bioceres and the Company, including the right of either party to terminate the Merger Agreement if the Merger is not consummated by the date that is eight (8) months following the date of the Merger Agreement. Either party may also terminate the Merger Agreement if the Company Stockholder Approval has not been obtained at a duly convened meeting of the Company’s stockholders or a judgment enjoining or otherwise prohibiting consummation of the Merger becomes final and non-appealable.
In
addition, Bioceres may terminate the Merger Agreement if the Board effects a Company Recommendation Change, fails to include its recommendation
to vote in favor of the Merger in the proxy statement/prospectus to be filed with the SEC in connection with the transaction or willfully
breaches the provisions of the No-Shop in any material respect prior to the Company Stockholder Approval having been obtained. If the
Merger Agreement is terminated by Bioceres in connection with such actions, then the Company shall be obligated to pay Bioceres a fee
equal to $
Prior to the Effective Time, Bioceres is required to take all necessary corporate action so that upon and after the Effective Time, (x) if the size of the board of directors of Bioceres is 8 or less members, then 2 members thereof shall have been designated by the Board and (y) if the size of the board of directors of Bioceres is more than 8 members, then 3 members thereof shall have been designated by the Board.
9. Subsequent Events
The Company has evaluated its subsequent events from March 31, 2022 through the date these condensed consolidated financial statements were issued, and has determined that there are no additional subsequent events required to be disclosed.
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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, 2021, as filed with the Securities and Exchange Commission (the “Annual Report”) on March 30, 2022. 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 “would”, “could”, “will”, “may”, “expect”, “believe”, “should”, “anticipate”, “outlook”, “if”, “future”, “intend”, “plan”, “estimate”, “predict”, “potential”, “targets”, “seek” or “continue” or and similar words and phrases, including negatives of these terms or similar words, phases, expressions, or other variations of these terms, that denote future events. 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, including our plans to expand our business through diversification of our portfolio and strategic acquisition or partnerships and investment in our sales and marketing efforts, plans to expand our manufacturing plant, the progress, scope or duration of the development of product candidates or programs, commercialization 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 anticipated operations, financial position, revenues, costs or expenses, statements regarding future economic conditions or performance, the impact of COVID-19 on our operations and revenues, statements regarding the potential completion and potential benefits of a merger transaction with Bioceres Crop Solutions Corp.,, our continued listing on the Nasdaq Capital Market, 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.
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Overview
We are a growth-oriented agricultural company that supports environmentally sustainable farming practices through the discovery, development and sale of innovative biological products for crop protection, crop health and crop nutrition. Our portfolio of 18 products helps customers operate more sustainably while increasing their return on investment. Our products are used globally, and can be applied as foliar treatments or as seed-and-soil treatments, either on their own or in combination with other agricultural products. We target the major markets that use conventional chemical pesticides and fertilizers, where our biological products are used as alternatives for, or mixed with, conventional chemical products. We also target new markets for which there are no available conventional chemical products, or the use of conventional chemical products may not be desirable (including for organically certified crops) or permissible, either because of health and environmental concerns or because the development of pest resistance has reduced the efficacy of conventional chemical pesticides. We sell our products through distributors and other commercial partners to growers who use our bioprotection products to manage pests and plant diseases, our plant health products to reduce crop stress, and both our plant health and bionutrition products to increase yields and quality.
Business Strategy
We have built a full-service biologicals organization with scope and capabilities across the spectrum of biological products in the market today. Our strategic objective is to capitalize on that position and emerge as the clear leader in the biologicals space with the financial and operational wherewithal to accelerate our path to profitability.
As we look forward, our goal is to leverage our base business, while accelerating our expansion plans and broadening our global reach. We are committed to launching the brand extensions and pipeline products that offer the greatest return on investment for our channel partners and grower customers. We anticipate that synergistic, value-creating acquisitions and partnerships will be part of our strategy. We believe we can continue to tuck in additional product lines as we build a larger commercial presence with a scalable platform.
Our strategy for the current long-term period includes the diversification of our portfolio, which includes expanding our reach globally, moving away from having sales concentrated in the United States, ongoing research and development efforts to accelerate the time to market and revenue contributions of our pipeline products, and continued focus on our current operations to support our growth and profitability and enhance stockholder value.
First Quarter 2022 Highlights
The following are the more significant financial results for the three months ended March 31, 2022:
| ● | Revenues increased approximately 0.5% year over year to $11.1 million, from $11.0 million for the same period in 2021; | |
| ● | Gross profits decreased approximately 10.9% year over year to $6.2 million, from $7.0 million for the same period in 2021, and gross margins decreased to 55.9% from 63.1%% for the same period in the prior year; | |
| ● | Operating expenses were $13.2 million in the first quarter of 2022, compared with $10.0 million in the first quarter of 2021; and | |
| ● | Net loss in the first quarter of 2022 was $7.6 million, compared with a net loss of $3.3 million in the first quarter of 2021. |
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Other significant developments for our business during the three months ended March 31, 2022 include (i) announcement of our CFO transition; (ii) execution of distributor agreement with Corteva Agriscience; and (iii) announcement of our merger agreement with Bioceres Crop Solutions Corp. (“Bioceres”).
Bioceres Merger Agreement
On March 16, 2022, we entered into a definitive agreement and plan of merger (the “Merger Agreement”) with Bioceres. At the effective time of the merger, as set forth in the Merger Agreement, each share of our common stock issued and outstanding immediately prior to the effective time, other than shares owned by Bioceres or held by us, will be cancelled and extinguished and automatically converted into the right to receive 0.088 validly issued, fully paid and nonassesable ordinary shares of Bioceres, and our shares would cease to be publicly held.
The consummation of the merger is subject to certain closing conditions, including (i) the approval of our stockholders, (ii) the expiration or termination of all waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and receipt of any other specified merger control consents or clearances, (ii) the effectiveness of the registration statement to be filed by Bioceres with the SEC pursuant to the Merger Agreement, (iii) the approval for listing on Nasdaq of Bioceres’ ordinary shares to be issued as merger consideration in connection with the merger, subject to official notice of issuance, (iv) the absence of any judgment or law issued by any governmental entity enjoining or otherwise prohibiting the consummation of the merger, and (vii) other customary conditions specified in the Merger Agreement. See Note 8 to our condensed consolidated financial statements for additional information regarding the merger.
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 estimating revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize, forecast estimated utilized in identifying impairment indicators of long-lived asset, intangibles and goodwill, contingent consideration liabilities and our going concern assessment, have the greatest potential impact on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.
Key Components of Our Results of Operations
Revenues
Our total revenues were $11.1 million and $11.0 million for the three months ended March 31, 2022 and 2021, respectively.
Product Revenues
We generate our revenues primarily from product sales, which are principally attributable to sales of our Grandevo, Regalia, UPB-110 ST, and Venerate product lines, but also include sales of our other product families. We believe our revenues may largely be impacted by weather, trade tariffs and other factors that affect commodity prices, natural disasters, infectious diseases 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. Despite the continued impact of COVID-19, we presently expect revenues to continue to increase year-over-year for 2022.
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Product revenues consist of revenues generated primarily from sales to customers, net of rebates and cash discounts. Product revenues constituted 99% of our total revenues for each of the three months ended March 31, 2022 and 2021, respectively. Product revenues in the United States constituted 87% and 94% of our total revenues for the three months ended March 31, 2022 and 2021, respectively. While our first quarter results reflect our historical trends, which are primarily driven by product revenues in the U.S. market, we expect a larger portion of our business to be driven by international activities through our Pro Farm products and continued focus on commercialization of our products in new countries in the future. Latin America continues to represent one of the geographies we have targeted for international expansion. While we cannot be certain as to the results at this time, with the recent fluctuations in COVID-19 cases in and around that region, our expected product revenues could be negatively impacted.
We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenues because we sell through large traditional distributors. We continue to develop our pipeline and introduce new products to the marketplace and anticipate that, over time, our revenue stream will be diversified over a broader product portfolio and customer base, including contributions from our Pro Farm product offerings.
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, production 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. Gross profit is the difference between total revenues and cost of product revenues. Gross margin is gross profit expressed as a percentage of total revenues.
We 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, including through expansion of our manufacturing plant, 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 and as we move the manufacturing of more of our products in-house. In particular, we may experience downward pressure on overall gross margins as we expand sales of more recently commercialized products including Haven, Pacesetter, Optima, Stargus, Takla, and Ympact. 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.
While we cannot be certain as to the extent of the future impact of cost increases at this time, we have experienced increases in general cost of product revenues, included related to shipping and handling costs globally, and our gross margins could be negatively impacted.
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 and regulatory staff in support of product discovery, development, and support for manufacturing, quality, and regulatory 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 $3.2 million and $2.5 million for the three months ended March 31, 2022 and 2021, respectively.
While we cannot be certain as to the results at this time, we believe changes in research, development and patent expenses, including external supplier costs, were impacted by COVID-19 and our most current comparative trends may not be reflective of normal operating expense trends during these period or in the future as activities continue to move towards levels priors to COVID-19.
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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 executives, sales, marketing, finance and human resources and other administrative personnel, as well as professional fees related to, legal, audit and tax services, accounting fees, acquisition costs, public company expenses and other selling costs incurred related to business development and to acquire or build 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.
We typically expect our general administrative expenses to remain relatively flat in most departments with increases for inflation. However, in order to drive our strategy and revenue growth, we expect expenses related to sales and marketing to increase in the future as we increase our marketing communications campaigns and put more “boots on the ground,” as we continue to build our global sales and marketing organization to educate and support customers and provide technical sales support, field trials and demonstrations to promote sales growth, which should increase grower demand, or pull-through, develop new customer relationships, as well as expand business with existing customers. In previous periods, certain efforts have slowed or been delayed, due to COVID-19 related restrictions, which has impacted our ability to engage in sales and marketing efforts physically or perform in person demonstrations.
Interest Expense
Interest expenses are primarily driven by outstanding debt financing arrangements, however not all of our current debt instruments are currently generating interest expenses. See Note 6 to our condensed consolidated financial statements.
Income Tax Provision
As of the three months ended March 31, 2022 and 2021 the Company recognized $11,000 and ($41,000) in income tax provisions for foreign tax purposes, respectively. The effective tax rate (calculated as the ratio of income tax expense to pre-tax income) for the three months ended March 31, 2022 and 2021 was 0.15% and (1.24%), respectively. The Company does not recognize benefits from tax losses in the United States or for certain Pro Farm subsidiaries.
Results of Operations
The following table sets forth certain statements of operations data as a percentage of total revenues:
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Product | 99 | % | 99 | |||||
| License | 1 | 1 | ||||||
| Total revenues | 100 | 100 | ||||||
| Cost of product revenues | 44 | 37 | ||||||
| Gross profit | 56 | 63 | ||||||
| Operating Expenses: | ||||||||
| Research, development and patent | 28 | 23 | ||||||
| Selling, general and administrative | 91 | 68 | ||||||
| Total operating expenses | 119 | 91 | ||||||
| Loss from operations | (63 | ) | (28 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (5 | ) | (4 | ) | ||||
| Change in fair value of contingent consideration | - | 1 | ||||||
| Other income (expense), net | (1 | ) | 1 | |||||
| Total other expense, net | (6 | ) | (2 | ) | ||||
| Net loss before income taxes | (69 | ) | (30 | ) | ||||
| Income tax expense | - | (0 | ) | |||||
| Net loss | (69 | )% | (30 | ) | ||||
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Comparison of Three Months Ended March 31, 2022 and 2021:
Product Revenues
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands) | ||||||||
| Product revenues | $ | 10,982 | $ | 10,904 | ||||
| % of total revenues | 99 | % | 99 | % | ||||
Product revenues during the three months ended March 31, 2022 and 2021 increased by approximately $0.1 million or 0.7% to the comparative period in 2021, as a result of higher sales of our UBP product families by $0.7 million offset by overall lower sales of legacy product families Venerate and Grandevo in aggregate of $0.9 million. During the three months ended March 31, 2022, our other legacy products outside of our top four products continued to see growth when compared to the prior period. We expect to see overall revenue growth and a more diversified sales mix as we continue to invest in our sales and marketing efforts and global expansion, despite the on-going impacts of COVID-19.
License Revenues
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands) | ||||||||
| License revenues | $ | 115 | $ | 134 | ||||
| % of total revenues | 1 | % | 1 | % | ||||
License revenues remained consistent for each of the three months ended March 31, 2022 and 2021, in line with our expectations. Future periods may be impacted positively upon us entering into new or amended collaborative agreements or by up to $0.8 million upon the completion of future milestones from previous agreements.
Cost of Product Revenues and Gross Profit
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands) | ||||||||
| Cost of product revenues | $ | 4,891 | $ | 4,069 | ||||
| % of total revenues | 44 | % | 37 | % | ||||
| Gross profit | 6,206 | 6,969 | ||||||
| 55.9 | % | 63.1 | % | |||||
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For the three months ended March 31, 2022, cost of product revenues was up approximately $0.8 million and gross profit decreased to 55.9% from 63.1% from the prior comparative period. The primary driver of the margin decrease is attributed to overall sales mix of products with lower margins and an overall increase in manufacturing and production costs. The margin for the three months ended March 31, 2022 continues to reflect our expectations of gross margins in the high 50% range.
Research, Development and Patent Expenses
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands) | ||||||||
| Research, development and patent | $ | 3,160 | $ | 2,512 | ||||
| % of total revenues | 28 | % | 23 | % | ||||
Research, development and patent expenses for the three months ended March 31, 2022 increased $0.6 million, or 25.8%, as we continue focus on pipeline products. For the three months ended March 31, 2022, increases were primarily related to toxicology costs of $0.1 million, direct registration fees of $0.2 million, consulting costs of $0.1 million and an overall increase in salaries of $0.1 million.
As a result of COVID-19, research, development and patent costs may not be at normal levels during these periods, but management cannot determine the direct impact on our operating results.
Selling, General and Administrative Expenses
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands) | ||||||||
| Selling, general administrative expenses | $ | 10,068 | $ | 7,483 | ||||
| % of total revenues | 91 | % | 68 | % | ||||
Selling, general and administrative expenses for the three months ended March 31, 2022 increased $2.6 million, or 34.5%. The increase was primarily due to salaries and severance of $0.2 million each, facilities related expenses and public company expenses of $0.1 million each, legal expenses of $1.4 million and consulting costs of $0.6 million. These increases were offset by decrease of $0.2 million in stock-based compensation expenses and $0.1 million in accounting and tax professional services. The primary increase in legal and consulting expenses for the three months ended March 31, 2022 are attributable to the Merger Agreement with Bioceres.
As a result of COVID-19, selling, general and administrative expenses may not be at normal levels during these periods but management cannot determine the direct impact on our operating results.
Other Expense, Net
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| (Dollars in thousands) | ||||||||
| Interest expense | (551 | ) | (393 | ) | ||||
| Change in fair value of contingent consideration | 32 | 134 | ||||||
| Other income (expense) net | (66 | ) | 65 | |||||
| $ | (585 | ) | $ | (194 | ) | |||
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For the three months ended March 31, 2022 and 2021, respectively, other expense, net, increased related to the recent increase and utilization of our AR factoring and inventory facility agreement with LSQ. Refer to Note 6 of the condensed consolidated financial statements.
Seasonality and Quarterly Results
The second half of the year is typically a transition period in the agricultural industry, with the harvest of crops completing in certain areas and planting beginning in others. Accordingly, we have increasingly had higher sales during the first half of the year than the second half, and believe this trend will continue. However, the level of seasonality in our business may change due to a number of factors, such as our expansion into new geographical territories, the introduction of new products, the timing of introductions of new products, and the impact of weather and climate change. Further, we expect substantial fluctuation in sales year over year and quarter over quarter as a result of the number of variables on which sales of our products are dependent. Weather conditions, new trade tariffs, natural disasters, outbreaks of infectious diseases (including the current COVID-19 pandemic) and other factors affect planting and growing seasons and incidence of pests and plant disease. Accordingly, these factors may affect decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. In addition, disruptions that cause delays by growers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the quarter and cause fluctuations in our operating results. Customers also may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, 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, which may cause significant fluctuations in our operating results for a particular quarter or year.
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
In March 2017, we entered into an invoice purchase agreement with LSQ, pursuant to which LSQ may elect to purchase up to $7.0 million of eligible customer invoices from us. Our obligations under the LSQ financing are secured by a lien on substantially all of our personal property; such lien is first priority with respect to our accounts receivable, inventory, and related property. In January 2020, we entered into a second amendment to the invoice purchase agreement, the terms of which included among other terms an increase to $20.0 million of eligible customer invoices to be purchased and simultaneously entered into an addendum to allow us to request that LSQ advance a maximum of $3.0 million of our finished goods inventory. In December 2021 we amended the addendum increasing the LSQ advance maximum from $3.0 million to $4.5 million. As of March 31, 2022, we had an outstanding balance of $13.2 million in secured borrowings.
In February 2018 we completed certain financing transactions which resulted in the issuance of an aggregate of 70.5 million shares of common stock and warrants to purchase an aggregate of 48.9 million shares of common stock, the deleveraging of our balance sheet by reducing principal payments that were outstanding by $49 million, and the deferral of payment on $7.5 million of remaining outstanding debt until December 31, 2022.
On February 8, 2021, we filed a universal “shelf” registration statement on Form S-3 with the U.S. Securities and Exchange Commission (“SEC”), which was declared effective by the SEC on March 26, 2021. Under the shelf registration statement, if and upon becoming effective, we may offer and sell, from time to time over a three-year period, various securities in an aggregate amount of up to $90 million.
As of March 31, 2022 debt outstanding includes $10.7 million in principal and accrued interest with a maturity date of December 31, 2022. To the extent that debt is not restructured, extended, converted or otherwise amended, we will be required to repay these debts along with our general operating expenses in that period.
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As of March 31, 2022, we were out of compliance with certain covenant requirements under our June 2014 Secured Promissory Note. However, the lender, Five Star Bank, has waived its right to deem recurring losses, liquidity, going concern, and financial condition as material adverse changes through March 31, 2023. Thereafter, unless the lender further extends its waiver a material adverse change clause could be triggered and the entire unpaid principal and interest balances would be due and payable upon demand as well as trigger certain covenants under each of our other debt agreements (refer to Note 6 of our condensed consolidated financial statements).
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. We believe that our existing cash and cash equivalents of $9.4 million as of March 31, 2022, expected revenues, cost management and cost reductions will be sufficient to fund operations as currently planned. However, our operation plans may not be achieved and therefore would not alleviate substantial doubts related to our ability to continue as a going concern for one year from the date of the issuance of our accompanying consolidated financial statements. Changes in our current plans, or slower than expected adoption of our products may require that we secure additional sources through equity and/or debt financings, or through other sources of financing, which we cannot predict, with certainty, will be based on terms acceptable to us or at all. We may also 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 international presence and commercialization, general capital expenditures and satisfaction of debt obligations which are not currently planned.
Additional information regarding risks related to our capital and liquidity is described in our Annual Report filed on Form 10-K in Part I— Item 1A— “Risk Factors”, and further discussion of our going concern assessment can be found in Note 1 to the accompanying consolidated financial statements, both of which should be read in connection with this disclosure.
We had the following debt arrangements in place as of March 31, 2022 (dollars in thousands):
| PRINCIPAL | ||||||||||
| STATED ANNUAL | BALANCE (INCLUDING | |||||||||
| DESCRIPTION | INTEREST RATE | ACCRUED INTEREST) | PAYMENT/MATURITY | |||||||
| Promissory Notes (1) | 8.00 | % | $ | 3,277 | Due December 31, 2022 | |||||
| Promissory Note (2) | 5.25 | % | 7,849 | Monthly/June 2036 | ||||||
| Promissory Notes (3) | 8.00 | % | 6,999 | Due December 31, 2022 | ||||||
| Secured Borrowing (4) | 12.78 | % | 13,278 | Varies(5)/May 2022(6) | ||||||
| Loan Facility | 1.00 | % | 303 | Proportionately each September 2022, 2023, 2024, 2025 | ||||||
See Notes 6 of the condensed consolidated financial statements for each of the following debt arrangements:
(1) “—October 2012 and April 2013 Secured Promissory Notes.”
(2) “—June 2014 Secured Promissory Note.”
(3) “—August 2015 Senior Secured Promissory Notes.”
(4) “—LSQ Financing.”
(5) In February 2018, the maturity date and all interest payments were extended to December 2022
(6) Payable through the lender’s direct collection of certain accounts receivable through May 2022.
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The following table sets forth a summary of our cash flows for the periods indicated (in thousands):
THREE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED MARCH 31, | |||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (8,396 | ) | $ | (5,017 | ) | ||
| Net cash used in investing activities | (198 | ) | (869 | ) | ||||
| Net cash provided in financing activities | (1,667 | ) | 8,968 | |||||
| Net increase in cash, cash equivalents, and restricted cash | $ | (10,261 | ) | $ | 3,082 | |||
Cash Flows from Operating Activities
Net cash used in operating activities of $8.4 million during the three months ended March 31, 2022 primarily resulted from our net loss of $7.6 million and cash used in operating assets and liabilities of $2.7 million. This use was partially offset by non-cash charges of $1.9 million consisting of $0.9 million in depreciation and amortization, $0.8 million in share-based compensation expense, $0.3 million of amortization of right of use assets and $0.1 million for changes in inventory reserves.
Net cash used in operating activities of $5.0 million during the three months ended March 31, 2021 primarily resulted from our net loss of $3.3 million and cash used in operating assets and liabilities of $3.6 million. This use was partially offset by non-cash charges of $1.8 million consisting of $0.9 million of depreciation and amortization, $0.9 million of share-based compensation expense, $0.2 million of amortization of right of use assets, and $0.1 million in changes to the Company’s contingent consideration in connection with the Pro Farm acquisition.
Cash Flows from Investing Activities
Net cash used in investing activities were $0.2 million during the three months ended March 31, 2022, all as a result of purchases of property, plant and equipment primarily related to our manufacturing plant in Michigan.
Net cash used in investing activities were $0.9 million during the three months ended March 31, 2021. Cash flow from investing included $0.8 million consideration payments in connection with the purchase of the Jet-Ag and Jet-Oxide product lines with the remainder a result of purchases of property, plant and equipment to support our operations.
Cash Flows from Financing Activities
Net cash provided in financing activities of $1.7 million during the three months ended March 31, 2022 consisted primarily of net proceeds from of secured borrowing and debt.
Net cash provided in financing activities of $9.0 million during the three months ended March 31, 2021 consisted primarily of $2.7 million in net proceeds from of secured borrowing and debt, $6.2 million related to the exercise of warrants and $0.1 million in proceeds from employee equity related instruments.
Recently Issued Accounting Pronouncements
See Note 2 of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q in Part I—Item 1— “Financial Information.”
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We currently have minimal exposure to the effect of interest rate changes, foreign currency fluctuations and changes in commodity prices. We are exposed to changes in the general economic conditions in the countries where we conduct business, which currently is substantially all in the United States. Our current investment strategy is to invest in financial instruments that are highly liquid, readily convertible into cash and which mature within twelve 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.
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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.
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 March 31, 2022.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. Our management assessed, with the oversight of the board of directors, the effectiveness of our internal control over financial reporting as of March 31, 2022. In making this assessment, management used the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of March 31, 2022.
Changes in Internal Control
For the three months ended March 31, 2022, there have been no changes to 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.
| 32 |
PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
None.
| ITEM 1A. | RISK FACTORS |
Other than as described below, we have not identified any material changes to the risk factors previously disclosed in Part I—Item 1A—”Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2021. 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, 2021, and the risks described below, together with all of the other information in this Quarterly Report on Form 10-Q, including in “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.
A variety of risks associated with our subsidiary, manufacturing facilities and operations in Russia and the recent Russian invasion of Ukraine could adversely affect our business.
In February 2022, Russia escalated its conflict with Ukraine, resulting in wide-ranging sanctions and international protests. In addition to our U.S. operations, we maintain an indirectly wholly owned subsidiary in Russia, Pro Farm Russia, LLC, and own a 12% minority interest in a third-party manufacturing plant in Vyborg, Russia. Our revenues derived from sales to customers in Ukraine, Russia and Belarus are currently immaterial, representing no sales for the three months ending March 31, 2022. While products for Pro Farm, our wholly owned subsidiary, are partially sourced by suppliers from the manufacturing plant in Russia, we expect that by the end of May 2022, we will have enough Pro Farm seed treatment materials outside of Ukraine, Russia and Belarus to supply our customers for the 2023 and 2024 planting seasons and enough Pro Farm foliar product materials outside of those regions to cover at least one year of expected demand. We may face risks associated with maintaining our subsidiary in Russia and minority ownership of the manufacturing plant, or with any international operations in Russia, including risks associated with our compliance with evolving international sanctions and potential reputational harm as a result of our operations in Russia. Further, Russia’s president Vladimir Putin has declared that he will seek authorization for the government to seize assets owned by foreign businesses that leave Russia and has taken steps to invalidate intellectual property protections for U.S.-based companies operating in Russia. In addition, should the conflict escalate or be prolonged, supply chain, trade routes and agricultural markets could be adversely affected, which, in turn, could materially, adversely affect our business operations and financial performance. While we have policies and procedures in place designed to ensure compliance with applicable sanctions and trade restrictions, our employees, contractors, and agents may take actions in violation of such policies and applicable law and we could be held ultimately responsible. If we are held responsible for a violation of U.S. sanctions laws, we may be subject to various penalties, any of which could have a material adverse effect on our business, financial condition or results of operations.
| 33 |
| ITEM 6. | EXHIBITS |
The following documents are filed, or furnished, as applicable, as part of this report on Form 10-Q:
INDEX TO EXHIBITS
| 34 |
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 Raleigh, State of North Carolina, on May 13, 2022.
| MARRONE BIO INNOVATIONS, INC. | |
| /s/ Kevin Helash | |
| Kevin Helash | |
| Chief Executive Officer |
| 35 |
Exhibit 31.1
I, Kevin Helash, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Marrone Bio Innovations, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 13, 2022 | |
| /s/ Kevin Helash | |
| Kevin Helash | |
| Chief Executive Officer |
Exhibit 31.2
I, LaDon Johnson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Marrone Bio Innovations, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: May 13, 2022 | |
| /s/ LaDon Johnson | |
| LaDon Johnson | |
| Interim Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Helash, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Marrone Bio Innovations, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.
Date: May 13, 2022
| By: | /s/ Kevin Helash | |
| Name: | Kevin Helash | |
| Title: | Chief Executive Officer |
I, LaDon Johnson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Marrone Bio Innovations, Inc. on Form 10-Q for the fiscal quarter ended March 31, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Marrone Bio Innovations, Inc.
Date: May 13, 2022
| By: | /s/ LaDon Johnson | |
| Name: | LaDon Johnson | |
| Title: | Interim 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.
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Preferred stock, par value | $ 0.00001 | $ 0.00001 |
| Preferred stock, shares authorized | 20,000 | 20,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.00001 | $ 0.00001 |
| Common stock, shares authorized | 250,000 | 250,000 |
| Common stock, shares issued | 182,275 | 182,224 |
| Common stock, shares outstanding | 182,275 | 182,224 |
Summary of Business, Basis of Presentation |
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| Accounting Policies [Abstract] | |
| Summary of Business, Basis of Presentation | 1. Summary of Business, Basis of Presentation
Marrone Bio Innovations, Inc. (the “Company”), was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Raleigh, North Carolina. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. In September 2019 the Company closed its acquisition of Pro Farm Technologies OY, a Finnish limited company, which consisted of Pro Farm Technologies OY and its five subsidiaries Pro Farm International Oy (Finland), Pro Farm OU (Estonia), Pro Farm Technologies Comercio de Insumos Agricolas do Brasil ltda. (Brazil – 99% controlling interest), Pro Farm Inc. (Delaware), and Glinatur SA (Uruguay) (collectively “Pro Farm”). As a result of the acquisition, Pro Farm became a wholly-owned subsidiary of the Company. In December 2019, the Company created its subsidiary Pro Farm Russia, LLC (Russia). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned and substantially owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying condensed consolidated financial information as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, 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, 2021.
In the opinion of management, the condensed consolidated financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The Company is a growth-oriented agricultural company that supports environmentally sustainable farming practices through the discovery, development and sale of innovative biological products for crop protection, crop health and crop nutrition. The Company’s portfolio of 18 products helps customers operate more sustainably while increasing their return on investment. The Company’s products are used globally and can be applied as foliar treatments or as seed-and-soil treatments, either on their own or in combination with other agricultural products. The Company targets the major markets that use conventional chemical products, including certain agricultural markets where its biological products are used as alternatives for, or mixed with, conventional chemical products. The Company also targets new markets for which (i) there are no available conventional chemical products or (ii) the use of conventional chemical products may not be desirable or permissible either because of health and environmental concerns (including for organically certified crops) or because the development of pest resistance has reduced the efficacy of conventional chemical products. The Company’s products are sold through distributors and other commercial partners to growers around the world for use in integrated pest management systems that improve efficacy and increase yields while protecting the environment. The Company’s products are often used in conjunction with or as an alternative to other agricultural solutions to control pests and enhance plant nutrition and health. The Company’s bioprotection products help farmers manage pests and plant diseases, the Company’s plant health products help farmers reduce crop stress, and both the Company’s plant health and bionutrition products to increase yields and quality. The Company delivers EPA-approved and registered biological crop protection products and other biological products that address the global demand for effective, safe and environmentally responsible products.
Going Concern, Liquidity, and Management Plans
The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue to operate, although there is substantial doubt about its ability to continue as a going concern for 12 months after the issuance of these condensed consolidated financial statements. This assessment 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 the Company’s substantial doubt about its ability to continue as a going concern.
The Company has a limited number of commercialized products and has incurred significant losses since inception, and expects to continue to incur losses for the foreseeable future. The Company’s historical operating results, including prior periods of negative use of operating cash flows and debt maturities due within the 12 months of the balance sheet date indicate that substantial doubt exists related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these condensed consolidated financial statements. As of March 31, 2022, the Company had a working capital deficit of $8,748,000, including cash and cash equivalents of $9,362,000. In addition, as of March 31, 2022, the Company had consolidated short-term and long-term debt of $31,872,000, for which the underlying debt agreements contain various financial and non-financial covenants, and certain material adverse change clauses. As of March 31, 2022, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements. (Refer to Notes 6 of these condensed consolidated financial statements).
The Company expects it will exceed its current ratio and maximum debt-to-worth requirement under the June 2014 Secured Promissory Note with Five Star Bank, and the June 2014 Secured Promissory Note contains a material adverse change clause that could be invoked by the lender as a result of the uncertainty related to the Company’s ability to continue as a going concern. If the lender were to declare an event of default, the entire amount of borrowings related to all debt agreements at that time would have to be reclassified as current in the condensed consolidated financial statements. The lender has waived its right to deem recurring losses, liquidity, going concern, and financial condition a material adverse change through March 31, 2023. As a result, the long-term portion of the June 2014 Secured Promissory Note has not been reclassified to current in these condensed consolidated financial statements as of March 31, 2022. Further, a violation of a covenant in one debt agreement will cause the Company to be in violation of certain covenants under each of its other debt agreements. Breach of covenants included in the Company’s debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances, will have a material adverse effect upon the Company and would likely require the Company to seek to renegotiate these debt arrangements with the lenders. If such negotiations are unsuccessful, the Company may be required to seek protection from creditors through bankruptcy proceedings. The Company’s inability to maintain compliance with its debt covenants could have a negative impact on the Company’s financial condition and ability to continue as a going concern.
The Company believes that its existing cash and cash equivalents of $9,362,000 at March 31, 2022, together with expected revenues, expected future extension of debt maturities, equity financings and cost management will be sufficient to fund operations as currently planned through one year from the date of the issuance of these condensed consolidated financial statements. The Company anticipates securing additional sources of cash through equity and/or debt financings, or through other sources of financing, consistent with historic results. However, the Company cannot predict, with certainty, the outcome of its actions to grow revenues, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. Any future equity financing may result in dilution to existing stockholders and any debt financing may include additional restrictive covenants. Any failure to obtain additional financing or to achieve the revenue growth necessary to fund the Company with cash flows from operations will have a material adverse effect upon the Company and will likely result in a substantial reduction in the scope of the Company’s operations and impact the Company’s ability to achieve its planned business objectives. Further, the Company may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, and general capital expenditures. The actions discussed above cannot be considered to mitigate the substantial doubt raised by its historical operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these condensed consolidated financial statements.
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| Significant Accounting Policies | 2. Significant Accounting Policies
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, and forecasted estimates and assumptions related to impairment analysis for goodwill and contingent considerations related to Pro Farm, and assumptions and estimates associated with its going concern analysis.
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and debt. The Company deposits its cash and cash equivalents with high credit quality domestic financial institutions with locations in the U.S. and internationally. Such deposits may exceed federal or national 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 has provided extended payment terms on a case-by-case basis with a certain customer as a result of COVID-19.
The Company’s principal sources of revenues are its Regalia, Grandevo, Venerate and UPB-110 ST product lines. These four product lines accounted for 77% and 89%, respectively, of the Company’s total revenues for each of the three months ended March 31, 2022 and 2021.
Revenues generated from international customers were 13% and 7% for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022 international customers were primarily concentrated in the European Union and Latin Americas regions and for the three months ended March 31, 2021, international customers were primarily concentrated in the European Union.
Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended March 31, 2022 and 2021 consist of the following:
Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2022 or December 31, 2021, which may or may not correspond with any of the customers above, consist of the following:
Concentrations of Supplier Dependence
The active ingredient in the Company’s Regalia product line is derived from the giant knotweed plant, which the Company obtains from China. The Company currently relies on one supplier for this plant. Such single supplier acquires raw knotweed from numerous regional sources and performs an extraction process on this plant, creating a dried extract that is shipped to the Company’s manufacturing plant. While the Company does not have a long-term supply contract with this supplier, the Company does have a long-term business relationship with this supplier. The Company endeavors to keep 6 to 12 months of knotweed extract on hand at any given time, but an unexpected disruption in supply including disruptions resulting from the COVID-19 pandemic, could have an effect on Regalia supply and revenues. Although the Company has identified additional sources of raw knotweed, there can be no assurance that the Company will continue to be able to obtain dried extract from China at a competitive price.
The Company continues to rely on third parties to formulate Grandevo into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, 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.
Products produced by the Company’s Pro Farm subsidiary, including UBP and Foramin, are partially sourced by suppliers from a manufacturing plant in Russia, in which the Company owns a 12% interest. The Company plans for enough inventory on hand to fill its revenue forecasts for 12 months at any given time, but an unexpected disruption in supply could have an adverse effect on the supply and revenues related to the subsidiary. During the three months ended March 31, 2022, the Company began increasing its inventory on hand. Although the Company has identified additional manufacturers who may be capable of supplying the products, there can be no assurance that the Company will continue to be able to obtain products at a competitive price. The Company’s 12% interest is owned by the Company’s Pro Farm Technologies OY subsidiary and is recorded on the condensed consolidated balance sheet in caption “Other assets” in the amount of $0.5 million. As of March 31, 2022 no impairment had been taken on the asset as the Company continues to assess the impact of the current political conflict between Russia and Ukraine.
Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows (in thousands):
Restricted Cash
The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its June 2014 Secured Promissory Note. (Refer to Note 6 of these condensed consolidated financial statements.)
Intangible Assets
The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company’s intangible assets include customer relationships, patents, trademarks, and in process research and development acquired in 2019 in connection with its asset acquisition of the Jet-Ag and Jet-Oxide product lines and the Company’s acquisition of Pro Farm.
Long-Lived Assets
Impairment losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount by which the carrying value of the asset or asset group exceeds its estimated fair value.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired.
Fair Value
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:
● Level 1—Quoted prices in active markets for identical assets or liabilities.
● Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
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):
Research, Development and Patent Expenses
Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. For the three months ended March 31, 2022 and 2021, research and development expenses totaled $2,867,000 and $2,295,000, respectively, and patent expenses totaled $293,000 and $217,000, respectively.
Shipping and Handling Costs
Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three months ended March 31, 2022 and 2021 were $508,000 and $345,000, respectively.
Advertising
The Company expenses advertising costs as incurred and has included these expenses as a component of selling, general and administrative costs. Advertising costs for the three months ended March 31, 2022 and 2021 were $132,000 and $111,000, respectively.
Depreciation and Amortization
The Company depreciates and amortizes its capitalized property, plant, and equipment and intangible assets over the useful life of each asset utilizing a straight-line method of expensing. All depreciation and amortization expenses are included in the “Selling, general, and administrative” caption in the condensed consolidated statement of operations.
For the three months ended March 31, 2022 and 2021, the total amount of depreciation expense was $300,000 and $288,000, respectively. For the three months ended March 31, 2022 and 2021, the total amount of amortization expense was $585,000 and $586,000, 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 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, and contingent shares to be issued in the future 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):
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of consolidated financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of an SEC filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” (“ASU No. 2018-19”), in April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”), in November 2019, the FASB issued Accounting Standards Update No. 2019-10, Financial Instruments—Credit Losses, (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Date (“ASU 2019-10”) and Accounting Standards Update No. 2019-11, Financial Instruments—Credit Losses (“ASU 2019-11”), and in February 2020, the FASB issued Accounting Standards Update No. 2020-02, Financial Instruments—Credit Losses, (Topic 326) and Leases (Topic 842) (“ASU 2020-02”). ASU 2020-02, delayed the effective date for certain entities including entities meeting the SEC’s definition of a Smaller Reporting Company. The Company adopted the ASU on January 1, 2022 on a prospective basis. The adoption of ASU 2016-13 had no significant impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued Accounting Standards Update No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Based Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU No. 2021-04”), which clarified an issuer’s accounting for modification or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The provisions of ASU No. 2021-04 are effective for annual reporting periods beginning after December 15, 2021, and interim reporting periods within those annual periods, with early adoption permitted, including adoption in any interim period for public business entities for periods for which consolidated financial statements have not yet been issued or made available for issuance. The Company adopted the ASU on January 1, 2022 on a prospective basis. The adoption of ASU 2021-04 had no significant impact on the Company’s condensed consolidated financial statements.
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Inventory |
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| Inventory | 3. Inventory
Inventories consist of the following (in thousands):
As of March 31, 2022 and December 31, 2021, the Company had $506,000 and $422,000, respectively, in reserves against its inventories. For the three months ended March 31, 2022 and 2021, the Company recorded an adjustment of $365,000 and $228,000, respectively, as a result of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity.
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| Right-Of-Use Assets and Lease Liability | 4. Right-Of-Use Assets and Lease Liability
The components of lease expense were as follows for each of the comparative three months ended March 31, 2022 and 2021 (in thousands):
Maturities of lease liabilities for each future calendar year as of March 31, 2022 are as follows (in thousands):
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| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued Liabilities | 5. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Contingent Consideration
As of March 31, 2022, the contingent consideration in connection with the Company’s acquisition of Pro Farm was accounted for as a liability at its fair value. The following table provides a reconciliation of the activity for the contingent consideration measured between the most recent reporting period and as of the balance sheet date based on the fair value using significant inputs including the unobservable inputs (Level 3) (in thousands):
The change in fair value for the reporting period was driven by the result of the unobservable fair value model, a Monte Carlo simulation in a risk-neutral framework assuming Geometric Browning Motion. The most significant input to the model was the estimated results of the Pro Farm subsidiary for the periods specified in the share purchase agreement of 2022 – 2023. The following represents other inputs used in determining the fair value of the contingent consideration liability:
Discount Rate. Discount rate is based on an adjusted weighted cost of capital contribution considering an estimated operational leverage ratio and a risk-free rate, each (other than the risk-free rate) determined by publicly traded peer group median.
Estimated Volatility Factor. Volatility factor is based on the adjusted weighted cost of capital, operating asset volatility, operating leverage ratio and risk-free interest rate, each (other than the risk-free rate) determined by publicly traded peer group median.
Credit Spread. Credit spread based on the Company’s financial ratio in comparison with those of publicly traded peer group.
Interest Rate. Interest rate based on US Constant Maturity Treasury rates for the same period as the period of performance of 2022 to 2023.
The change in the fair value estimate is recognized in the Company’s condensed consolidated statement of operations in Other Income (expense) under caption Change in fair value of contingent consideration. The contingent consideration will be determined at each reporting period and will be settled with the issuance of the Company’s common shares. As of March 31, 2022, the total maximum amount of contingent consideration shares that can be issued in the future is 5,415,000, the fair value of which the Company recorded in “other liabilities” on the Company’s condensed consolidated balance sheets.
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Debt |
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| Debt | 6. Debt
Debt, including debt due to related parties, consists of the following (in thousands):
As of March 31, 2022, aggregate contractual future principal payments on the Company’s debt are due as follows (in thousands):
October 2012 and April 2013 Secured Promissory Notes
As of March 31, 2022, there have been no changes to the previously reported total principal amount outstanding under the October 2012 and April 2013 Secured Promissory Note, which continues to be $2,450,000. Due to the historical accounting for the promissory note the amount recorded on the condensed consolidated balance sheet of $3,425,000 includes $975,000 in accrued interest, of which as of March 31, 2022 and 2021, a total of $827,000 and $631,000, respectively, had been incurred.
As of March 31, 2022, the Company is in compliance with all financial covenants.
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 an interest of 5.25% (per annum) as of March 31, 2022. The interest rate is subject to change and is based on the prime rate plus 2.00% per annum. 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. In the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As of March 31, 2022, the Company was not in compliance with certain of these covenants and therefore the Company had obtained a waiver from the lender for any non-compliance through March 31, 2023.
The following table reflects the activity under this note (in thousands):
August 2015 Senior Secured Promissory Notes
As of March 31, 2020, there have been no changes to the previously reported total principal amount outstanding under the August 2015 Senior Secured Promissory Notes, which continues to be $5,000,000. Due to the historical accounting for the promissory note the amount recorded on the condensed consolidated balance sheet of $7,300,000 includes $2,300,000 in accrued interest, of which as of March 31, 2022 and 2021, a total of $1,999,000 and $1,600,000, respectively, had been incurred.
The August 2015 Senior Secured Promissory Notes provide for various events of default, including, among others, default in payment of principal or interest, breach of any representation or warranty by the Company or any subsidiary under any agreement or document delivered in connection with the notes, a continued breach of any other condition or obligation under any loan document, certain bankruptcy, liquidation, reorganization or change of control events, the acquisition by any person or persons acting as group, other than the lenders, of beneficial ownership of 40% or more of the outstanding voting stock of the Company. Upon an event of default, the entire principal and interest may be declared immediately due and payable. As of March 31, 2022, the Company was in compliance with its covenants under the August 2015 Senior Secured Promissory Notes.
LSQ Financing
In January 2020, the Company entered into a Second Amendment to the Company’s Invoice Purchase Agreement with LSQ. The amendment, among other things, (i) increased the amount of eligible customer invoices which LSQ may elect to purchase from the Company to up to $20,000,000 of eligible customer invoices from the Company from $7,000,000; (ii) increased the advance rate to 90% from 85% and 70% from 60%, respectively, of the face value of domestic and international receivables being sold; (iii) decreased the invoice purchase fee rate from 0.40% to 0.25%; (iv) increased the funds usage fee from 0.020% to 0.025%; (v) extended the 0% aging and collection fee percentage charged at the time when the purchased invoice is collected from 90 days to 120 days, and increased the fee percentage charged thereafter from 0.35% to 0.75%; and (vi) decreased the early termination fee from 0.75% to 0.50%.
In addition to the Amendment, the Company simultaneously entered into an Amended Inventory Financing Addendum (the “Addendum”) with LSQ. The Addendum allows the Company to request an advance up to the lesser of (i) 100% of the Company’s unpaid finished goods inventory; (ii) 65% of the appraised value of the Company’s inventory performed on or on behalf of LSQ; or (iii) $3,000,000. Funds advance under the Addendum are subject to a monthly inventory management fee of 0.5% on the average monthly inventory funds available and a daily interest rate of 0.025%. In December 2021, the Addendum was amended to increase the maximum funds advance to $4,500,000.
As of March 31, 2022, the Company was in compliance with all financial covenants of the agreement. For the three months ended March 31, 2022 and 2021, the Company recorded interest expense of approximately $396,000 and $232,000, respectively, in connection with the LSQ arrangement. As of March 31, 2022, $13,195,000 was outstanding under the LSQ Financing.
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Share-Based Plans |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Plans |
As of March 31, 2022, there were options to purchase shares of common stock outstanding, restricted stock units outstanding and share-based awards available for grant under the outstanding equity incentive plans.
For the three months ended March 31, 2022 and 2021, the Company recognized share-based compensation of $ and $, respectively.
In February 2022, the Company granted awards under a newly implemented long-term incentive program (“LTIP”). Under the LTIP, grants to certain executive officers in a total aggregate amount of restricted stock units and, options to purchase shares of the Company’s common stock were issued under the 2013 Plan. The awards vest in equal monthly installments over three years, subject to the recipient’s continued employment by the Company through the applicable vesting date, provided that, in lieu of the terms of any change in control agreement in place between the Company and the recipient, in the event that any recipient is terminated without Cause (as defined in the applicable recipient’s Change In Control Agreement) or resigns for Good Reason (as defined in the applicable recipient’s Change In Control Agreement) within twelve months of a Change in Control (as defined in the recipient’s Change In Control Agreement), % of the unvested portion of each Executive Award will become immediately vested. The options to purchase common stock were granted at an exercise price of $0.89 and with a fair value of $843,000. The Company’s fair value of these grants was estimated utilizing a Black Scholes option pricing model based on the assumptions which have determined consistent with the Company’s historical methodology for such assumptions with the exception of the strike price given consideration to the previously announced merger agreement (See Note 8 to these condensed consolidated financial statements).
Also under the LTIP, in February 2022, the Company granted restricted stock units to certain other employees at a grant date market value of $. .
The following table summarizes the activity of non-vested restricted stock units from December 31, 2021 to March 31, 2022 (in thousands, except weighted average grant date fair value):
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Merger Agreement |
3 Months Ended |
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Mar. 31, 2022 | |
| Business Combination and Asset Acquisition [Abstract] | |
| Merger Agreement | 8. Merger Agreement
On March 16, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bioceres Crop Solutions Corp., a Cayman Islands exempted company (“Bioceres”), and BCS Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Bioceres (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Bioceres (“NewCo”). Consummation of the Merger is subject to the approval of the Company’s stockholders, the receipt of required regulatory approvals and satisfaction of other customary closing conditions.
The board of directors of the Company (the “Board”) has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, (ii) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to and in the best interests of the Company and its stockholders, (iii) approved the Merger Agreement and the transactions contemplated thereby, including the Merger, and (iv) resolved to recommend adoption of the Merger Agreement by the Company’s stockholders. The Merger Agreement was also unanimously approved by the board of directors of Bioceres.
On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $ per share, of the Company (the “Company Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares of Company Common Stock owned by Bioceres, the Company or any direct or indirect wholly owned subsidiary of Bioceres or the Company, in each case immediately prior to the Effective Time, shall be cancelled and extinguished and automatically converted into the right to receive (the “Exchange Ratio”) validly issued, fully paid and nonassesable ordinary shares, par value $ per share, of Bioceres and, if applicable, cash in lieu of fractional Bioceres ordinary shares (the “Merger Consideration”).
The Merger Agreement also specifies the treatment of the Company’s outstanding equity awards in connection with the Merger, which shall be treated as follows at the Effective Time:
(i) each outstanding restricted stock unit award relating to shares of Company Common Stock (a “Company RSU”) (that is not a Company RSU that provides for settlement and issuance of shares of Company Common Stock in connection with a change in control of the Company (a “Change in Control Settled RSU”) that is unvested immediately prior to the Effective Time and does not vest as a result of the consummation of the transactions contemplated by the Merger Agreement shall be assumed by Bioceres (each, an “Assumed RSU”), with each such Assumed RSU being subject to substantially the same terms and conditions, except that the number of Bioceres ordinary shares subject to each Assumed RSU Award shall be equal to the product of (x) the number of shares of Company Common Stock underlying such unvested Company RSU as of immediately prior to the Effective Time (with any performance milestones deemed achieved based on maximum level of performance) multiplied by (y) the Exchange Ratio;
(ii) each outstanding Company RSU that is vested immediately prior to the Effective Time (taking into account any acceleration of vesting as a result of the consummation of the transactions contemplated by the Merger Agreement), each Change in Control Settled RSU (whether or not vested) and each unvested Company RSU held by a non-employee director of the Company will be settled immediately before the Effective Time by way of the issuance of one share of Company Common Stock for each such Company RSU and such shares of Company Common Stock will be converted into the right to receive the Merger Consideration;
(iii) each outstanding option to purchase Company Common Stock (a “Company Option”) that is unvested as of immediately prior to the Effective Time (and does not vest as a result of the consummation of the transactions contemplated by the Merger Agreement) and each Company Option that is outstanding and vested as of immediately prior to the Effective Time (or vests as a result of the consummation of the transactions contemplated by the Merger Agreement) for which the exercise price per share is equal to or greater than the Cash Equivalent Consideration (as defined in the Merger Agreement) (a “Rolled Vested Option”), shall be assumed by Bioceres (each, an “Assumed Option”), with each such Assumed Option being subject to substantially the same terms and conditions, except that (A) the number of Bioceres ordinary shares subject to each Assumed Option shall be equal to the product of (x) the number of shares of Company Common Stock underlying such Company Option as of immediately prior to the Effective Time multiplied by (y) the Exchange Ratio, and (B) the per share exercise price of each Assumed Option shall be equal to the quotient determined by dividing (x) the exercise price per share at which such Company Option was exercisable immediately prior to the Effective Time by (y) the Exchange Ratio;
(iv) each Company Option, other than a Rolled Vested Option, that is outstanding and vested as of immediately prior to the Effective Time (or vests as a result of the consummation of the transactions contemplated by the Merger Agreement) shall be cancelled and converted into the right to receive the Merger Consideration in respect of each “net” share underlying such Company Option, which is the quotient obtained by dividing (A) the product of (x) the excess of the Cash Equivalent Consideration (as defined in the Merger Agreement) over the per share exercise price of such Company Option multiplied by (y) the number of shares subject to such Company Option by (B) the Cash Equivalent Consideration (as defined in the Merger Agreement); and
(v) with respect to the employee stock purchase plan (the “ESPP”), the Company shall make any pro rata adjustments necessary to reflect a shortened offer period under the ESPP and treat any shortened offer period as a fully effective and completed offer period for all purposes pursuant to the ESPP, cause the exercise, no later than one business day, prior to the date on which the Effective Time occurs, of each outstanding purchase right pursuant to the ESPP, and then terminate the ESPP.
The Merger Agreement contains representations and warranties of the Company and Bioceres relating to their respective businesses and public filings, in each case generally subject to a materiality qualifier. Additionally, the Merger Agreement provides for pre-closing covenants of the Company, including (i) covenants relating to conducting its business in the ordinary course consistent with past practice and refraining from taking certain types of actions without Bioceres’s consent, (ii) covenants relating to removing certain inventory from certain jurisdictions and (iii) certain restrictions on the Company’s ability to solicit alternative acquisition proposals from third parties, and/or to provide information to third parties and to engage in discussions with third parties, in each case, in connection with alternative acquisition proposals, subject to certain exceptions (the “No-Shop”).
The consummation of the Merger is subject to certain closing conditions, including (i) the approval of the Company’s stockholders (the “Company Stockholder Approval”), (ii) the expiration or termination of all waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976 and receipt of any other specified merger control consents or clearances, (ii) the effectiveness of the registration statement to be filed by Bioceres with the SEC pursuant to the Merger Agreement, (iii) the approval for listing on Nasdaq of Bioceres’s ordinary shares to be issued as Merger Consideration in connection with the Merger, subject to official notice of issuance, (iv) the absence of any judgment or law issued by any governmental entity enjoining or otherwise prohibiting the consummation of the Merger, and (vii) other customary conditions specified in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, each of the Company and Bioceres is required to use reasonable best efforts to consummate the Merger, including with respect to satisfaction of the relevant closing conditions.
Prior to obtaining the Company Stockholder Approval, the Board may, in certain limited circumstances, withdraw or modify its recommendation that the Company’s stockholders adopt the Merger Agreement or recommend or otherwise declare advisable any Superior Proposal (as defined in the Merger Agreement) (a “Company Recommendation Change”), subject to complying with notice and other specified conditions, including giving Bioceres the opportunity to propose revisions to the terms of the transaction contemplated by the Merger Agreement during a matching right period. Notwithstanding a Company Recommendation Change, unless Bioceres terminates the Merger Agreement, the Company is still required to convene the meeting of its stockholders.
The Merger Agreement also provides for certain termination rights of Bioceres and the Company, including the right of either party to terminate the Merger Agreement if the Merger is not consummated by the date that is eight (8) months following the date of the Merger Agreement. Either party may also terminate the Merger Agreement if the Company Stockholder Approval has not been obtained at a duly convened meeting of the Company’s stockholders or a judgment enjoining or otherwise prohibiting consummation of the Merger becomes final and non-appealable.
In addition, Bioceres may terminate the Merger Agreement if the Board effects a Company Recommendation Change, fails to include its recommendation to vote in favor of the Merger in the proxy statement/prospectus to be filed with the SEC in connection with the transaction or willfully breaches the provisions of the No-Shop in any material respect prior to the Company Stockholder Approval having been obtained. If the Merger Agreement is terminated by Bioceres in connection with such actions, then the Company shall be obligated to pay Bioceres a fee equal to $9,700,000.
Prior to the Effective Time, Bioceres is required to take all necessary corporate action so that upon and after the Effective Time, (x) if the size of the board of directors of Bioceres is 8 or less members, then 2 members thereof shall have been designated by the Board and (y) if the size of the board of directors of Bioceres is more than 8 members, then 3 members thereof shall have been designated by the Board.
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Subsequent Events |
3 Months Ended |
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Mar. 31, 2022 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 9. Subsequent Events
The Company has evaluated its subsequent events from March 31, 2022 through the date these condensed consolidated financial statements were issued, and has determined that there are no additional subsequent events required to be disclosed. |
Significant Accounting Policies (Policies) |
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| 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, and forecasted estimates and assumptions related to impairment analysis for goodwill and contingent considerations related to Pro Farm, and assumptions and estimates associated with its going concern analysis.
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| Concentrations of Credit Risks | Concentrations of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, accounts receivable and debt. The Company deposits its cash and cash equivalents with high credit quality domestic financial institutions with locations in the U.S. and internationally. Such deposits may exceed federal or national 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 has provided extended payment terms on a case-by-case basis with a certain customer as a result of COVID-19.
The Company’s principal sources of revenues are its Regalia, Grandevo, Venerate and UPB-110 ST product lines. These four product lines accounted for 77% and 89%, respectively, of the Company’s total revenues for each of the three months ended March 31, 2022 and 2021.
Revenues generated from international customers were 13% and 7% for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022 international customers were primarily concentrated in the European Union and Latin Americas regions and for the three months ended March 31, 2021, international customers were primarily concentrated in the European Union.
Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended March 31, 2022 and 2021 consist of the following:
Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2022 or December 31, 2021, which may or may not correspond with any of the customers above, consist of the following:
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| 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 to 12 months of knotweed extract on hand at any given time, but an unexpected disruption in supply including disruptions resulting from the COVID-19 pandemic, could have an effect on Regalia supply and revenues. Although the Company has identified additional sources of raw knotweed, there can be no assurance that the Company will continue to be able to obtain dried extract from China at a competitive price.
The Company continues to rely on third parties to formulate Grandevo into spray-dried powders, for all of its production of Venerate, Majestene/Zelto, Stargus and Haven, and from time to time, third-party manufacturers for supplemental production capacity to meet excess seasonal demand and for packaging. The Company’s products have been produced in quantities, and on timelines, sufficient to meet commercial demand and for the Company to satisfy its delivery schedules. However, the Company’s dependence upon others for the production of a portion of its products, or for a portion of the manufacturing process, 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.
Products produced by the Company’s Pro Farm subsidiary, including UBP and Foramin, are partially sourced by suppliers from a manufacturing plant in Russia, in which the Company owns a 12% interest. The Company plans for enough inventory on hand to fill its revenue forecasts for 12 months at any given time, but an unexpected disruption in supply could have an adverse effect on the supply and revenues related to the subsidiary. During the three months ended March 31, 2022, the Company began increasing its inventory on hand. Although the Company has identified additional manufacturers who may be capable of supplying the products, there can be no assurance that the Company will continue to be able to obtain products at a competitive price. The Company’s 12% interest is owned by the Company’s Pro Farm Technologies OY subsidiary and is recorded on the condensed consolidated balance sheet in caption “Other assets” in the amount of $0.5 million. As of March 31, 2022 no impairment had been taken on the asset as the Company continues to assess the impact of the current political conflict between Russia and Ukraine.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows (in thousands):
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| 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. (Refer to Note 6 of these condensed consolidated financial statements.)
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| Intangible Assets | Intangible Assets
The Company evaluates intangible assets for impairment at least annually and more often whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value. The Company’s intangible assets include customer relationships, patents, trademarks, and in process research and development acquired in 2019 in connection with its asset acquisition of the Jet-Ag and Jet-Oxide product lines and the Company’s acquisition of Pro Farm.
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| Long-Lived Assets | Long-Lived Assets
Impairment losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount by which the carrying value of the asset or asset group exceeds its estimated fair value.
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| Goodwill | Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired.
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| Fair Value | Fair Value
Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
ASC 820 requires that the valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 establishes a three-tier value hierarchy, which prioritizes inputs that may be used to measure fair value as follows:
● Level 1—Quoted prices in active markets for identical assets or liabilities.
● Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
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| 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):
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| Research, Development and Patent Expenses | Research, Development and Patent Expenses
Research and development expenses include payroll-related expenses, field trial costs, toxicology costs, regulatory costs, consulting costs and lab costs. Patent expenses include legal costs relating to the patents and patent filing costs. These costs are expensed to operations as incurred. For the three months ended March 31, 2022 and 2021, research and development expenses totaled $2,867,000 and $2,295,000, respectively, and patent expenses totaled $293,000 and $217,000, respectively.
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| Shipping and Handling Costs | Shipping and Handling Costs
Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three months ended March 31, 2022 and 2021 were $508,000 and $345,000, respectively.
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| Advertising | Advertising
The Company expenses advertising costs as incurred and has included these expenses as a component of selling, general and administrative costs. Advertising costs for the three months ended March 31, 2022 and 2021 were $132,000 and $111,000, respectively.
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| Depreciation and Amortization | Depreciation and Amortization
The Company depreciates and amortizes its capitalized property, plant, and equipment and intangible assets over the useful life of each asset utilizing a straight-line method of expensing. All depreciation and amortization expenses are included in the “Selling, general, and administrative” caption in the condensed consolidated statement of operations.
For the three months ended March 31, 2022 and 2021, the total amount of depreciation expense was $300,000 and $288,000, respectively. For the three months ended March 31, 2022 and 2021, the total amount of amortization expense was $585,000 and $586,000, respectively.
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| 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.
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| 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, and contingent shares to be issued in the future 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):
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. ASU 2016-13 also expands the disclosure requirements to enable users of consolidated financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. For public business entities that meet the definition of an SEC filer, ASU 2016-13 is effective for annual and interim reporting periods beginning after December 15, 2019, and the guidance is to be applied using the modified-retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2018. In November 2018, the FASB issued ASU No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” (“ASU No. 2018-19”), in April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), in May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments—Credit Losses (Topic 326) (“ASU 2019-05”), in November 2019, the FASB issued Accounting Standards Update No. 2019-10, Financial Instruments—Credit Losses, (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Date (“ASU 2019-10”) and Accounting Standards Update No. 2019-11, Financial Instruments—Credit Losses (“ASU 2019-11”), and in February 2020, the FASB issued Accounting Standards Update No. 2020-02, Financial Instruments—Credit Losses, (Topic 326) and Leases (Topic 842) (“ASU 2020-02”). ASU 2020-02, delayed the effective date for certain entities including entities meeting the SEC’s definition of a Smaller Reporting Company. The Company adopted the ASU on January 1, 2022 on a prospective basis. The adoption of ASU 2016-13 had no significant impact on the Company’s condensed consolidated financial statements.
In May 2021, the FASB issued Accounting Standards Update No. 2021-04, “Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Based Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” (“ASU No. 2021-04”), which clarified an issuer’s accounting for modification or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The provisions of ASU No. 2021-04 are effective for annual reporting periods beginning after December 15, 2021, and interim reporting periods within those annual periods, with early adoption permitted, including adoption in any interim period for public business entities for periods for which consolidated financial statements have not yet been issued or made available for issuance. The Company adopted the ASU on January 1, 2022 on a prospective basis. The adoption of ASU 2021-04 had no significant impact on the Company’s condensed consolidated financial statements.
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Significant Accounting Policies (Tables) |
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 March 31, 2022 and 2021 consist of the following:
Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either March 31, 2022 or December 31, 2021, which may or may not correspond with any of the customers above, consist of the following:
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| Schedule of Cash, Cash Equivalents and Restricted Cash | The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the condensed consolidated statements of cash flows (in thousands):
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| Schedule of Deferred Revenue |
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| Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share |
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Inventory (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventory | Inventories consist of the following (in thousands):
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Right-Of-Use Assets and Lease Liability (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Right-of-use Assets And Lease Liability | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Components of Lease Expense | The components of lease expense were as follows for each of the comparative three months ended March 31, 2022 and 2021 (in thousands):
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| Schedule of Maturities of Lease Liabilities | Maturities of lease liabilities for each future calendar year as of March 31, 2022 are as follows (in thousands):
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Accrued Liabilities (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Liabilities | Accrued liabilities consist of the following (in thousands):
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| Schedule of Liability Measured at Fair Value Using Unobservable Inputs |
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| Schedule of Significant Assumptions Utilized in the Fair Value of Liabilities |
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Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Debt Including Debt to Related Parties | Debt, including debt due to related parties, consists of the following (in thousands):
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| Schedule of Contractual Future Payments to Related Parties | As of March 31, 2022, aggregate contractual future principal payments on the Company’s debt are due as follows (in thousands):
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| Schedule of Debt Activity | The following table reflects the activity under this note (in thousands):
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Share-Based Plans (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Stock Options Activity |
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| Summary of Restricted Stock Units Activity |
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| Summary of Non-vested Restricted Stock Units Activity | The following table summarizes the activity of non-vested restricted stock units from December 31, 2021 to March 31, 2022 (in thousands, except weighted average grant date fair value):
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Summary of Business, Basis of Presentation (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Date of incorporation | Jun. 15, 2006 | |
| Working capital surplus | $ 8,748,000 | |
| Cash and cash equivalents, value | 9,362,000 | $ 19,623,000 |
| Short-term and long-term debt | 31,872,000 | |
| Restricted Cash and Cash Equivalents | $ 1,560,000 | |
| Pro Farm Technogies Comercio de Insumos Agricolas do Brasil ltda [Member] | ||
| Ownership controlling interest percentage | 99.00% |
Schedule of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($) |
Mar. 31, 2022 |
Dec. 31, 2021 |
Mar. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|---|---|
| Accounting Policies [Abstract] | ||||
| Cash and cash equivalents | $ 9,362,000 | $ 19,623,000 | ||
| Restricted cash, less current portion | 1,560,000 | 1,560,000 | ||
| Total cash, cash equivalents and restricted cash | $ 10,922,000 | $ 21,183,000 | $ 20,483,000 | $ 17,401,000 |
Schedule of Deferred Revenue (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Product revenues | $ 12 | $ 87 |
| Financing costs | 459 | 477 |
| License revenues | 893 | 961 |
| Total deferred revenues | 1,364 | 1,525 |
| Less current portion | (285) | (360) |
| Long term portion | $ 1,079 | $ 1,165 |
Schedule of Inventory (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 4,230 | $ 3,311 |
| Work in progress | 1,439 | 671 |
| Finished goods | 4,453 | 4,651 |
| Inventories | $ 10,122 | $ 8,633 |
Inventory (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
Dec. 31, 2021 |
|
| Inventory Disclosure [Abstract] | |||
| Reserves against inventories | $ 506,000 | $ 422,000 | |
| Inventory adjustments recorded | $ 365,000 | $ 228,000 | |
Schedule of Components of Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Right-of-use Assets And Lease Liability | ||
| Operating lease cost | $ 381 | $ 290 |
| Short-term lease cost | 20 | 41 |
| Total operating lease costs: | $ 401 | $ 331 |
Schedule of Maturities of Lease Liabilities (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Right-of-use Assets And Lease Liability | ||
| 2022 | $ 1,186 | |
| 2023 | 1,513 | |
| 2024 | 1,048 | |
| 2025 | 169 | |
| Total lease payments | 3,916 | |
| Less: imputed interest | 330 | |
| Total lease obligation | 3,586 | |
| Less lease obligation, current portion | 1,433 | $ 1,381 |
| Lease obligation, non-current portion | $ 2,153 | $ 2,511 |
Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands |
Mar. 31, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Accrued compensation | $ 4,413 | $ 3,922 |
| Accrued warranty costs | 456 | 440 |
| Accrued customer incentives | 2,579 | 6,758 |
| Accrued liabilities, acquisition related | 19 | 30 |
| Loan-related fees | 508 | 707 |
| Accrued liabilities, other | 4,379 | 2,994 |
| Accrued Liabilities | $ 12,354 | $ 14,851 |
Schedule of Liability Measured at Fair Value Using Unobservable Inputs (Details) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
USD ($)
| |
| Payables and Accruals [Abstract] | |
| Beginning balance, Fair value | $ 539 |
| Change in estimated fair value recorded of contingent consideration | (32) |
| Ending balance, Fair value | $ 507 |
Schedule of Significant Assumptions Utilized in the Fair Value of Liabilities (Details) |
3 Months Ended |
|---|---|
Mar. 31, 2022 | |
| Payables and Accruals [Abstract] | |
| Discount Rate | 14.90% |
| Volatility | 55.00% |
| Credit spread | 9.70% |
| Risk-free rate | 2.10% |
Accrued Liabilities (Details Narrative) |
Mar. 31, 2022
USD ($)
|
|---|---|
| Maximum [Member] | |
| Contingent Consideration Classified as Equity, Fair Value Disclosure | $ 5,415,000 |
Schedule of Contractual Future Payments to Related Parties (Details) $ in Thousands |
Mar. 31, 2022
USD ($)
|
|||
|---|---|---|---|---|
| Debt Disclosure [Abstract] | ||||
| 2022 (remaining nine months) | $ 20,920 | |||
| 2023 | 471 | |||
| 2024 | 491 | |||
| 2025 | 514 | |||
| 2026 | 537 | |||
| Thereafter | 5,844 | |||
| Total future principal payments | 28,777 | |||
| Interest payments included in debt balance | 3,275 | [1] | ||
| Total future debt payments | $ 32,052 | |||
| ||||
Schedule of Debt Activity (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2022 |
Mar. 31, 2021 |
|
| Short-Term Debt [Line Items] | ||
| Principal balance, net at March 31, | $ 32,052 | |
| June 2014 Secured Promissory Notes [Member] | ||
| Short-Term Debt [Line Items] | ||
| Principal balance, net at January 1, | 7,774 | $ 8,106 |
| Principal payments | (196) | (196) |
| Interest | 104 | 109 |
| Debt discount amortization | 4 | 5 |
| Principal balance, net at March 31, | $ 7,686 | $ 8,024 |
Summary of Stock Options Activity (Details) |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
$ / shares
shares
| |
| Share-Based Payment Arrangement [Abstract] | |
| Shares outstanding, beginning balance | shares | 12,677,000 |
| Weighted average exercise price, beginning balance | $ / shares | $ 2.35 |
| Shares outstanding, options granted | shares | 1,645,000 |
| Weighted average exercise price, options granted | $ / shares | $ 0.64 |
| Shares outstanding, options exercised | shares | |
| Weighted average exercise price, options exercised | $ / shares | |
| Shares outstanding, options cancelled | shares | (708,000) |
| Weighted Average Exercise Price, Options cancelled | $ / shares | $ 1.90 |
| Shares outstanding, ending balance | shares | 13,614,000 |
| Weighted Average Exercise Price, Ending balance | $ / shares | $ 2.17 |
Summary of Restricted Stock Units Activity (Details) shares in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2022
$ / shares
shares
| |
| Share-Based Payment Arrangement [Abstract] | |
| Restricted stock units, Beginning Balance | shares | 3,980 |
| Weighted Average Grant Date Fair Value, Beginning Balance | $ / shares | $ 1.17 |
| Restricted stock units, Granted | shares | 1,642 |
| Weighted Average Grant Date Fair Value, Granted | $ / shares | $ 0.63 |
| Restricted stock units, Settled | shares | (50) |
| Weighted Average Grant Date Fair Value, Settled | $ / shares | $ 1.66 |
| Restricted stock units, Forfeited | shares | (63) |
| Weighted Average Grant Date Fair Value, Forfeited | $ / shares | $ 0.63 |
| Restricted stock units, Ending Balance | shares | 5,509 |
| Weighted Average Grant Date Fair Value, Ending Balance | $ / shares | $ 1.01 |
Merger Agreement (Details Narrative) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Mar. 16, 2022 |
Mar. 31, 2022 |
Dec. 31, 2021 |
|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Common Stock, Par or Stated Value Per Share | $ 0.0001 | $ 0.00001 | $ 0.00001 |
| Cancelled and extinguished | $ 1.90 | ||
| Merger Agreement [Member] | |||
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |||
| Common Stock, Par or Stated Value Per Share | 0.00001 | ||
| Cancelled and extinguished | $ 0.088 | ||
| Termination fees | $ 9,700,000 |
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