UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

For the transition period from to

Commission File Number: 001-36030

Marrone Bio Innovations, Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-5137161

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1540 Drew Avenue, Davis, CA 95618

(Address of principal executive offices and zip code)

(530) 750-2800

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~[ ] No ~~[ ]~~[X]

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

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

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

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

Class		Shares Outstanding at ~~November 15, 2019~~May 8, 2020
Common Stock, $0.00001 par value		~~133,404,053~~ 149,132,683

TABLE OF CONTENTS

	PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 (Unaudited) and December 31, ~~2018 (Audited)~~2019	3
Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~(Unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~(Unaudited)	5
Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~(Unaudited)	76
Notes to Condensed Consolidated Financial Statements	87
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3026
Item 3. Quantitative and Qualitative Disclosures About Market Risk	4236
Item 4. Controls and Procedures	4337
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	4338
Item 1A. Risk Factors	4438
Item 6. Exhibits	4540
SIGNATURES	4641

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

MARRONE BIO INNOVATIONS, INC.

Condensed Consolidated Balance Sheets

(In Thousands, Except Par Value)

SEPTEMBER 30, 2019 DECEMBER 31, 2018
(Unaudited) (Audited)
Assets
Current assets:
Cash and cash equivalents $ 7,899 $ 18,221
Accounts receivable 7,346 2,720
Inventories 8,832 8,224
Prepaid expenses and other current assets 1,933 971
Total current assets 26,010 30,136
Property, plant and equipment, net 13,477 14,512
Right of use assets, net 4,722 —
Intangible assets 24,409 —
Goodwill 7,100 —
Restricted cash 1,560 1,560
Other assets 1,042 359
Total assets $ 78,320 $ 46,567
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 1,807 $ 1,692
Accrued liabilities 15,110 6,871
Deferred revenue, current portion 441 438
Lease liability, current portion 862 —
Debt, current portion, net 6,590 2,318
Total current liabilities 24,810 11,319
Deferred revenue, less current portion 2,093 2,399
Lease liability, less current portion 4,177 —
Debt, less current portion, net 11,719 11,819
Debt due to related parties 7,300 7,300
Other liabilities 3,664 794
Total liabilities 53,763 33,631
Commitments and contingencies
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at September 30, 2019 and December 31, 2018 — —
Common stock: $0.00001 par value; 250,000 shares authorized, 133,404 and 110,691 shares issued and outstanding as of September 30, 2019 and December 31, 2018 1 1
Additional paid in capital 335,064 296,409
Accumulated deficit⁽¹⁾ (310,508 ) (283,474 )
Total stockholders’ equity 24,557 12,936
Total liabilities and stockholders’ equity $ 78,320 $ 46,567
⁽¹⁾ The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.
MARCH 31, DECEMBER 31,
2020 2019
Assets
Current assets:
Cash and cash equivalents $ 10,120 $ 6,252
Accounts receivable 10,417 5,925
Inventories, net 7,077 8,149
Prepaid expenses and other current assets 1,812 1,390
Total current assets 29,426 21,716
Property, plant and equipment, net 13,184 13,260
Right of use assets, net 4,361 4,567
Intangible assets, net 23,254 23,842
Goodwill 6,740 6,764
Restricted cash 1,560 1,560
Other assets 867 1,008
Total assets $ 79,392 $ 72,717
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 6,509 $ 3,379
Accrued liabilities 11,175 12,467
Deferred revenue, current portion 450 427
Lease liability, current portion 933 913
Debt, current portion, net 8,917 3,899
Total current liabilities 27,984 21,085
Deferred revenue, less current portion 1,882 1,986
Lease liability, less current portion 3,742 3,970
Debt, less current portion, net 11,635 11,847
Debt due to related parties 7,300 7,300
Other liabilities 1,984 2,971
Total liabilities 54,527 49,159
Commitments and contingencies
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at March 31, 2020 and December 31, 2019 — —
Common stock: $0.00001 par value; 250,000 shares authorized, 145,541 and 139,526 shares issued and outstanding as of March 31, 2020 and December 31, 2019 1 1
Additional paid in capital 352,536 344,206
Accumulated deficit (327,672 ) (320,649 )
Total stockholders’ equity 24,865 23,558
Total liabilities and stockholders’ equity $ 79,392 $ 72,717

See accompanying notes.

3

MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Amounts)
(Unaudited)

THREE MONTHS ENDED
SEPTEMBER 30, NINE MONTHS ENDED
SEPTEMBER 30,
2019 2018 2019 2018
Revenues:
Product $ 6,859 $ 5,310 $ 22,342 $ 15,171
License 107 115 337 330
Total revenues 6,966 5,425 22,679 15,501
Cost of product revenues 3,381 2,803 10,298 8,075
Gross profit 3,585 2,622 12,381 7,426
Operating Expenses:
Research, development and patent 3,760 2,658 10,336 7,685
Selling, general and administrative 9,598 4,161 21,876 13,938
Total operating expenses 13,358 6,819 32,212 21,623
Loss from operations (9,773 ) (4,197 ) (19,831 ) (14,197 )
Other income (expense):
Interest expense (355 ) (300 ) (1,014 ) (1,759 )
Interest expense, related parties — — — (451 )
Change in fair value of financial instruments — — — (5,177 )
Loss on extinguishment of debt, net⁽¹⁾ — — — (2,196 )
Gain on extinguishment of debt, related party⁽¹⁾ — — — 9,183
Loss on modification of warrants (1,564 ) — (1,564 ) —
Loss on issuance of new warrants (4,751 ) — (4,751 ) —
Other income (expense), net 77 14 126 (13 )
Total other income (expense), net (6,593 ) (286 ) (7,203 ) (413 )
Net loss⁽¹⁾ $ (16,366 ) $ (4,483 ) $ (27,034 ) $ (14,610 )
Basic and diluted net loss per common share: $ (0.14 ) $ (0.04 ) $ (0.24 ) $ (0.15 )
Weighted-average shares outstanding used in computing basic and diluted net loss per common share: 116,186 110,568 112,553 98,067
⁽¹⁾ The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.
THREE MONTHS ENDED
MARCH 31,
2020 2019
Revenues:
Product $ 9,535 $ 8,601
License 115 115
Total revenues 9,650 8,716
Cost of product revenues 4,081 3,729
Gross profit
5,569
4,987
Operating Expenses:
Research, development and patent 3,234 2,942
Selling, general and administrative 7,993 5,674
Total operating expenses 11,227 8,616
Loss from operations (5,658 ) (3,629 )
Other (expense) income:
Interest expense (337 ) (306 )
Loss on issuance of August 2019 warrants (1,391 ) —
Change in fair value of contingent consideration 237 —
Other income, net 159 18
Total other (expense) income, net (1,332 ) (288 )
Loss before taxes
(6,990
) (3,917 )
Income tax expense (34 ) —
Net loss $ (7,024 ) $ (3,917 )
Basic and diluted net loss per common share: $ (0.05 ) $ (0.04 )
Weighted-average shares outstanding used in computing basic and diluted net loss per common share: 141,572 110,691

See accompanying notes.
MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Statements of Stockholder’s Equity
For the Three ~~and Nine~~ Months Ended ~~September 30, 2018~~
~~(In Thousands)~~
COMMON STOCK
ADDITIONAL
PAID IN
ACCUMULATED
TOTAL STOCKHOLDERS’
EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
Balance at January 1, 2018 31,351 $ — $ 214,921 $ (265,572 ) $ (50,651 )
ASC 606 Adjustment — — — 2,311 2,311
Net loss(1) — — — (5,257 ) (5,257 )
Settlement of restricted stock units 228 — — — —
Issuance of RSUs for 2017 bonuses — — 205 — 205
Share-based compensation — — 491 — 491
Conversion of related party notes for common stock and warrants(1) 20,000 — 21,685 — 21,685
Conversion of secured promissory notes for common stock and warrants(1) 5,714 — 6,196 — 6,196
Conversion of convertible notes for common stock and warrants(1) 12,000 — 16,843 — 16,843
Fair value of common stock and warrants issued to placement agent in connection with private placement and note conversion 800 — 1,610 — 1,610
Issuance of common stock and warrants in private placement, net of offering costs and underwriter commissions 32,000 1 20,310 — 20,311
Balance at March 31, 2018 102,093 $ 1 $ 282,261 $ (268,518 ) $ 13,744
Net loss — — — (4,870 ) (4,870 )
Settlement of restricted stock units 11 — — — —
Net settlement of options 3 — — — —
Share-based compensation — — 382 — 382
Issuance of common stock, in follow-on offering, net of offering costs and underwriter commissions 8,366 — 12,665 — 12,665
Balance at June 30, 2018 110,473 $ 1 $ 295,308 $ (273,388 ) $ 21,921
Net loss — — — (4,483 ) (4,483 )
Settlement of restricted stock units 99 — — — —
Net settlement of options 18 — — —
Share-based compensation — — 437 — 437
Exercise of warrants 78 — 98 — 98
Balance at September 30, 2018 110,668 $ 1 $ 295,843 $ (277,871 ) $ 17,973
⁽¹⁾ The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial StatementsMarch 31, 2020 and ~~Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.~~
~~See accompanying notes~~
~~Condensed Consolidated Statements of Stockholder’s Equity~~
~~For the Three and Nine Months Ended September 30,~~ 2019
(In Thousands)

COMMON STOCK
ADDITIONAL
PAID IN
ACCUMULATED TOTAL STOCKHOLDERS’ ADDITIONAL TOTAL
SHARES AMOUNT CAPITAL DEFICIT EQUITY COMMON STOCK PAID IN ACCUMULATED STOCKHOLDERS’
Balance at January 1, 2019 110,691 $ 1 $ 296,409 $ (283,474 ) $ 12,936
Net loss — — — (3,917 ) (3,917 )
Share-based compensation — — 558 — 558
Balance at March 31, 2019 110,691 $ 1 $ 296,967 $ (287,391 ) $ 9,577
SHARES AMOUNT CAPITAL DEFICIT EQUITY
Balance at January 1, 2020 139,526 $ 1 $ 344,206 $ (320,649 ) $ 23,558
Net loss — — — (6,751 ) (6,751 ) — — — (7,024 ) (7,024 )
Net settlement of options 34 — 42 — 42 15 — 12 — 12
Share-based compensation — — 606 — 606 — — 907 — 907
Employee stock purchase plan — — 23 — 23 — — 84 — 84
Balance at June 30, 2019 110,725 $ 1 $ 297,638 $ (294,142 ) $ 3,497
Net loss — — — (16,366 ) (16,366 )
Net settlement of options 13 — 13 — 13
Share-based compensation — — 742 — 742
Employee stock purchase plan — — 57 — 57
Modification of existing warrants — — 1,564 — 1,564
Financing costs — — (64 ) — (64 )
Issuance of common stock in connection with call to exercise warrants 10,000 — 10,000 — 10,000 6,000 — 6,000 — 6,000
Issuance of new warrants in connection with call to exercise warrants — — 4,751 — 4,751 — — 1,391 — 1,391
Issuance of common stock in connection with Pro Farm acquisition. 12,666 — 20,299 — 20,299
Balance at September 30, 2019 133,404 $ 1 $ 335,064 $ (310,508 ) $ 24,557
Balance at March 31, 2020 145,541 $ 1 $ 352,536 $ (327,673 ) $ 24,864
ADDITIONAL TOTAL
COMMON STOCK PAID IN ACCUMULATED STOCKHOLDERS’
SHARES AMOUNT CAPITAL DEFICIT EQUITY

Balance at January 1, 2019 110,691 $ 1 $ 296,409 $ (283,474 ) $ 12,936
Net loss — — — (3,917 ) (3,917 )
Share-based compensation — — 558 — 558
Balance at March 31, 2019 110,691 $ 1 $ 296,967 $ (287,391 ) $ 9,577

See accompanying ~~notes.~~notes
MARRONE BIO INNOVATIONS, INC.
Condensed Consolidated Statements of Cash Flows
(In Thousands)

NINE MONTHS ENDED
SEPTEMBER 30,

2019 2018
Cash flows from operating activities
Net loss⁽¹⁾ $ (27,034 ) $ (14,610 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,427 1,427
Gain on disposal of equipment (9 ) —
Right of use assets amortization 602 —
Share-based compensation 1,906 1,310
Non-cash interest expense 213 807
Change in fair value of financial instruments — 5,177
Loss on extinguishment of debt, net⁽¹⁾ — 2,196
Gain on extinguishment of debt, related party, net⁽¹⁾ — (9,183 )
Loss on modification of warrants 1,564
Loss on issuance of new warrants 4,751 —
Net changes in operating assets and liabilities:
Accounts receivable (4,043 ) 713
Inventories (84 ) 984
Prepaid Expenses and other assets (904 ) (359 )
Deferred cost of product revenues — 4
Accounts payable (384 ) (1,758 )
Accrued and other liabilities 6,571 (1,794 )
Accrued interest due to related parties — (1,614 )
Lease Liability (471 ) —
Deferred revenue (500 ) (114 )
Net cash used in operating activities (16,395 ) (16,814 )
Cash flows from investing activities
Asset purchase (544 ) —
Business combination, net of cash acquired (5,849 ) —
Purchases of property, plant and equipment (218 ) (496 )
Net cash used in investing activities (6,611 ) (496 )
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs — 34,485
Proceeds from issuance of debt — 2,000
Proceeds from secured borrowings 24,005 15,402
Reductions in secured borrowings (21,123 ) (15,181 )
Net settlement of options — (14 )
Exercise of stock options 55 7
Proceeds from employee stock purchase plan 80 —
Exercise of warrants 10,000 98
Repayment of debt (333 ) (190 )
Net cash provided by financing activities 12,684 36,607
Net (decrease) increase in cash and cash equivalents and restricted cash (10,322 ) 19,297
Cash and cash equivalents and restricted cash, beginning of period 19,781 2,833
Cash and cash equivalents and restricted cash, end of period $ 9,459 $ 22,130

Supplemental disclosure of cash flow information
Cash paid for interest $ 794 $ 2,698
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities $ 5 $ 30
Fair value of non-cash consideration issued in acquisition transactions 22,054
Embedded derivative liability associated with bridge loan $ — $ 573
Conversion of debt to equity $ — $ 10,000
Conversion of bridge loan (convertible note) to equity $ — $ 6,000
Conversion of debt, related party to equity $ — $ 35,000
Conversion of accrued liabilities into equity associated with the granting of restricted stock units $ — $ 205
⁽¹⁾ The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K filed on March 29, 2019.
THREE MONTHS ENDED MARCH 31,
2020 2019
Cash flows from operating activities
Net loss $ (7,024 ) $ (3,917 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 891 455
Gain on disposal of equipment (9 ) —
Right of use assets amortization 206 199
Share-based compensation 907 558
Non-cash interest expense 61 73
Loss on issuance of August 2019 warrants 1,391 —
Change in fair value of contingent consideration (237 )
—

Net changes in operating assets and liabilities:
Accounts receivable (4,492 ) (6,039 )
Inventories 1,072 670
Prepaid Expenses and other assets (281 ) (336 )
Accounts payable 3,068 726
Accrued and other liabilities (1,500 ) 310
Lease Liability (208 ) (150 )
Deferred revenue (137 ) (199 )
Net cash used in operating activities (6,292 ) (7,650 )
Cash flows from investing activities
Payment of future contingent consideration in connection with previous asset purchase (540 ) —
Sale of property, plant, equipment 2
—

Purchases of property, plant and equipment (135 ) (116 )
Net cash used in investing activities (673 ) (116 )
Cash flows from financing activities
Proceeds from secured borrowings 11,319 6,714
Reductions in secured borrowings (6,322 ) (3,511 )
Financing costs (64 )
—

Exercise of stock options 12 —
Proceeds from employee stock purchase plan 84 —
Exercise of warrants 6,000 —
Repayment of debt (196 ) (72 )
Net cash provided by financing activities 10,833 3,131
Net (decrease) increase in cash and cash equivalents and restricted cash 3,868 (4,635 )
Cash and cash equivalents and restricted cash, beginning of period 7,812 19,781
Cash and cash equivalents and restricted cash, end of period $ 11,680 $ 15,146

Supplemental disclosure of cash flow information
Cash paid for interest $ 269 $ 223
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities $ 93 $ 10

See accompanying notes.
6
MARRONE BIO INNOVATIONS, INC.

Notes to Condensed Consolidated Financial Statements
~~September 30, 2019~~March 31, 2020
(Unaudited)

1. Summary of Business, Basis of Presentation

Marrone Bio Innovations, Inc. (the “Company”)~~, formerly Marrone Organic Innovations, Inc.~~, was incorporated under the laws of the State of Delaware on June 15, 2006, and is located in Davis, California. In July 2012, the Company formed a wholly-owned subsidiary, Marrone Michigan Manufacturing LLC (“MMM LLC”), which holds the assets of a manufacturing plant the Company purchased in July 2012. In September 2019 the Company closed its acquisition of Pro Farm Technologies OY, a Finnish limited company, which consisted of Pro Farm ~~Technology~~Technologies OY and its five subsidiaries Pro Farm International Oy (Finland), Pro Farm OU (Estonia), Pro Farm ~~Technologies~~Technogies 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, Pro Farm created its subsidiary Pro Farm Russia, LLC (Russia). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company makes bio-based pest management and plant health and nutrition products. The Company targets the major markets that use conventional chemical pesticides, including certain agricultural and water markets where its bio-based products are used as alternatives for, or mixed with, conventional chemical pesticides. The Company also targets new markets for which (i) there are no available conventional chemical pesticides or (ii) the use of conventional chemical pesticides may not be desirable or permissible either because of health and environmental concerns (including for organically certified crops) or because the development of pest resistance has reduced the efficacy of conventional chemical pesticides. The Company delivers EPA-approved and registered biopesticide products and other bio-based products that address the global demand for effective, safe and environmentally responsible products.
~~Going Concern, Liquidity, and Management Plans~~
The accompanying condensed consolidated financial statements have been prepared under the assumption that the Company will continue to operate as a going concern, for the 12 months upon the issuance of these condensed consolidated financial statements, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts of liabilities that may result from any inability of the Company to continue as a going concern.
As of September 30, 2019, the Company had an accumulated deficit of $310,508,000, has incurred significant losses since inception and expects to continue to incur losses for the foreseeable future. The Company had funded operations primarily with net proceeds from public sales and private placements of equity and debt securities and from term loans, as well as with the proceeds from the sale of its products and payments under strategic collaboration and distribution agreements and government grants. The Company will need to generate significant revenue growth to achieve and maintain profitability. As of September 30, 2019, the Company had working capital of $1,200,000, including cash and cash equivalents of $7,899,000. In addition, as of September 30, 2019, the Company had debt and debt due to related parties of $18,309,000 and $7,300,000, respectively, for which the underlying debt agreements contain various financial and non-financial covenants, as well as certain material adverse change clauses. As of September 30, 2019, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements (see Note 7).
The Company’s operating results, including historical prior periods of negative working capital, indicate that substantial doubt exists related to the Company’s ability to continue as a going concern for the next 12 months from the date of issuance of these condensed consolidated financial statements. However, the Company believes that its existing cash and cash equivalents of $3,701,000 at November 15, 2019 together with expected revenues, expected future debt or equity financings, including its ability to call outstanding warrants, and cost management as well as cost reductions will be sufficient to fund operations as currently planned through one year from the date of the issuance of these condensed consolidated financial statements.
In August 2019, the Company entered into a warrant amendment and plan of reorganization agreement (the Warrant Reorganization Agreement) with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company has agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders have agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. As of the date of these condensed consolidated financial statements, the Company has called the exercise of 10,000,000 shares under the February 2018 Warrants (See Note 3).
In September 2019, the Company completed its asset acquisition of product lines Jet-Ag® and Jet-Oxide® and its acquisition of Pro Farm. The Company utilized an aggregate of $6,393,000 in cash to satisfy the cash consideration component of each transaction, net of the any cash acquired. Additionally, in connection with the acquisitions, the Company has incurred a total of $3,744,000 in advisory, legal and other professional services costs which have been paid or accrued for as of September 30, 2019.
The Company anticipates securing additional sources of cash through equity and/or debt financings, collaborative or other funding arrangements with partners, or through other sources of financing, consistent with historic results. The Company cannot predict, with certainty, the outcome of its actions to grow revenue, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. The Company has based this belief on assumptions and estimates that may prove to be wrong, and the Company could spend its available financial resources less or more rapidly than currently expected. The Company may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance and register product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations.
The actions discussed above cannot be considered probable of occurring and mitigating the substantial doubt raised by its operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these condensed consolidated financial statements. If the Company becomes unable to continue as a going concern, it may have to liquidate its assets, and stockholders may lose all or part of their investment in the Company’s common stock.
~~2. Significant Accounting Policies~~
~~Basis of Presentation~~

The accompanying condensed consolidated financial information as of ~~September 30, 2019,~~March 31, 2020, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ has been prepared by the Company, without audit, in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such SEC rules and regulations and accounting principles applicable for interim periods. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The information included in this Quarterly Report on Form 10-Q should be read in connection with the consolidated financial statements and accompanying notes included in the Company’s Annual Report filed on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019.
In the opinion of management, the condensed consolidated financial statements as of ~~September 30, 2019,~~March 31, 2020, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ reflect all adjustments, which are normal recurring adjustments, necessary to present a fair statement of financial position, results of operations and cash flows. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future periods.
The Company makes biological crop protection, plant health and plant nutrition products. The Company targets the major markets that use conventional chemical products, including certain agricultural markets where its biological products are used as alternatives for, or mixed with, conventional chemical products. The Company also targets new markets for which (i) there are no available conventional chemical products or (ii) the use of conventional chemical products may not be desirable or permissible either because of health and environmental concerns (including for organically certified crops) or because the development of pest resistance has reduced the efficacy of conventional chemical products. The Company delivers EPA-approved and registered biological crop protection products and other biological products that address the global demand for effective, safe and environmentally responsible products.
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 under the assumption that 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 an operating history that includes periods of negative use of operating cash flows, which indicate 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, 2020, the Company had an accumulated deficit of $327,672,000, has incurred significant losses since inception, and expects to continue to incur losses for the foreseeable future. The Company funds operations primarily with the proceeds from the sale of its products, promissory notes and term loans, net proceeds from the private placements of convertible notes, as well as with the proceeds from equity instruments. The Company will need to generate significant revenue growth to achieve and maintain profitability. As of March 31, 2020, the Company had a working capital surplus of $1,442,000, including cash and cash equivalents of $10,120,000. In addition, as of March 31, 2020, the Company had debt and debt due to related parties of $20,552,000 and $7,300,000, respectively, for which the underlying debt agreements contain various financial and non-financial covenants, as well as certain material adverse change clauses. As of March 31, 2020, the Company had a total of $1,560,000 of restricted cash relating to these debt agreements (Refer to Note 7).
The Company believes that its existing cash and cash equivalents of $6,695,000 at May 8, 2020, together with expected revenues, expected future debt or 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, collaborative or other funding arrangements with partners, or through other sources of financing, consistent with historic results. However, the Company cannot predict, with certainty, the outcome of its actions to grow revenues, to manage or reduce costs or to secure additional financing from outside sources on terms acceptable to the Company or at all. Further, the Company may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote its commercially available products, advance product candidates, expand international presence and commercialization, general capital expenditures and satisfaction of debt obligations and any potential negative economic impacts from the current COVID-19 pandemic on the Company’s operations.
In January 2020, the Company entered into a Second Amendment (the “Amendment”) to the Company’s Invoice Purchase Agreement with LSQ. The most significant changes made to the prior arrangement included an increase in the amount of eligible customer invoices that LSQ may elect to purchase from up to $7,000,000 to up to $20,000,000.
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. (Refer to Note 7)
In April 2020, the Company entered into an unsecured note in the amount of $1,723,000 under the Paycheck Protection Program (the “PPP”). The Note may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan granted under the PPP, with such forgiveness to be determined, subject to limitations, based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. While the Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of the Note in whole or in part. (Refer to Note 11).
In April 2020, the Company entered into a Warrant Exchange Agreement (the “Warrant Exchange Agreement”) with a group of historical investors.
Pursuant to the Warrant Exchange Agreement, the Investors have exchanged certain previously issued and outstanding warrants (the “Prior Warrants”) to purchase an aggregate of up to 45,977,809 shares of the Company’s common stock, for new warrants (the “New Warrants”) to purchase an aggregate of up to 29,881,855 shares of Common Stock (the “Warrant Shares”). All of the New Warrants were issued to the Investors upon execution of the Warrant Exchange Agreement.
The New Warrants all have an exercise price of $0.75 per share, and expire in five tranches, as follows: (i) May 1, 2020, with respect to 3,392,581 Warrant Shares, (ii) September 15, 2020, with respect to 2,714,065 Warrant Shares, (iii) December 15, 2020, with respect to 13,027,512 Warrant Shares, (iv) March 15, 2021, with respect to 5,862,380 Warrant Shares, and (v) and December 15, 2021 with respect to 4,885,317 Warrant Shares. In addition, the Investors agreed to exercise all the New Warrants subject to the first tranche, for an aggregate of approximately $2.5 million, on or before their expiration date, which exercise was completed on May 1, 2020. The remaining four tranches of New Warrants reflect an aggregate exercise price of approximately $19.9 million. There can be no assurance that the investors will exercise the new warrants prior to their respective expiration dates. (Refer to Note 8).
If the Company breaches any of the covenants contained within any of its debt agreements or if the material adverse change clauses are triggered, the entire unpaid principal and interest balances would be due and payable upon demand. Without entering into a continuation of its current waiver, which expires May 30, 2021, entering into strategic agreements that include significant cash payments upfront, significantly increasing revenues from sales or raising additional capital through the issuance of equity, the Company expects it will exceed its maximum debt-to-worth requirement under the June 2014 Secured Promissory Note with Five Star Bank. Further, a violation of a covenant in one debt agreement will cause the Company to be in violation of certain covenants under each of its other debt agreements. Breach of covenants included in the Company’s debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances, will have a material adverse effect upon the Company and would likely require the Company to seek to renegotiate these debt arrangements with the lenders. If such negotiations are unsuccessful, the Company may be required to seek protection from creditors through bankruptcy proceedings. The Company’s inability to maintain compliance with its debt covenants could have a negative impact on the Company’s financial condition and ability to continue as a going concern.
The June 2014 Secured Promissory Note contains a material adverse change clause that could be invoked by the lender as a result of the uncertainty related to the Company’s ability to continue as a going concern. If the lender were to declare an event of default, the entire amount of borrowings related to all debt agreements at that time would have to be reclassified as current in the 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 May 30, 2021. As a result of the waiver, none of the long-term portion of the Company’s outstanding debt has been reclassified to current in these condensed consolidated financial statements as of March 31, 2020.
The Company participates in a heavily regulated and highly competitive crop protection industry and believes that adverse changes in any of the following areas could have a material effect on the Company’s future financial position, results of operations or cash flows: inability to obtain regulatory approvals, increased competition in the biological agricultural product market, market acceptance of the Company’s products, weather and other seasonal factors beyond the Company’s control, litigation or claims against the Company related to intellectual property, patents, products or governmental regulation, and the Company’s ability to support increased growth. The current COVID-19 pandemic, including prolonged domestic and global shelter in place orders, may further increase the risk of adverse changes in the above areas and the Company’s operating results. If the Company becomes unable to continue as a going concern, it may have to liquidate its assets, and stockholders may lose all or part of their investment in the Company’s common stock.
Although the Company recognizes that it may need to raise additional funds in the future, there can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will not be unfavorable. Any future equity financing may result in dilution to existing stockholders and any debt financing may include additional restrictive covenants. Any failure to obtain additional financing or to achieve the revenue growth necessary to fund the Company with cash flows from operations will have a material adverse effect upon the Company and will likely result in a substantial reduction in the scope of the Company’s operations and impact the Company’s ability to achieve its planned business objectives. The actions discussed above cannot be considered to mitigate the substantial doubt raised by its historical operating results and satisfying its estimated liquidity needs for 12 months from the issuance of these condensed consolidated financial statements.
9
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 acquisition activities in determining the fair values of acquired assets, liabilities and goodwill including its goodwill impairment analysis, 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, fair value of warrants, ~~and financial instruments, right-of-use assets and corresponding lease liability,~~ reserves for inventory obsolescence, fair value of stock-based compensation, and in its going concern, long-lived assets and intangible asset impairment analysis.
~~Restricted Cash~~
The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its June 2014 Secured Promissory Note. See Note 7 for further discussion.

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’s principal sources of revenues are its Regalia, Grandevo and Venerate product lines. These three product lines accounted for ~~85%~~89% and ~~95%~~97% of the Company’s total revenues for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 91% and 93% of the Company’s total revenues for the nine months ended September 30, 2019 and 2018,~~ respectively.

Revenues generated from international customers were ~~11%~~14% and 7% for ~~each of~~ the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 8% and 11% for the nine months ended September 30, 2019 and 2018,~~ respectively.

Customers to which 10% or more of the Company’s total revenues are attributable for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ consist of the following:

CUSTOMER
A B C
Three months ended September 30,
2019 26 % 13 % 10 %
2018 31 % 13 % 19 %
Customers to which 10% or more of the Company’s total revenues are attributable for the nine months ended September 30, 2019 and 2018, which may or may not correspond with the customers for the periods above, consist of the following:
CUSTOMER
A B C
Nine months ended September 30,
2019 26 % 12 % 10 %
2018 22 % 12 % 20 %
CUSTOMER
A B C D
Three months ended March 31,
2020 23 % 17 % 16 % 13 %
2019 36 % 16 % 12 % 4 %

Customers to which 10% or more of the Company’s outstanding accounts receivable are attributable as of either ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018,~~2019, which may or may not correspond with any of the customers above, consist of the following:

CUSTOMER
A B C

September 30, 2019 22 % 11 % 4 %
December 31, 2018 52 % 3 % 24 %
CUSTOMER
A B C D

March 31, 2020 21 % 17 % 14 % 12 %
December 31, 2019 44 % 1 % 5 % 1 %

10
Concentrations of Supplier Dependence

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

~~The Company’s subsidiary~~ Pro Farm products are currently ~~sources all of its products~~partially sourced by suppliers from ~~one~~a manufacturing plant in Russia, in which itthe Company owns a 12% ~~interests. While the~~interest. 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. Pro Farm~~ 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 ~~Pro Farm subsidiary’s~~ supply and ~~revenues.~~revenues related to the subsidiary. Although the Company has identified additional manufacturers who are capable ~~to produce its~~suppling the products, there can be no assurance that the Company will continue to be able to obtain products at a competitive price.
Acquisitions
Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”), governs business combinations when an entity obtains control of a business by acquiring its net asset, or some or all of its equity interest. During the period ended March 31, 2020 we applied ASC 805 in the determination of our acquisition of Pro Farm. ASC 805 requires among other things, defining a business, and upon that determination, recognizing assets acquired and liabilities assumed at fair value as of the acquisition date, determination and recognition of goodwill and that the results of operations of the acquired business be included in the consolidated statements of operations from the respective date of the acquisition.
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,
2020 DECEMBER 31,
2019
Cash and cash equivalents $ 10,120 $ 6,252
Restricted cash, less current portion 1,560 1,560
Total cash, cash equivalents and restricted cash $ 11,680 $ 7,812
11
Restricted Cash
The Company’s restricted cash consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its June 2014 Secured Promissory Note. See Note 7 for further discussion.
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. The Company has performed an impairment analysis in contemplation of the COVID-19 pandemic and has not recorded an impairment of intangible assets as of March 31, 2020.
Impairment of Long-Lived Assets
Impairment losses related to long-lived assets are recognized in the event the net carrying value of such assets is not recoverable and exceeds fair value. The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). If the carrying amount of a long-lived asset (asset group) is considered not recoverable, the impairment loss is measured as the amount by which the carrying value of the asset or asset group exceeds its estimated fair value. The Company has performed an impairment analysis in contemplation of the COVID-19 pandemic and has not recorded impairment of long-lived assets as of March 31, 2020.
Goodwill
Goodwill represents the excess of purchase price over the underlying net assets of businesses acquired. Goodwill is reviewed for impairment on an annual basis as of the first day of the Company’s fiscal fourth quarter or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may be impaired. The Company has performed an impairment analysis in contemplation of the COVID-19 pandemic and has not recorded impairment in goodwill as of March 31, 2020.
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.
12
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):

SEPTEMBER 30, 2019 DECEMBER 31, 2018
Product revenues $ 348 $ 457
Financing costs 614 604
License revenues 1,572 1,776
2,534 2,837
Less current portion (441 ) (438 )
$ 2,093 $ 2,399
~~Revenue Recognition~~
~~Product Sales.~~ The Company recognizes revenue for product sales at a point in time following the transfer of control of such products to the customers, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. The Company may enter into contracts in which the standalone selling prices (“SSP”) is different from the amount the Company is entitled to bill the customer. As of September 30, 2019, the Company had deferred product revenue in the amount of $348,000 associated primarily with billings in excess of SSP and will be recognized in future periods in conjunction with the transfer of control of such products to the customers.
~~Licenses Revenues.~~ The Company recognizes license revenues pursuant to strategic collaboration and distribution agreements under which the Company receives payments for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that the Company provides in connection with strategic collaboration and distribution agreements over the term of the agreements, revenues related to the payments received are deferred and recognized over the term of the exclusive distribution period of the respective agreement.
~~Financing Component Revenues.~~The Company recognizes a financing component, if material, when the Company receives consideration from the customer, and when the Company expects control of the product or service to be transferred to the customer in a period of greater than one year from the date of receipt of the consideration. For the three and nine months ended September 30, 2019 and 2018, the Company recognized an aggregate of $60,000 and $47,000, respectively, and $187,000 and $149,000, respectively of financing component revenues in the aggregate within product and license revenues in the condensed consolidated financial statements.
Revenue recognition requires the Company to make a number of estimates that include variable consideration. For example, customers may receive sales or volume-based pricing incentives or receive incentives for providing the Company with marketing-related information. The Company makes estimates surrounding variable consideration and the net impact to revenues. In making such estimates, significant judgment is required to evaluate assumptions related to the amount of net contract revenues, including the impact of any performance incentives and the likelihood that customers will achieve them. In the event estimates related to variable consideration change, the cumulative effect of these changes is recognized as if the revised estimates had been used since inception of revenue recognition under the contract. Such revisions could occur in any reporting period, and the effects may be material.
From time to time, the Company offers certain product rebates to its distributors and growers, which are estimated and recorded as reductions to product revenues, and an accrued liability is recorded at the later of when the revenues are recorded, or the rebate, is being offered.
~~Contract Assets.~~The Company does not have contract assets since revenue is recognized as control of goods are transferred or as services are performed or such contract assets are incurred or expensed within one year of the recognition of the revenue.
~~Contract Liabilities.~~The contract liabilities consist of deferred revenue. The Company classifies deferred revenue as current or noncurrent based on the timing of when the Company expects to recognize revenue. Generally all contract liabilities, excluding deferred revenue, are expected to be recognized within one year and are included in accounts payable or accrued liabilities in the Company’s condensed consolidated balance sheet.

MARCH 31,
2020
DECEMBER 31,
2019
Product revenues $ 291 $ 299
Financing costs 605 609
License revenues 1,436 1,505
2,332 2,413
Less current portion (450 ) (427 )
$ 1,882 $ 1,986

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 ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ research and development expenses totaled ~~$3,473,000~~$2,880,000 and ~~$2,381,000,~~$2,627,000, respectively, and patent expenses totaled ~~$287,000~~$354,000 and $277,000, respectively. For the nine months ended September 30, 2019 and 2018, research and development expenses totaled $9,490,000 and $6,898,000, respectively, and patent expenses totaled $846,000 and $787,000,$315,000, respectively.

Shipping and Handling Costs

Amounts billed for shipping and handling are included as a component of product revenues. Related costs for shipping and handling have been included as a component of cost of product revenues. Shipping and handling costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 were $302,000 and ~~2018 were~~ $281,000, ~~and $249,000, respectively, and $998,000 and $705,000,~~ respectively.

Advertising

The Company expenses advertising costs as ~~incurred.~~incurred and has included these expenses as a component of selling, general and administrative costs. Advertising costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 were $150,000 and ~~2018 were $173,000 and $192,000, respectively, and $548,000 and $794,000,~~$191,000, 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 statement of operations.

As of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ the total amount of depreciation expense ~~were $359,000~~was $304,000 and ~~$444,000, respectively, and $1,262,000 and $1,427,000,~~$455,000, respectively.

As of the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 the total amount of amortization expense was ~~$165,000.~~$587,000. No similar expense was incurred for the three ~~and nine~~ months ended ~~September 30, 2018.~~
~~Foreign currency~~March 31, 2019.

Assets and liabilities have been translated to the U.S. dollar reporting currency using the exchange rates in effect on the condensed consolidated balance sheet dates. Equity accounts are translated at historical rates, except for the change in retained earnings during the year which is the result of the income statement translation process. Revenue and expense accounts are translated using the weighted average exchange rate during the period. The cumulative translation adjustments associated with the net assets of foreign subsidiaries are recorded in “Other income (expense)” in the accompanying condensed statement of operations.
13

Segment Information

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

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding for the period. The calculation of basic and diluted net loss per share is the same for all periods presented as the effect of certain potential common stock equivalents, which consist of stock options and warrants to purchase common stock and restricted stock units, 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):

SEPTEMBER 30,
2019 2018
Stock options outstanding 12,056 7,256
Warrants to purchase common stock 52,647 52,725
Restricted stock units outstanding 1,918 1,049
Common shares to be issued in lieu of agent fees 498 498
Employee stock purchase plan 65 —
Maximum contingent consideration shares to be issued 5,972 —
73,156 61,528
~~Recently Adopted Accounting Pronouncements~~
MARCH 31,
2020 2019
Stock options outstanding 11,529 6,965
Warrants to purchase common stock 52,647 52,647
Restricted stock units outstanding 2,466 1,217
Common shares to be issued in lieu of agent fees 498 498
Employee stock purchase plan 124 —
Maximum contingent consideration shares to be issued 5,972 —
73,236 61,327

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, Leases (Topic 842) Leases: Amendments to the FASB Accounting Standards Codifications (“ASU 2016-02”), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
The Company adopted ASU 2016-02 in the first quarter of 2019 using the modified-retrospective method. This adoption primarily affected the Company’s condensed consolidated balance sheet based on the recording of Right-of-use assets and Lease liability, current and non-current for its operating leases. The adoption of ASU 2016-02, did not change the Company’s historical classification of these leases or the straight-line recognition of related expenses.
See Note 5 for the effects of the adoption of ASU 2016-02 on the Company’s condensed consolidated financial statements as of January 1, 2019 and for the three and nine months ended September 30, 2019. The adoption of this standard had a material impact on the Company’s condensed consolidated financial statements and is expected to continue to have a material impact for the foreseeable future.
In January 2017, the FASB issued Accounting Standards Updated No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business which adds guidance to assist registrants in the determination of whether an acquisition (or disposal) represents assets or a business – inputs, processes, and outputs. The update provides a screen to determine when an asset is not a business. If substantially all of the fair value of the assets acquired (or disposed) is concentrated in a single asset or a group of similar identifiable assets, the acquired assets do not represent a business. If this test is not met, the update provides further guidance to evaluate if the acquisition represents a business.
The Company prospectively adopted the guidance in the third quarter of fiscal 2019. The adoption primarily impacted the Company’s condensed consolidated balance sheet based on the accounting treatment for the Jet-Ag Acquisition which could have otherwise been treated as a business combination had the acquired asset not met the screen test outlined in the ASU. The Company did not perform further analysis related to the treatment of the Jet-Ag Acquisition upon the results of the screen test. See Note 3 for the effects of the adoption of ASU 2017-01 on the Company’s condense consolidated financial statements as of July 1, 2019 and for the three and nine months ended September 30, 2019. The adoption of this standard has a material impact on the Company’s condensed consolidated financial statements and is expected to continue to have a material impact for the foreseeable future.
3. Acquisitions

The Company contemplates business combinations and acquisition opportunities that align with the Company’s overall strategy. Acquisitions are accounted for under Accounting Standards Codification (“ASC”) 805 Business Combinations based on the facts and circumstances of the transaction.

~~Jet-Ag~~
On September 10, 2019, the Company completed the purchase of substantially all rights and assets related to the Jet-Ag® and Jet-Oxide® product lines from Austin Grant, Inc., a Florida corporation d/b/a Jet Harvest Solutions, for approximately $2,534,000 in cash, of which $544,200 was paid upon closing and the remainder is to be paid in four installments over an 16-month window (the “Jet-Ag Acquisition”). The Jet-Ag Acquisition is accounted for as an asset acquisition consistent with ASC 2017-01, which requires that substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar assets. The asset purchase agreement also contains a provision providing five yearly earn out payments from 2020 through 2024 based on the Company’s total future sales of Jet-Ag purchased through a specified supplier. The fair value of the contingent consideration was estimated at $190,000 at the close date of the transaction which the Company has included in its total cost to be allocated to the acquired assets. The Company intends to assess its contingent consideration estimate periodically upon the settlement of the revenue contingency at each interim reporting period. Acquisition costs of $117,000 were also included in the total consideration for the Jet-Ag Acquisition to be allocated among the acquired assets. The allocation of the total consideration was based on each of the acquired asset’s relative fair values as follows (in thousands):
ALLOCATION OF COST OF ASSET ACQUISITION

Cash paid, inclusive of future payments 2,534
Fair value of contingent consideration 190
Other cost to acquire assets 117
Total acquisition related costs $ 2,841

Intangible assets acquired:
Customer list 2,291
Tradename 458
Non-compete 92
Total assets acquired 2,841
The fair value of the acquired customer list, trade name and non-compete assets were estimated using either a relief-from-royalty or multiperiod excess earning method to calculate the fair value of the assets acquired, based on management’s forecasted cash inflows and outflows. Each of the intangible assets are being amortized within the expense reflected in “Selling, general and administrative” expenses in the condensed consolidated statement of operations. The preliminary amortization periods for the customer list, trade name and non-compete are 15 years, 15 years and 6 years, respectively.
Pro Farm Technologies OY

On September 13, 2019, the Company completed its acquisition of 100% of the outstanding shares of Pro Farm Technologies OY, a Finnish limited company (“Pro Farm”) for consideration ~~valued at~~of approximately ~~$28,076,000~~$27,543,000 (the “Pro Farm Acquisition”)., net of cash acquired. Total consideration consisted of cash payments of $2,843,000 to beneficial owners and $3,178,000 in debt repayments made on behalf of Pro Farm, issuance of a total of 12,666,000 of the Company’s common stock, at the closing market price of $1.59, for an aggregate fair value of $20,299,000, inclusive of 100,000 restricted stock units at a fair value of $159,000 awarded to a key employee and the fair value of up to ~~$7,500,000~~$7,466,000 of contingent consideration subject to the achievement of certain distributor, revenue, earnings before interest, taxes, depreciation and amortization, and debt and equity milestones from the date of the closing through December 31, 2024, fair valued at ~~$1,755,000.~~$1,395,000. The ~~Pro Farm acquisition meets~~contingent consideration will be determined at the ~~definition~~end of ~~a business in accordance with~~~~ASC 805~~ “~~Business Combinations~~~~”, which requires, among other things, that assets acquired~~each reporting period and ~~liabilities assumed be recognized at fair value as~~settled through the issuance of the ~~acquisition date~~Company’s common shares for each fiscal year in March of the following fiscal year beginning March 2021. Acquisition costs were recorded in “Selling, general and ~~that~~administrative” expenses as incurred. During March 31, 2020 and 2019, respectively, no such costs were incurred in connection with the ~~results~~acquisition.
As of ~~operations~~March 31, 2020, the estimated fair values of the acquired business be included in the condensed consolidated statements of operations from the respective date of the acquisition based on the significance of the transaction to the Company’s own condensed consolidated financial statements.assets have been finalized. The goodwill recorded as a result of the acquisition represents the strategic benefits of growing the Company’s future revenues and product portfolio and the expected revenue growth from increased market penetration. The goodwill is not deductible for income tax purposes.
Certain estimated fair values are not yet finalized and are subject to change, which could be significant. The Company expects to finalize its purchase accounting by the end of the second quarter of fiscal year 2020 when it has completed its assessment of certain consideration adjustments and completed the assessment of deferred taxes and uncertain tax positions. Amounts for acquired current assets and liabilities, deferred tax liabilities, intangibles and goodwill also remain subject to change. The preliminary estimated fair values of the assets acquired, and liabilities assumed are as follows (in thousands):

PRELIMINARY ALLOCATION AT ACQUISITION DATE

Accounts receivable $ 583
Inventory 524
Other current assets 212
Investments in subsidiary 537
Intangible assets:
Developed technology 16,362
Tradename 2,658
In process research and development 2,713
Goodwill 7,100
Total assets acquired 30,689

Accounts payable 431
Accrued liabilities 757
Debt 1,612
Non-controlling interest (14 )
Net assets acquired $ 27,903

Cash paid, net of cash acquired 5,849
Fair Value of stock consideration 20,299
Fair value of contingent consideration 1,755
Total purchase price $ 27,903
Tangible assets and liabilities acquired were recorded at their preliminary fair values on the date of close based on management's preliminary assessment. The purchase price allocated to developed technology, in process technology and trade name were estimated using either a relief-from-royalty or multiperiod excess earning method to calculate the fair value of the assets purchased, based on management’s forecasted cash inflows and outflows. All intangible assets are being amortized with the expense reflected in “Selling, general and administrative” expenses in the condensed consolidated statement of operations. The preliminary amortization period for intangible assets acquired has been estimated between 10 and 11 years. The net deferred income tax liability represents the net amount of the estimated future impact of adjustments for any costs to be recognized as intangible asset amortization, which is not deductible for income tax purposes and transfer pricing exposure offset by the deferred tax asset for the preliminary calculation of NOLs.
Acquisition costs are recorded in “Selling, general and administrative” expenses as incurred. As of September 30, 2019 the Company has incurred expenses of $2,724,000 in connection with the Pro Farm Acquisition. The Pro Farm Acquisition was financed through the Company’s exercise of 10,000,000 warrants in connection with the Company’s warrant call option under the Warrant Reorganization Agreement (see Note 8).
ALLOCATION AT ACQUISITION DATE

Accounts receivable $ 583
Inventory 523
Other current assets 211
Investments in subsidiary 537
Intangible assets:
Developed technology 16,362
Tradename 2,659
In process research and development 2,713
Goodwill 6,740
Total assets acquired 30,328

Accounts payable 408
Accrued liabilities 779
Debt 1,612
Non-controllinginterest (14 )
Net assets acquired $ 27,543

Cash paid, net of cash acquired 5,849
Fair Value of stock consideration 20,299
Fair value of contingent consideration 1,395
Total purchase price $ 27,543

The condensed consolidated statement of operation ~~include $119,000~~includes $443,000 of product revenues and ~~$276,000~~$1,136,000 of operating expenses from Pro Farm for the period ~~from September 14, 2019 through September 30, 2019.~~ending March 31, 2020. The following unaudited pro forma results of operations assume the Pro Farm acquisition had occurred on January 1, 2019 (in thousands):

PRO FORMA
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2019
PRO FORMA
FOR THE THREE MONTHS ENDED MARCH 31, 2019

Product revenues $ 23,530 $ 8,937
Cost of product revenues 10,700 3,927
Gross profit 12,830 5,010
Operating expenses and other income/expense 32,705
Net Loss $ (19,875 )
Earnings per share: (0.11 )
Operating expenses 9,480
Loss from operations $ (4,470 )
Basic and diluted net loss per common share (0.04 )

PRO FORMA
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2018

Product revenues $ 15,802
Cost of product revenues 8,236
Gross profit 7,566
Operating expenses and other income/expense 21,65 1
Net Loss $ (14,145 )
Earnings per share: (0.14 )
Significant pro forma adjustments incorporated into the pro forma results above include ~~elimination of nonrecurring acquisition-related costs incurred prior to the close of the Pro Farm Acquisition,~~ amortization of acquired intangible assets. These pro forma results are based on estimates and assumptions, which the Company believes are reasonable. They are prepared for comparative purposes only and do not necessarily reflect the results that would have been realized had the Pro Farm Acquisition occurred at the beginning of the period ended ~~September 30,~~March 31, 2019 and are not necessarily indicative of the Company’s consolidated results of operations in future periods.

15
4. ~~Inventories~~Inventory

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

SEPTEMBER 30, 2019 DECEMBER 31, 2018 MARCH 31,
2020 DECEMBER 31,
2019
Raw materials $ 2,012 $ 1,844 $ 1,460 $       1,610
Work in progress 1,074 1,580 1,110 783
Finished goods 5,746 4,800 4,507 5,756
$ 8,832 $ 8,224 $ 7,077 $ 8,149

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had ~~$268,000~~$320,000 and ~~$579,000,~~$248,000, respectively, in reserves against its inventories. For the three months ended March 31, 2020 and 2019, the Company recorded an adjustment of $243,000 and $253,000, respectively, as a result of actual utilization of the Company’s manufacturing plant being less than what is considered normal capacity.

5.Right-Of-Use of Assets and Lease Liability
On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” (ASU 2016-02) using the modified retrospective transition method allowing it to apply the new standard at the adoption date and to recognize a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. Under this transition method, the prior comparative period continues to be reported under the accounting standards in effect for that period.
The Company elected to use the package of practical expedients permitted which allows (i) an entity not to reassess whether any expired or existing contracts are or contain leases; (ii) an entity need not reassess the lease classification for any expired or existing leases; and (iii) an entity need not reassess any initial direct costs for any existing leases. The Company made an accounting policy election to adopt the short-term lease exception which allows the Company to not recognize on the balance sheet those leases with terms of 12 months or less resulting in short-term lease payments being recognized in the condensed consolidated statements of income on a straight-line basis over the lease term. All of the Company’s leases were previously classified as operating and are similarly classified as operating lease under the new standard.
Adoption of the new standard resulted in recognition of both right-of-use assets and lease liabilities of approximately $5,324,000 and $5,510,000 as of January 1, 2019, respectively. As the right-of-use assets and lease liabilities were substantially the same at adoption, the Company did not record a cumulative effect adjustment to the opening balance of retained earnings.
The Company’s operating leases have remaining terms ranging from less than one year to five years. The leases are for office space and various office equipment. The Company determines if an arrangement includes a lease at the inception of the agreement and the right-of-use asset and lease liability is determined at the lease commencement date and is based on the present value of estimated lease payments. The Company’s lease agreements contain both fixed and variable lease payments, none of which are based on a rate or an index. Fixed lease payments are included in the determination of the right-of-use asset and lease liability. Variable lease payments that are not based on a rate or index are expensed when incurred. The present value of estimated lease payments is determined utilizing the rate implicit in the lease agreement if that rate can be determined. If the implicit rate cannot be determined, the present value of estimated lease payments is determined utilizing the Company’s incremental borrowing rate. The incremental borrowing rate is determined at the lease commencement date and is estimated utilizing similar or collateralized borrowing instruments adjusted for the terms of leasing arrangement as necessary. Some of the leases include an option to renew that can extend the lease term. For those leases which are reasonably certain to be renewed, the Company included the renewal period in the lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of September 30, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term for the operating leases held by the Company were 7.03% and 5 years, respectively.

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

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2019 SEPTEMBER 30, 2019

Operating lease cost $ 287 $ 874
Short-term lease cost 20 53
Sublease income (25 ) (73 )
$ 282 $ 854
~~Other information (in thousands)~~
NINE MONTHS ENDED
SEPTEMBER 30, 2019
Cash paid for amounts included in the measurement of lease liabilities $ 678
Right-of-use assets obtained in exchange for operating lease liabilities $ 602
MARCH 31,
2020 2019

Operating lease cost $ 285 $ 297
Short-term lease cost 39 13
Sublease income (10 ) (23 )
$ 314 $ 287

Maturities of lease liabilities for each future calendar year as of ~~September 30, 2019~~March 31, 2020 are as follows (in thousands):

OPERATING OPERATING
LEASES LEASES
2019,remaining 3 months $ 292
2020 1,179
2020,remaining 9 months $ 884
2021 1,202 1,202
2022 1,238 1,238
2023 and beyond 2,092
2023 1,275
2024 and beyond 867
Total lease payments 6,003 5,466
Less: imputed interest 964 791
Total lease obligation 5,039 4,675
Less lease obligation, current portion 862 933
Lease obligation, non-current portion $ 4,177 $ 3,742

1816

6.Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

SEPTEMBER 30, 2019 DECEMBER 31, 2018

Accrued compensation $ 3,437 $ 2,570
Accrued warranty costs 391 320
Accrued legal costs 1,032 69
Accrued customer incentives 4,459 2,170
Accrued liabilities, other 5,791 1,742
$ 15,110 $ 6,871
MARCH 31, DECEMBER 31,
2020 2019

Accrued compensation $ 3,393 $ 2,730
Accrued warranty costs 369 327
Accrued customer incentives 3,271 5,102
Accrued liabilities, acquisition related 1,966 1,722
Accrued liabilities, other 2,176 �� 2,586
$ 11,175 $ 12,467

The Company warrants the specifications of its products through implied product warranties and has extended product warranties to qualifying customers on a contractual basis. The Company estimates the costs that may be incurred during the warranty period and records a liability in the amount of such costs at the time product is shipped. The Company’s estimate is based on historical experience and estimates of future warranty costs as a result of ~~increasing~~increased usage of the Company’s products. During the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company recognized ~~$75,500~~$110,000 and ~~$58,000,~~$94,000, respectively in warranty expense associated with product shipments for the period. This expense was reduced by ~~$29,000~~$68,000 and $54,000 for the three months ended ~~September 30,~~March 31, 2020 and 2019, as a result of warranty claims being lower than previously estimated and during the three months ended September 30, 2019 the Company recognized $29,000 in warranty claims. During the nine months ended September 30, 2019 and 2018, the Company recognized $245,000 and $215,000, respectively, ~~in warranty expense associated with product shipments for the period. This expense was reduced by $173,000 for the nine months ended September 30, 2019~~ as a result of the historical usage of warranty reserves being lower than previously ~~estimated.~~estimated and during the three months ended March 31, 2019 the Company settled no warranty claims. No such reduction or settled warranty claims occurred for the three months ended March 31, 2020. The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the amount, as necessary. Changes in the Company’s accrued warranty costs during the period are as follows (in thousands):

Balance at December 31, 2018 $ 320
Balance at December 31, 2019 $ 327
Warranties issued (released) during the period 71 42
Settlements made during the period - -
Balance at September 30, 2019 $ 391
Balance at March 31, 2020 $ 369
As of March 31, 2020, the contingent consideration in connection with the Company’s acquisition of Pro Farm was recorded at its fair value. The following table provides a reconciliation of the activity for the contingent consideration measured between the most recent reporting period and as of the balance sheet date based on the fair value using significant inputs including the unobservable inputs (Level 3) (in thousands):
CONTINGENT CONSIDERATION
LIABILITY
Fair value at December 31, 2019 $ 1,737
Change in estimated fair value recorded of contingent consideration (237 )
Fair value at March 31, 2020 $ 1,500
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 2020 – 2023. The following represents other inputs used in determining the fair value of the contingent consideration liability:
MARCH 31, DECEMBER 31,
2020 2019
Discount rate 15.1 % 15.2 %
Volatility 43.5 % 33.6 %
Credit spread 23.0 % 10.8 %
Risk-free rate 0.33 % 1.66 %
17
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 cased 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 2020 to 2023.
The change in the fair value estimate is recognized in the Company’s consolidated statement of operations in Other Income (expense) under caption Change in fair value of contingent consideration. The contingent consideration will be determined at each reporting period and will be settled with the issuance of the Company’s common shares.
7.Debt

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

SEPTEMBER 30, 2019 DECEMBER 31, 2018
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets. $ 3,425 $ 3,425
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (7.25% as of September 30, 2019) per annum, payable monthly through June 2036, collateralized by certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles, net of unamortized debt discount as of September 30, 2019 and December 31, 2018 of $190 and $205. 8,466 8,639
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.80% annually) payable through the lenders direct collection of certain accounts receivable through November 2019, collateralized by substantially all of the Company’s personal property. 4,957 2,073
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets. 7,300 7,300
Research loan facility (“2018 Research Facility”) bearing interest at 1.00% per annum, interest payments are due annually on the anniversary date of the facility with principal payable in 25% increments on the anniversary date of the facility beginning on the fourth anniversary of the loan (September 2022), net of imputed interest as of September 30, 2019 of $10. 83 -
Financial institution facility (“2018 Bank Facility”) bearing interest at Euribor plus 2.40% (2.60% as of September 30, 2019) per annum, interest payable monthly and principal payable at maturity (February 29, 2020), 60% guaranteed by Export Credit Agency of Finland for a fee of 2.49%. 63 -
Secured borrowing (“Factoring Financing”) bearing interest at 15.00% per annum, interest and principal payable at maturity (December 17, 2019) 1,315 -
Debt, including debt due to related parties 25,609 21,437
Less debt due to related parties, non-current (7,300 ) (7,300 )
Less current portion (6,590 ) (2,318 )

Debt, non-current $ 11,719 $ 11,819
MARCH 31, DECEMBER 31,
2020 2019
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets. $ 3,425 $ 3,425
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (6.25% as of March 31, 2020) per annum, payable monthly through June 2036, collateralized by certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts,
equipment and general intangibles, net of unamortized debt discount as of March 31, 2020 and December 31, 2019 of $180 and $185. 8,338 8,404
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.80% annually) payable through the lenders direct collection of certain accounts receivable through May 2020, collateralized by substantially all of the Company’s personal property. 8,626 3,629
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets. 7,300 7,300
Research loan facility (“2018 Research Facility”) bearing interest at 1.00% per annum, interest payments are due annually on the anniversary date of the facility with principal payable in 25% increments on the anniversary date of the facility beginning on the fourth anniversary of the loan (September 2022), net of imputed interest as of March 31, 2020 of $9. 79 81
Financial institution facility (“2018 Bank Facility”) bearing interest at Euribor plus 2.40% (2.60% as of March 31, 2020) per annum, interest payable monthly and principal payable at maturity (May 31, 2020), 60% guaranteed by Export Credit Agency of Finland for a fee of 2.49%. 84 207
Debt, including debt due to related parties 27,852 23,046
Less debt due to related parties, non-current (7,300 ) (7,300 )
Less current portion (8,917 ) (3,899 )

Debt, non-current $ 11,635 $ 11,847
As of ~~September 30, 2019,~~March 31, 2020, aggregate contractual future principal payments on the Company’s debt, including debt due to related parties for each calendar year, are due as follows (in thousands):

Period ended September 30, 2019 Debt Debt to Related Party
2019 $ 6,390 $ -
Period ended March 31, 2020 Debt Debt to Related Party
2020 276 - $ 8,939 $ -
2021 299 - 325 -
2022 2,794 5,000 2,796 5,000
2023 369 - 391
-

2024 413 -
Thereafter 7,396 - 6,902 -
Total future principal payments 17,524 5,000 19,766 5,000
Interest payments included in debt balance⁽¹⁾ 975 2,300 975 2,300
$ 18,499 $ 7,300 $ 20,741 $ 7,300

(1) Due to the debt extinguishment ~~requirement,~~requirements, the Company has included both accrued interest and future interest in the debt balance for certain outstanding debt.
~~The following is a reconciliation of interest expense for the debt outstanding during the three and nine months ended September 30, 2019 and 2018 (in thousands).~~
SEPTEMBER 30, 2019
Interest
Expense Related Party, Net Non cash
Three Months Ended
June 2014 Secured Promissory Note $ 170 $ — $ 5
LSQ Financing 121 — —
ASC 606 Financing Component 63 — 63
Other 1 —
$ 355 $ — $ 68
SEPTEMBER 30, 2018
Interest
Expense Related Party, Net Non cash
Three Months Ended
June 2014 Secured Promissory Notes 166 — 5
LSQ Financing 56 — —
ASC 606 Financing Component 78 — 78
$ 300 $ — 83
SEPTEMBER 30, 2019
Interest
Expense Related Party, Net Non cash
Nine Months Ended
June 2014 Secured Promissory Note $ 509 $ — $ 16
LSQ Financing 302 — —
ASC 606 Financing Component 197 — 197
Other 6 — —
$ 1,014 $ — $ 213
SEPTEMBER 30, 2018
Interest
Expense Related Party, Net Non cash
Nine Months Ended
October 2012 and April 2013 Secured Promissory Notes⁽²⁾ $ 213 $ — $ 42
June 2014 Secured Promissory Notes 474 — 16
Secured December 2017 Convertible Notes⁽¹⁾ 529 — 322
LSQ Financing 306 — 57
August 2015 Senior Secured Promissory Notes⁽²⁾ — 451 133
ASC 606 Financing Component 237 — 237
$ 1,759 $ 451 $ 807
~~(1)~~ ~~This agreement was terminated in February 2018.~~
~~(2)~~ ~~This agreement was amended in February 2018.~~

~~Secured Promissory Notes~~
On October 2, 2012, the Company borrowed $7,500,000 pursuant to senior notes (the “October 2012 Secured Promissory Notes”) with a group of lenders. On April 10, 2013 (“Conversion Date”), the Company entered into an amendment to increase, by up to $5,000,000, the amount available under the terms of the loan agreement with respect to the October 2012 Secured Promissory Notes. Under this amendment, an additional $4,950,000 was issued in partial consideration for $3,700,000 in cash received and in partial conversion for the cancellation of a $1,250,000 subordinated convertible note (collectively, the “April 2013 Secured Promissory Notes”). The total amount borrowed under the amended loan agreement for the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes increased from $7,500,000 to $12,450,000.
~~On February 5, 2018, the Company converted, pursuant to an amendment, dated December 15, 2017, to the~~ October 2012 and April 2013 Secured Promissory Notes ~~$10,000,000 aggregate~~
As of March 31, 2020, there have been no changes to the previously reported total principal amount ~~of indebtedness~~ outstanding under the October 2012 and April 2013 Secured Promissory ~~Notes~~Note, which continues to ~~an aggregate~~be $2,450,000. Due to the historical accounting for the promissory note the amount recorded on the condensed consolidated balance sheet of ~~5,714,285 shares~~$3,425,000 includes $975,000 in accrued interest, of common stock and warrants to purchase 1,142,856 shares of common stock (such conversion, the “Snyder Debt Conversion”), such that $2,450,000 of principal under the October 2012 and April 2013 Secured Promissory Notes is outstandingwhich as of ~~September 30, 2019. Simultaneously with the Snyder Debt Conversion, the maturity~~March 31, 2020 and 2019, a total of ~~the October 2012~~$435,000 and April 2013 Secured Promissory Notes was extended to December 31, 2022 (“Maturity Date”), the interest was reduced from 14% to 8% and all interest payments under the October 2012 and April 2013 Secured Promissory Notes were deferred to the Maturity Date.$239,000, respectively, had been incurred.
The October 2012 and April 2013 Secured Promissory Notes contain representations and warranties by the Company and the lender, certain indemnification provisions in favor of the lenders, ~~and~~ customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), ~~and~~ events of default (including payment defaults, breaches of covenants, a material impairment in the lender’s security interest or in the collateral, and events relating to bankruptcy or insolvency)~~. The October 2012~~, and ~~April 2013 Secured Promissory Notes contain several~~also restrictive covenants. ~~The~~As of March 31, 2020, the Company is in compliance with all related covenants, or has received an appropriate waiver of these covenants.
In conjunction with the Snyder Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance. The Company recognized a gain of $3,014,000 for the nine months ended September 30, 2018 on partial extinguishment of the October 2012 and April 2013 Secured Promissory Notes, which included the recognition of the debt discount. Because the Company recognized a gain on the partial extinguishment of debt, the Company was required to include all future interest and additional consideration, which included accrued interest, under the terms of this agreement as a reduction of the gain. As a result, the amount of the debt on the Company’s consolidated balance sheet related to the October 2012 and April 2013 Secured Promissory Notes is $3,425,000, as compared to $2,450,000 of contractual principal outstanding thereunder. Going forward, subject to future amendments to debt agreement or costs, the Company will not recognize future interest expense on the October 2012 and April 2013 Secured Promissory Notes.
~~The accounting for the change due to the Snyder Debt Conversion is as follows (in thousands):~~
Principal (pre-conversion) $ 12,450
Discount (pre-conversion) (134 )
Consideration of common stock and warrants provided at conversion (6,196 )
Gain on extinguishment (2,695 )
Principal and future interest at September 30, 2019 $ 3,425
Additionally, in conjunction with the terms of the October 2012 Secured Promissory Notes and the April 2013 Secured Promissory Notes, the Company agreed to pay a fee of 7% of the funded principal amount to the agent that facilitated the 2018 February Financing Transactions between the Company and the collective lenders. As part of the Snyder Debt Conversion, the Company renegotiated the Agent Fee, which resulted in 498,000 shares of the Company’s common stock being issuable to the agent in lieu of a cash payment for services. These shares are issuable at the Maturity Date of the note. The Company has included this liability in other non-current liabilities. The change in the value of the agent fee and the fair value of the common stock granted in lieu of cash was also included in the gain on partial extinguishment of debt as follows (in thousands):
Agent fee, included in other liabilities, long term (pre-conversion) $ 827
Gain on extinguishment (319 )
Agent fee payable in common shares $ 508

June 2014 Secured Promissory Note

In June 2014, the Company borrowed $10,000,000 pursuant to a business loan agreement and promissory note (“June 2014 Secured Promissory Note”) with Five Star Bank that bears an interest ~~at 7.5%~~of 6.25% (per annum) as of ~~September 30, 2019.~~March 31, 2020. The interest rate is subject to change and is based on the prime rate plus 2.00% per annum. ~~The June 2014 Secured Promissory Note is repayable in monthly payments of $76,286 and adjusted from time-to-time as the interest rate changes, with the final payment due in June 2036.~~ The Company is required to maintain a deposit balance with the Five Star Bank of $1,560,000, which is recorded as restricted cash included in non-current assets.
Under this note the Company is required to maintain a current ratio of not less than 1.25-to-1.0, a debt-to-worth ratio of no greater than 4.0-to-1.0 and a loan-to-value ratio of no greater than 70% as determined by Five Star Bank. The Company is also required to comply with certain affirmative and negative covenants under the loan agreement discussed above. In the event of default on the debt, Five Star Bank may declare the entire unpaid principal and interest immediately due and payable. As of ~~September 30,~~March 31, 2019, the Company was in compliance with the “loan to value ratio” covenant, ~~however was not in compliance with~~ the “current ratio”, ~~nor~~ the “debt to worth ratio” and, potentially, a requirement that no material adverse situation shall have occurred, given the Company’s current going concern assessment and the requirement that there be no unapproved compensation increases for the Company’s executives for calendar year 2019. However,however, the Company has obtained a waiver from the lender for any non-compliance through ~~November~~May 20, ~~2020.~~
2021.
The following table reflects the activity under this note (in thousands):

Principal balance, net at December 31, 2018 $ 8,639
Principal payments (683)
Interest 494
Debt discount amortization 16
Principal balance, net at September 30, 2019 $ 8,466
~~Secured Convertible Promissory Note~~
On October 12, 2017, the Company and Dwight W. Anderson (“Anderson”) entered into a $1,000,000 convertible promissory note, which was restated in its entirety by a convertible promissory note entered into by the Company and Anderson on October 23, 2017 (the “October 2017 Convertible Note”). The October 2017 Convertible Note was an unsecured promissory note in the aggregate principal amount of up to $6,000,000, was subject to Anderson’s approval and due on October 23, 2020 (the “Anderson Maturity Date”).
On December 15, 2017, the Company entered into the Securities Purchase Agreement with an affiliate of Anderson and certain other accredited investors (collectively, the “Buyers”). In conjunction with the transaction contemplated in the Securities Purchase Agreement, Anderson was entitled to convert any portion of the balance outstanding under the October 2017 Convertible Note and any accrued interest into shares of the Company’s common stock at a rate of one share of common stock per $0.50. Anderson’s ability to affect conversions at the $0.50 rate was subject to, among other things, approval of the Company’s stockholders, which was received on January 31, 2018.
On December 22, 2017, the Company and Anderson amended and restated in its entirety the terms of the October 2017 Convertible Note (“Secured December 2017 Convertible Note”). Under the amendment, the Secured December 2017 Convertible Note became a secured promissory note and the maturity date was reverted to the original terms, due on October 12, 2020 (the “Maturity Date”). The interest rate and conversion terms of the Secured December 2017 Convertible Note remain unchanged from the terms of the October 2017 Convertible Note as described above. As of December 31, 2017, the outstanding principal balance under the Secured December Convertible Note was $4,000,000, exclusive of a $510,000 discount. In January 2018, the Company borrowed the remaining available principal under the Secured December 2017 Convertible Note of $2,000,000, exclusive of an additional derivative liability discount of $574,000.
On February 5, 2018, the holder converted the entire outstanding principal of $6,000,000 under the Secured December 2017 Convertible Note into 12,000,000 each common stock and warrants units in accordance with the terms of the Securities Purchase Agreement which provided for conversion of the outstanding balance at a rate of $0.50 per common share. Upon the conversion on February 5, 2018, the outstanding principal balance under the Secured December 2017 Convertible Note was reduced to zero.
The Company accounted for the full conversion of the Secured December 2017 Convertible Note using the accounting guidance related to an induced debt conversion. Under the induced conversion guidance, the Company recognized a loss on conversion in the amount of $11,634,000 associated with the change between the debt’s original terms and the induced conversion terms. This loss related to the induced conversion feature was partially offset by a gain on extinguishment of $6,424,000 related to the fair value of the derivative liability on the date of conversion.
~~The following table reflects the accounting for the activities under the Secured December 2017 Convertible Note as follows (in thousands):~~
Principal (pre-conversion) $ 6,000
Discount (pre-conversion) (791 )
Consideration of common stock and warrants provided at conversion (16,843 )
Derivative liability extinguished 6,424
Loss on extinguishment 5,210
Balance at September 30, 2018 $ -
2020 2019
Principal balance, net at December 31, $ 8,404 $ 8,639
Principal payments (217 ) (225 )
Interest 146 153
Debt discount amortization 5 5
Principal balance, net at March 31, $ 8,338 $ 8,572

LSQ Financing

~~On March 24, 2017,~~In January 2020, the Company entered into ana Second Amendment to the Company’s Invoice Purchase Agreement ~~(the “LSQ Financing”)~~ with ~~LSQ Funding Group, L.C. (“LSQ”), pursuant to~~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 ~~$7,000,000~~$20,000,000 of eligible customer invoices from the ~~Company. The Company’s obligations under~~Company from $7,000,000; (ii) increased the LSQ Financing are secured by a lien on substantially all of the Company’s personal property; such lien is first priority with respect to the Company’s accounts receivable, inventory, and related property.
~~Advances by LSQ may be made at an~~ advance rate ~~of up~~ to ~~80%~~90% from 85% and 70% from 60%, respectively, of the face value of ~~the~~domestic and international receivables being ~~sold. Upon~~sold; (iii) decreased the sale of the receivable, the Company will not maintain servicing. LSQ may require the Company to repurchase accounts receivable if (i) the payment is disputed by the account debtor, with the purchaser being under no obligation to determine the bona fides of such dispute, (ii) the account debtor has become insolvent or (iii) upon the effective date of the termination of the LSQ Financing. LSQ will retain its security interest in any accounts repurchased from the Company.
~~Under the initial agreement the Company would also pay to LSQ (i) an~~ invoice purchase fee ~~equal~~rate from 0.40% to ~~1.00% of~~0.25%; (iv) increased the ~~face amount of each purchased invoice, at the time of the purchase, and (ii) a~~ funds usage fee ~~equal~~from 0.020% to ~~0.035%, payable monthly in arrears. An~~0.025%; (v) extended the 0% aging and collection fee ~~would be~~percentage charged at the time when the purchased invoice is collected ~~calculated as a~~from 90 days to 120 days, and increased the fee percentage ofcharged thereafter from 0.35% to 0.75%; and (vi) decreased the ~~face amount of such invoice while unpaid (which percentage ranges~~early termination fee from 0%0.75% to ~~0.35% depending upon the duration the invoice remains outstanding)~~0.50%.

In ~~June 2018,~~addition to the Amendment, the Company ~~amended~~simultaneously entered into an Amended Inventory Financing Addendum (the “Addendum”) with LSQ. The Addendum allows the ~~LSQ Financing arrangement and effectively~~Company to request an advance up to the lesser of (i) ~~decreased~~100% of the ~~invoice purchase fee from 1.00%~~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 ~~range~~monthly inventory management fee of ~~0.40% to 1.00%, (ii) decreased~~0.5% on the average monthly inventory funds ~~usage fee from 0.035% to~~available and a ~~range~~daily interest rate of 0.020% to 0.035% and (iii) extended the term of the agreement to June 30, 2019. In June 2019, the Company and LSQ Financing mutually agreed to further extend the terms of the LSQ Financing arrangement through November 2019.0.025%.

The agreement contains representations and warranties by the Company and LSQ, certain indemnification provisions in favor of LSQ and customary covenants (including limitations on other debt, liens, acquisitions, investments and dividends), and events of default (including payment defaults, breaches of covenants, a material impairment in LSQ’s security interest or in the collateral, and events relating to bankruptcy or insolvency). The Company is in compliance with all terms of the agreement. As of ~~September 30, 2019, $4,957,000~~March 31, 2020, $8,626,000 was outstanding under the LSQ Financing.

~~September 2018 Research Facility~~8.
On September 4, 2018, the Company’s subsidiary Pro Farm entered into a research loan facility under the Finnish Government Innovation Funding initiative with the Innovation Centre Business Finland, in the amount of $326,000 (€282,000). Pro Farm subsequently drew down $94,000 (€80,000) on September 21, 2018 in connection with research and development costs. The note bears interest at 3% below the reference rate for Finnish Government Aid, with a minimum of 1% interest annually. The current effective interest rate as of September 30, 2019 is 3.82%. The loan facility requires repayment in increments of 25% on each of the anniversary date of the loan after the third anniversary of the loan execution date as such the balance of the loan has been classified as long term. The terms of the loan facility allow for partial debt forgiveness if so determined by the State Council for the Financing of Research, Development and Innovation at the lender’s discretion. As of September 30, 2019, the outstanding principal balance net of imputed interest was $83,000 (€72,000).
~~September 2018 Bank Facility~~
On September 10, 2018, the Company’s subsidiary Pro Farm entered into a bank facility with Nordea Bank AB, under which the Company may borrow up to $266,000 (€230,000). The note bears interest at the Euribor three-month rates plus 2.4% which as of September 30, 2019 was increased to 2.60%. The bank facility includes a usage commitment fee of 0.95% and required repayment on its maturity date of February 28, 2019. On February 20, 2018, the bank facility was extended until August 31, 2019, and on August 30, 2019, the bank facility was again extended until February 29, 2020, The bank facility is 60% guaranteed by Export Credit Agency of Finland. In connection with the guarantee the Company pays a fee of 2.49% to the guarantor. As of September 30, 2019, the amount outstanding on the bank facility was $63,000 (€55,000).
~~March 2019 Factoring~~
On March 27, 2019, the Company’s subsidiary Pro Farm entered into a factoring agreement with Bab al Khail General Trading (“Bab al Khail”), in the amount of $1,314,000. The Bab al Khail agreement bears interest at an annual rate of 15% and matures on December 17, 2019. Certain of Pro Farm account receivables are pledged as collateral under the agreement. As of September 30, 2019, the amount outstanding under the factoring agreement was $1,315,000 (€1,163,200), which includes interest.
8. Warrants

On August 6, 2019, the Company entered into a warrant amendment and plan of reorganization agreement (“Warrant Reorganization Agreement”) with certain holders of the February 2018 Warrants. Pursuant to the Warrant Reorganization Agreement, the Company ~~has~~ agreed to extend the expiration date under the February 2018 Warrants held by such holders from December 2020 to December 2021, and the holders ~~have~~ agreed, at any time the Company’s stock trades above $1.00 and upon request by the Company, to exercise up to 36,600,000 of their respective February 2018 Warrants, in consideration for the delivery of (x) the shares subject to the February 2018 Warrants so exercised and (y) the delivery of new warrants (“August 2019 Warrants”) to purchase such additional number of shares of common stock equal to the amount of shares so exercised and delivered under February 2018 Warrants. Accordingly, up to a maximum of 36,600,000 new shares ~~may be issued~~were issuable pursuant to the August 2019 Warrants.
The August 2019 Warrants ~~to the extent~~have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and are first exercisable 180 days after issuance. The August 2019 Warrants are exercisable in cash, provided that they may be exercised via net exercise if the Company ~~exercises its rights to require exercise~~does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. The Company completed a registration statement registering the ~~February 2018 Warrants.~~shares underlying the August 2019 Warrant among other securities which became effective on March 30, 2020.

~~The~~In August and through December 2019, the Company requested under the Warrant Reorganization Agreement, ~~was treated as a modification~~the exercise of 16,000,000 February 2018 Warrants. In February 2020, the Company requested an ~~equity-classified instrument, which did not result in a change~~additional exercise of 6,000,000 February 2018 Warrants, resulting in the ~~classification~~Company issuing an additional 6,000,000 common shares and 6,000,000 August 2019 Warrants (“Exercise 3”). The issuance of the ~~instrument pre- and post-modification. Analogizing to Accounting Standards Codification (“ASC”) 718 –~~~~Compensation – Stock Compensation~~,August 2019 Warrants resulted in the Company ~~accounted for the modification similarly to modification~~incurring a non-cash charge of ~~stock option awards, which requires the Company to assess~~$1,391,000 in connection with the fair value of the instrument pre- and post-modification. As a result of the modification of the February 2018 Warrants, the Company incurred a non-cash charge of $1,564,000, consistent with the increase in the fair value of the warrants which were not immediately called under the terms of the Warrant Reorganization Agreement.
new warrants. The Company’s fair value of the ~~warrant post modification~~new warrants issued was estimated utilizing a ~~Monte Carlo univariate~~Black Scholes option pricing ~~model based on~~model. The following table outlines assumptions utilized for the ~~following assumptions which have been determined consistent with the Company’s historical methodology for such assumptions:~~warrant issuance:

~~AUGUST 6, 2019~~
THREE MONTHS ENDED
MARCH 31, 2020

Expected life (years) ~~3.4~~3.01-3.04
Estimated volatility factor ~~53.1~~52.9-53.1 %
Risk-free interest rate ~~1.52~~1.58-1.66 %
Expected dividend yield —

Expected ~~Life~~.Life.Expected life represents the period that the warrants are expected to be outstanding. The Company estimates the contractual period, the period between the date of the modification and the expiration date of the warrant, which is an appropriate estimate of the expected term.

Estimated Volatility Factor. ~~As the Company’s common stock has a limited period of normalized trading history, the Company calculated the estimated~~Estimated volatility factor is based on the Company’s trading history ~~and calculated volatility~~adjusted for certain periods of the ~~common stock~~Company’s trading history, not indicative of comparable agricultural biotechnology companies. The Company’s estimation of the volatility factor gives weighting to both the volatility of its common stock and the volatility of the common stock of comparable agricultural biotechnology companies.normal trading.

Risk-Free Interest Rate. The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.

Expected Dividend Yield. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.
The August 2019 Warrants have a term expiring on January 1, 2023, an exercise price of $1.75 per share, and are first exercisable 180 days after issuance. The August 2019 Warrants are exercisable in cash, provided that they may be exercised via net exercise if the Company does not have a registration statement registering the shares underlying the August 2019 Warrants effective as of June 30, 2020. On August 7, 2019, the Company requested under the Warrant Reorganization Agreement, the exercise of 10,000,000 February 2018 Warrants, resulting in the Company issuing 10,000,000 common shares and 10,000,000 August 2019 Warrants. The issuance of the August 2019 Warrants resulted in the Company incurring non-cash charge of $4,751,000 in connection with the fair value of new warrants.
The Company’s fair value of the new warrants issued was estimated utilizing a Black Scholes option pricing model. Due to the insignificant time lapse between the warrant call and the date of the warrant modification, the same assumptions as outlined above were utilized to fair value the new warrants issued in connection with the warrant exercise.
The following table summarizes information about the Company’s common stock warrants outstanding as of ~~September 30, 2019~~March 31, 2020 (in thousands, except exercise price data):

NUMBER OF NUMBER OF
SHARES SHARES
SUBJECT TO SUBJECT TO
EXPIRATION WARRANTS EXERCISE EXPIRATION WARRANTS EXERCISE
DESCRIPTION ISSUE DATE DATE ISSUED PRICE ISSUE DATE DATE ISSUED PRICE
In connection with June 2013 Credit Facility (June 2013 Warrants) June 2013 June 2023⁽¹⁾ 27 $ 8.40 June 2013 June 2023⁽¹⁾ 27 $ 8.40
In connection with August 2015 Senior Secured Promissory Notes (August 2015 Warrants) August 2015 August 2023 4,000 $ 1.91 August 2015 August 2023 4,000 $ 1.91
In connection with October 2012 and April 2013 Secured Promissory Notes (November 2016 Warrants) November 2016 November 2026 125 $ 2.38 November 2016 November 2026 125 $ 2.38
In connection with June 2017 Consulting Agreement (November 2017 Warrants) June 2017 June 2027 80 $ 1.10 June 2017 June 2027 80 $ 1.10
In connection with February 2018 Financing Transaction (February 2018 Warrants 1) February 2018 December 2020 6,750 $ 1.00 February 2018 December 2020 6,750 $ 1.00
In connection with February 2018 Financing Transaction (February 2018 Warrants 2) February 2018 December 2020 5,065 $ 1.25 February 2018 December 2020 5,065 $ 1.25
In connection with August 2019 Modification of February 2018 Warrants (Warrant Amendment and Plan of Reorganization Agreement) August 2019 December 2021 26,600 $ 1.00 August 2019 December 2021 14,600 $ 1.00
In connection with Exercise 1 of Call Option under the Warrant Amendment and Plan of Reorganization Agreement (August 2019 Warrants) Various dates starting in August 2019 January 2023 10,000 $ 1.75
In connection with Exercise 1, 2, & 3 of Call Option under the Warrant Amendment and Plan of Reorganization Agreement (August 2019 Warrants) Various dates starting in August 2019 January 2023 22,000 $ 1.75
52,647
52,647

The weighted average remaining contractual life and exercise price for these warrants is ~~2.37~~2.09 years and ~~$1.24,~~$1.41, respectively.

⁽¹⁾ The June 2013 Warrants expire upon the earlier to occur of (i) the date listed above; (ii) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any transfer of more than 50% of the voting power of the Company, reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (iii) a sale of all or substantially all of the assets of the Company unless the Company’s stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company’s acquisition or sale or otherwise), hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.
In April 2020, the Company entered into the Warrant Exchange Agreement with certain existing warrant holders, including all parties to the Warrant Reorganization Agreement. Under the warrant exchange agreement, the number of outstanding Company warrants as of March 31, 2020 of 52.6 million was immediately reduced to 36.4 million. Pursuant to the warrant exchange agreement, 46.0 million then outstanding warrants, including all the August 2019 Warrants and all remaining February 2018 Warrants subject to the Warrant Reorganization Agreement were exchanged for 29.9 million new warrants with an exercise price of $0.75 per share. The new warrants have five different expirations dates, three in 2020 and two in 2021.
22
9.Share-Based Plans

~~On May 31, 2019,~~Under the Company’s ~~stockholders approved an~~ Employee Stock Purchase Plan (the “ESPP”) ~~whereby~~, employees may purchase Company stock through payroll deductions over each six-month period beginning on each June 1 and December 1 (the “Offer Period”). ~~The total maximum number of shares available for purchase under the ESPP is 1,000,000.~~ The purchase price of the shares will be 85% of the lower of the fair market value of the shares at the beginning or at the end of the Offer Period. The ESPP is a tax qualified plan under Section 423 of the Internal Revenue Code. All employees, including officers, are eligible to participate in the ESPP. A participant may withdraw all uninvested payment balances credited to their account at any time. An employee whose stock ownership in the Company exceeds 5% of the Company’s outstanding common stock is not eligible to participate in the ESPP. The ESPP is compensatory and the 15% discount will be expensed over the Offer Period. The Company has accounted for the ESPP in accordance with ASC 718, Compensation – Stock Based Compensation. As of the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020, the Company recorded stock-based compensation expense of approximately ~~$13,000 and $18,000, respectively.~~$19,000.

As of ~~September 30, 2019,~~March 31, 2020, there were options to purchase ~~12,056,000~~11,529,000 shares of common stock outstanding, ~~1,918,000~~2,466,000 restricted stock units outstanding and ~~4,269,000~~7,751,000 share-based awards available for grant under the outstanding equity incentive plans.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company recognized share-based compensation of ~~$742,000~~$907,000 and ~~$437,000, respectively, and $1,906,000 and $1,310,000,~~$558,000, respectively.

During the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company granted options to purchase ~~5,363,000~~87,000 and ~~39,000~~48,000 shares of common stock, respectively, at a weighted average exercise price of ~~$1.43~~$1.04 and ~~$1.99,~~$1.59, respectively. During the three months ended ~~September 30, 2019 and 2018, 13,000 and 53,000~~March 31, 2020, 15,000 options ~~respectively,~~ were exercised at a weighted average exercise price of ~~$1.16 and $1.17, respectively.~~
~~The Company’s fair value of the option grants~~$0.84. No options were exercised for the three months ended September 30, 2019 was estimated utilizing a Black Scholes option pricing model based on the following range of assumptions which have determined consistent with the Company’s historical methodology for such assumptions:
~~SEPTEMBER 30, 2019~~
~~Expected life (years)~~ ~~5.33-6.08~~
~~Estimated volatility factor~~ ~~53.3-53.8~~ %
~~Risk-free interest rate~~ ~~1.41-1.92~~ %
~~Expected dividend yield~~ —
~~Expected Life~~. Expected life represents the period that share-based payment awards are expected to be outstanding. The Company uses the “simplified method” in accordance with Staff Accounting Bulletin (“SAB”) No. 107,~~Share-Based Payment~~~~(“SAB No. 107”), and SAB No. 110,~~~~Simplified Method for Plain Vanilla Share Options~~(“SAB No. 110”), to calculate the expected term of stock options determined to be “plain vanilla.” Under this approach, the expected term is presumed to be the midpoint between the vesting date and the contractual end of the stock option grant. For stock options granted with an exercise price not equal to the determined fair value, the Company estimates the expected life based on historical data and management’s expectations about exercises and post-vesting termination behavior. The Company will use the simplified method until it has sufficient historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107 and SAB No. 110.
~~Estimated Volatility Factor~~.As the Company’s common stock has limited period of normalized trading history, the Company calculated the estimated volatility factor based on the Company’s trading history and calculated volatility of the common stock of comparable agricultural biotechnology companies. The Company’s estimation of the volatility factor gives weighting to both the volatility of its common stock and the volatility of the common stock of comparable agricultural biotechnology companies.
~~Risk-Free Interest Rate~~.The Company calculates the risk-free interest rate based on the implied yield currently available on U.S. Treasury constant-maturity securities with the same or substantially equivalent remaining term as the expected life of the stock options.
~~Expected Dividend Yield~~~~. The Company has not declared dividends, nor does it expect to in the foreseeable future. Therefore, a zero value was assumed for the expected dividend yield.~~
During the nine months ended September 30, 2019 and 2018, the Company granted options to purchase 5,485,000 and 4,509,000 shares of common stock, respectively, at a weighted average exercise price of $1.43 and $1.78, respectively. During the nine months ended September 30, 2019 and 2018, 47,000 and 56,000 options, respectively, were exercised at a weighted average exercise price of $1.18 and $1.17, respectively.March 31, 2019.

The following table summarizes the activity of stock options from December 31, ~~2018~~2019 to ~~September 30, 2019~~March 31, 2020 (in thousands, except weighted average exercise price):

WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
Options PRICE OPTIONS PRICE
Balances at December 31, 2018 7,136 $ 3.31
Balances at December 31, 2019 11,821 $ 2.53
Options granted 5,485 1.43 87 1.04
Options exercised (47 ) 1.18 (15 ) 0.84
Options cancelled (518 ) 2.19 (364 ) 1.58
Balances at September 30, 2019 12,056 2.51
Balances at March 31, 2020 11,529 $ 2.55
In conjunction with Dr. Pamela Marrone’s announcement of her intention to retire from her position as the Company’s Chief Executive Officer (“CEO”) and an employee of the Company, as of March 31, 2020, the remaining expense to be recognized in future periods in connection with the modification for Ms. Marrone’s stock options is $237,000.

The following table summarizes the activity of restricted stock units from December 31, ~~2018~~2019 to ~~September 30, 2019~~March 31, 2020 (in thousands, except weighted average grant date fair value):

~~RESTRICTED UNITS~~
~~Outstanding at December 31, 2018~~ ~~1,146~~
~~Granted~~ ~~772~~
~~Exercised~~ -
~~Forfeited~~ -
~~Outstanding at September 30, 2019~~ ~~1,918~~
WEIGHTED
AVERAGE
GRANT
SHARES DATE FAIR
OUTSTANDING VALUE
Non-vested at December 31, 2018 404 $ 1.40
Granted 772 $ 1.55
Vested (539 ) $ 1.49
Forfeited - $ -
Non-vested at September 30, 2019 637 $ 1.50
SHARES OUTSTANDING WEIGHTED AVERAGE GRANT DATE FAIR VALUE
Outstanding at December 31, 2019 2,405 $ 1.40
Granted 71 0.82
Exercised - -
Forfeited (10 ) 1.08
Outstanding at March 31, 2020 2,466 $ 1.39

The ~~Company notes that~~following table summarizes the activity of non-vested restricted stock units ~~granted, as detailed above, includes 100,000 units related~~from December 31, 2019 to ~~one employee in connection with the Pro Farm Acquisition. This~~March 31, 2020 (in thousands, except weighted average grant date fair ~~value of the restricted stock units were accounted for as part of the consideration transferred consistent with~~~~ASC 805 – Business Combinations,~~ ~~(See Note 3).~~value):
WEIGHTED
AVERAGE
GRANT
SHARES DATE FAIR
OUTSTANDING VALUE
Nonvested at December 31, 2019 711 $ 1.45
Granted 71 0.82
Vested (478 ) 1.43
Forfeited (10 ) 1.08
Nonvested at March 31, 2020 294 $ 1.33
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10. ~~Commitments and Contingencies~~
~~Operating Leases~~
In June 2013 and then amended in April 2014, the Company entered into a lease agreement for approximately 27,300 square feet of office and laboratory space located in Davis, California. The initial term of the lease is for a period of 60 months and commenced in August 2014. The monthly base rent is $44,000 per month for the first 12 months with a 3% increase each year thereafter. Concurrent with this amendment, in April 2014, the Company entered into a lease agreement with an affiliate of the landlord to lease approximately 17,400 square feet of office and laboratory space in the same building complex in Davis, California. The initial term of the lease is for a period of 60 months and commenced in August 2014. The monthly base rent is $28,000 with a 3% increase each year thereafter.
In November 2018, the Company elected to exercise the first extension option under the lease, extending the lease term for another 60 months and an amended lease agreement was executed on April 25, 2019. The extension of the lease was accounted for in accordance with ASC 842. As of September 30, 2019 and 2018, the Company incurred $854,000 and $458,000, respectively of rent expense, net. See Note 5 for the method of recognition of rent expense on the condensed consolidated financial statements and future maturities of the Company’s operating lease commitments.
On January 19, 2016, the Company entered into an agreement with a sublessee to sublease approximately 3,800 square feet of vacant office space located in Davis, California. The initial term of the sublease is for a period of approximately 43 months and commenced on February 1, 2016. The monthly base rent is approximately $5,000 per month for the first 12 months with a 5% increase each year thereafter. The terms of the lease expired in August 2019 and therefore the lease is now subject to month to month terms under the original agreement. See Note 5 for the impact of lease income on the condensed consolidated financial statements.
~~Litigation~~
On April 3, 2018, the Company was named as a defendant in a complaint filed by Piper Jaffray, Inc. (“Piper”) with the Superior Court of the State of Delaware (the “Lawsuit”). The Company was informed of and received Piper’s complaint and related documents on April 5, 2018, following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Piper’s complaint alleged one breach of contract claim, specifically, that the Company breached an engagement letter (“Engagement Letter”) with Piper by failure to pay a $2,000,000 transaction fee, which Piper alleges is due under the Engagement Letter as a result of the Company’s consummation of its private placement and debt refinancing transactions in February 2018. Piper’s complaint included a demand for payment of the foregoing transaction fee, in addition to interest and costs and expenses incurred in pursuing the action, including reasonable attorneys’ fees.
On October 8, 2019, the Company entered into a Settlement and Release Agreement with Piper to settle the Lawsuit without any admission or findings of liability (the “Settlement Agreement”) in an aggregate of $1,000,000. Under the Settlement Agreement, Piper agreed to dismiss the Lawsuit against the Company with prejudice and the parties agreed to mutual general releases of all claims relating to the Lawsuit other than their prospective obligations under the Settlement Agreement, the confidentiality obligations under the Engagement Letter and any potential indemnification obligations under the Engagement Letter unrelated to the Lawsuit.~~The settlement amount has been accrued as of September 30, 2019 and subsequently paid in October 2019.~~
~~11.~~ Related Party Transactions

August 2015 Senior Secured Promissory Notes

~~On August 20, 2015,~~As of March 31, 2020, there have been no changes to the Company entered into a purchase agreement with Ivy Science & Technology Fund, Waddell & Reed Advisors Science & Technology Fund and Ivy Funds VIP Science and Technology, each an affiliate of Waddell & Reed, which is a beneficial owner of more than 5% of the Company’s common stock. Pursuant to such purchase agreement, the Company sold to such affiliates senior secured promissory notes (“August 2015 Senior Secured Promissory Notes”) in the aggregatepreviously reported total principal amount of $40,000,000. In connection with the note, the Company incurred $302,000 in financing-related costs. These costs were recorded as deferred financing costs as a component of current and non-current other assets to amortize the interest expense over the term of the note. In connection withoutstanding under the August 2015 Senior Secured Promissory Notes, ~~the Company issued warrants (“August 2015 Warrants”)~~which continues to ~~purchase 4,000,000 shares of common stock of the Company. The August 2015 Warrants are immediately exercisable at an exercise price of $1.91 per share and may~~ be exercised at a holder’s option at any time on or before August 20, 2023 (subject to certain exceptions). The fair value of the August 2015 Warrants at the date of issuance of $4,610,000 was recorded as a discount$5,000,000. Due to the ~~August 2015 Senior Secured Promissory Notes~~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, 2020 and 2019, a ~~component~~total of ~~non-current other liabilities~~$1,199,000 and ~~amortized to interest expense to related parties over the term of the arrangement.~~$798,000, 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 and certain events in which Pamela G. Marrone, Ph.D. ceases to serve as the Company’s Chief Executive Officer.~~Company. Upon an event of default, the entire principal and interest may be declared immediately due and payable. As of ~~September 30, 2019,~~March 31, 2020, the Company was in compliance with its covenants under the August 2015 Senior Secured Promissory Notes.

On February 5, 2018, the holders of the August 2015 Senior Secured Promissory Notes, pursuant to an amendment, converted $35,000,000 of the then outstanding debt into 20,000,000 shares of common stock and warrants to purchase 4,000,000 shares of common stock (such conversion, the “Waddell Debt Conversion”). After the conversion, $5,000,000 in principal remained outstanding. Simultaneously with the Waddell Debt Conversion, the maturity of the August 2015 Senior Secured Promissory Notes was extended to December 31, 2022, and payment of all future interest was deferred to maturity on December 31, 2022 (See Note 7 for further discussion).
In conjunction with the Waddell Debt Conversion, the Company accounted for the partial debt extinguishment under the troubled debt restructuring accounting guidance, including consideration for the treatment of the transaction as a gain given the terms of the agreement. The Company recognized a gain of $9,183,000, including $2,171,000 related to debt discount and other cost, on partial extinguishment of the August 2015 Senior Secured Promissory Notes as of December 31, 2018. Because the Company recognized a gain on the partial extinguishment of debt, the Company was required to include all future interest and additional consideration, which included accrued interest, under the terms of this agreement as a reduction of the gain. As a result, the amount of the debt on the Company’s balance sheet related to the August 2015 Senior Secured Promissory Notes is $7,300,000, as compared to $5,000,000 of contractual principal amount outstanding thereunder. Going forward, subject to future amendments to debt agreement or costs, the Company will not recognize future interest expense on the August 2015 Senior Secured Promissory Notes.
~~The accounting for the change due to the August 2015 Senior Secured Promissory Notes is as follows (in thousands):~~
Principal (pre-conversion) $ 40,000
Accrued interest to be paid at maturity 339
Discount (pre-conversion) (2,171 )
Consideration of common stock and warrants provided at conversion (21,685 )
Gain on extinguishment (9,183 )
Principal and future interest at September 30, 2019 $ 7,300
Warrant Exercise

~~On August 7, 2019,~~In March 2020, 6,000,000 February 2018 Warrants were exercised upon the ~~Company requested~~Company’s utilization of its call option under the Warrant Reorganization Agreement ~~the exercise~~(See Note 8). As a result of ~~10,000,000 February 2018 Warrants, resulting in~~this transaction, the Company ~~issuing 10,000,000~~issued 6,000,000 common shares and ~~10,000,000~~6,000,000 August 2019 Warrants. Of the warrants exercised, two of the warrant holders, Ospraie ~~Ag Science LLC (“Ospraie”)~~ and Ardsley, ~~Advisory Partners (“Ardsley”),~~ are beneficial owners of ~~29.3%~~38.9% and ~~8.8%~~11.5%, respectively, of the Company’s total outstanding common stock as of ~~September 30, 2019.~~March 31, 2020. The total number of warrants exercised at the request of the Company by Ospraie and Ardsley ~~were 8,378,871~~represented 5,027,325 and ~~1,457,195,~~874,314, shares of common stock, respectively.
11. Subsequent Events

~~Ospraie Loan to~~ ~~Pro Farm~~Paycheck Protection Program

In ~~connection with~~April 2020, the ~~Company’s closing~~Company entered into an unsecured note in the amount of $1,723,000 under the ~~Pro Farm Acquisition,~~Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). The loan to the Company was made through Five Star Bank (the “Lender”). The Note may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. The Note contains events of default and other conditions customary for a Note of this type. Under the terms of the ~~Share Purchase Agreement included as~~CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a ~~condition~~portion of loan granted under the PPP, with such forgiveness to ~~closing~~be determined, subject to limitations, based on the ~~repayment of certain indebtedness of Pro Farm. One~~use of the ~~indebtedness obligations~~loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The terms of any forgiveness may also be subject to ~~be repaid was a convertible loan~~further requirements in ~~a principal amount~~any regulations and guidelines the SBA may adopt. While the Company currently believes that its use of ~~$1,000,000, held by Dwight Anderson, an affiliate~~the Note proceeds will meet the conditions for forgiveness under the PPP, no assurance is provided that the Company will obtain forgiveness of ~~Ospraie,~~ the ~~Company’s largest shareholder.~~ Note in whole or in part.
The Company ~~paid~~is in ~~total $1,434,000 which is inclusive~~the process of assessing the accounting impact of the ~~principal, interest and other charges under the terms of the debt arrangement.~~transaction.

~~12. Subsequent Events~~Warrant Exchange Agreement
In April 2020, the Company entered into the Warrant Exchange Agreement with the Investors.

Pursuant to the Warrant Exchange Agreement, the Investors have exchanged their Prior Warrants to purchase an aggregate of up to 45,977,809 shares of common stock for New Warrants to purchase an aggregate of up to 29,881,855 shares of common stock. All of the New Warrants were issued to the Investors upon execution of the Warrant Exchange Agreement on April 29, 2020.
The New Warrants all have an exercise price of $0.75 per share, and expire in five tranches, as follows: (i) May 1, 2020, with respect to 3,392,581 shares, (ii) September 15, 2020, with respect to 2,714,065 shares, (iii) December 15, 2020, with respect to 13,027,512 shares, (iv) March 15, 2021, with respect to 5,862,380 shares, and (v) and December 15, 2021 with respect to 4,885,317 shares. In ~~October 2019,~~addition, the Investors have agreed to exercise all the New Warrants subject to the first tranche, for an aggregate of approximately $2.5 million, on or before their expiration date, which was completed on May 1, 2020. The New Warrants are exercisable in cash, provided that they may be exercised via cashless “net” exercise if the Company ~~granted 312,000~~does not have a registration statement registering the shares underlying the New Warrants effective as of March 31, 2021. In addition, the Company will redeem the New Warrants upon the occurrence of any Fundamental Transaction (as defined in the New Warrants), and the exercise price of the New Warrants will be subject to weighted-average antidilution provisions.
The Company is in the process of assessing the accounting impact of the transaction.
2020 Executive Compensation and 2019 Executive Bonus
On May 1, 2020, the Company’s Board of Directors (the “Board”), upon the recommendation of Company management, awarded all of its named executive officers (“NEOs”) restricted stock units (“RSUs”) in place of ten percent of their annual base salaries pro-rated for the second, third and fourth quarters of 2020, the remaining 90 percent of which will continue to be paid in cash.
Also on May 1, 2020, the Board approved bonus awards for each of the Company’s named executive officers for performance during the fiscal year ended December 31, 2019 based on the recommendation it received from the Compensation Committee (“Compensation Committee”) of the Board. The Board approved of the Compensation Committee’s recommendation, and in its discretion, and in order to further conserve Company resources, determined to pay the bonus awards to the NEOs and certain other officers in the form of RSUs, with the number of RSUs awarded in lieu of cash determined at ~~an average exercise~~a rate of $0.71 per share, the closing price of ~~$1.36 to certain~~the Company’s common stock on May 1, 2020, the date of ~~its employees, which~~grant. The RSUs are fully vested, ~~immediately.~~with settlement and delivery of vested shares upon termination of service with the Company.
The Company is in the process of assessing the accounting impact of the transaction.

The Company has evaluated its subsequent events from ~~September 30, 2019~~March 31, 2020 through the date these ~~condensed~~ consolidated financial statements were issued, and has determined that there are no ~~additional~~ subsequent events required to be disclosed in these ~~condensed~~ consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in connection with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the Securities and Exchange Commission (the “Annual Report”) on March ~~29, 2019.~~16, 2020. 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,” “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” ~~“potentially”~~“potential” “outlook,” “if,” “future,” “targets,” “seek,” or ~~the negative~~and similar words and phrases, including negatives of these terms or similar ~~expressions.~~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, the progress, scope or duration of the development of product candidates or programs, clinical trial plans, timelines and potential results, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, our ability to protect intellectual property rights, the benefits of our recent acquisitions, our anticipated operations, financial position, revenues, costs or expenses, statements regarding future economic conditions or performance, the impact of COVID-19 on our operations, the Company’s use of proceeds from the PPP loan and whether any of the PPP loan will be eligible to be forgiven, the potential exercise of Company warrants, statements of belief and any statement of assumptions underlying any of the foregoing. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere, including Part II, Item 1A—“Risk Factors,” in this Quarterly Report on Form 10-Q, and in Part I—Item 1A—“Risk Factors” of our Annual Report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview

We ~~make bio-based~~strive to lead the sustainable agriculture movement through the discovery, development, production and promotion of effective, efficient and environmentally responsible biological products for pest management, ~~(bioprotection)~~plant nutrition and plant ~~health products. Bio-based products are comprised of naturally occurring microorganisms, such as bacteria and fungi, and plant extracts. Our current products~~health. We target the major markets that use conventional chemical pesticides ~~including certain agricultural~~ and ~~water markets,~~fertilizers, where our ~~bio-based~~biological products are used as alternatives for, or mixed with, conventional ~~chemical pesticides.~~products. We also target new markets for which ~~(i)~~ there are no available conventional chemical ~~pesticides, (ii)~~products or where the use of conventional chemical ~~pesticides~~products may not be desirable (including for organically certified crops) or permissible either because of health and environmental concerns, or ~~(iii)~~ because the development of pest resistance has reduced the efficacy of conventional chemical pesticides. Six of our seven product lines are approved by the United States Environmental Protection Agency (“EPA”) and registered as “biopesticides.” Our first non-EPA product is Haven, a plant health product that is a “biostimulant,” which only requires state registration. The acquisition of Pro Farm adds additional biostimulant and bionutrition products to our portfolio. We believe our current portfolio of products and our pipeline address the growing global demand for effective, efficient and environmentally responsible products to control pests, increase crop yields and reduce crop stress.

Business Strategy
The agricultural industry is increasingly dependent on effective and sustainable ~~pest management~~crop protection practices to maximize yields and quality in a world of increased demand for agricultural products, rising consumer awareness of food production processes and finite land and water resources. In addition, external market research reported that the global market for biopesticides, biostimulants and bionutrition products is growing substantially faster than the overall markets for chemical ~~pesticides~~products and fertilizers (plant nutrition). This demand is in part a result of conventional growers acknowledging that there are tangible benefits to adopting bio-based ~~pest management~~crop protection and plant health products into integrated pest management (“IPM”) programs, as well as increasing consumer demand for sustainably produced and organic food. We seek to capitalize on these global trends by providing both conventional and organic growers with solutions to a broad range of ~~pest management~~crop protection and plant health needs through strategies such as adding new products to our product portfolio, continuing to broaden the commercial applications of our existing product lines, leveraging growers’ positive experiences with existing product lines, educating growers with ~~on-farm~~on farm product demonstrations and controlled product launches with key target customers and other early adopters.

We sell our products through distributors and other commercial partners to growers who use our bioprotection products to manage pests and plant diseases, our biostimulants to reduce crop stress and both our biostimulants and bionutrition products to increase yields and quality. Out of our Davis, California facilities we have developed and commercialized several patent-protected product lines based on various active ingredients, which we refer to in this Quarterly Report as our Marrone products, including our Regalia product line (based on the active ingredient knotweed), for controlling plant disease and increasing plant health, our Grandevo and Venerate product lines (based on two new species of bacteria,Chromobacterium subtsugaeandBurkholderia rinojensis), each for insect and mite control, our Majestene product line and its turf and ornamentals counterpart brand Zelto (based on the same active ingredient bacterium in Venerate), each for nematode control, and our Stargus product line (based on a new strain ofBacillus nakamurai), for downy mildew and white mold control and increased plant health. In addition, in 2019, we acquired the peroxyacetic acid-based plant health product lines Jet-Ag and Jet-Oxide from Jet Harvest Solutions, which we refer to in this Quarterly Report as our Jet products, and through our 2019 acquisition of Pro Farm Technologies OY (“Pro Farm”), we added to our portfolio bionutrition and biostimulant product lines, which we refer to in this Quarterly Report as our Pro Farm products, including UBP and Foramin.
Our research and development efforts in recent periods have been focused on supporting existing commercial products, including Regalia, Grandevo, Venerate, Majestene/Zelto, Haven and Stargus with a focus on reducing cost of product revenues, further understanding the modes of action, manufacturing support and improving formulations. In addition, our internal efforts in development and commercialization are now focused on two promising product candidates, ~~MBI-601 (Ennoble) biofumigant, which is EPA-registered,~~MBI-306 a next generation formulation of our current nematicide product, Majestene and two bioherbicides, MBI-014 and MBI-015 (formerly MBI-010), of which MBI-014 was submitted to the EPA in August 2018. Simultaneously, we are seeking collaborations with third parties to develop and commercialize more early stage candidates on which we have elected not to expend significant internal resources given our reduced budget. We believe this prioritization plan, together with our competitive strengths, including our leadership in the biologicals industry, commercially available products, robust pipeline of novel product candidates, proprietary discovery and development processes and industry experience, position us for growth.

We have also recently expanded our growth strategy to seek acquisitions of products and companies that broaden our biostimulant and bionutrition product offerings, both ~~multibillion dollar~~multibillion-dollar segments that are also rapidly growing. In September 2019, we completed the acquisition of Pro Farm, ~~Technologies OY (“Pro Farm”),~~ which expanded the Company’s portfolio of bio-based products for integrated ~~pest management~~crop protection and plant health to now include Foramin and LumiBio foliar biostimulants and seed treatments. Also in September 2019, we completed the purchase of substantially all rights and assets related to the Jet-Ag and Jet-Oxide (biofungicide and disinfectants) product lines from Austin Grant, Inc., a Florida corporation d/b/a Jet Harvest Solutions.
~~Third~~First Quarter ~~2019~~2020 Highlights
During the first quarter of 2020, we, like all businesses domestically and globally, were and continue to be impacted by the COVID-19 pandemic. Our headquarters in Davis, California, our manufacturing facility in Bangor, Michigan and our international subsidiary headquarters in Helsinki, Finland, are located in geographic regions where at the state and/or local levels, governments have mandated shelter in place orders and social distancing measures since early- to mid-March 2020. However, as a supplier to the broader agriculture industry, we have continued to operate under the essential business definition under these orders allowing us to maintain scaled operations under the orders. We are pleased to have continued to service the agricultural industry during this unprecedented environment through our product portfolio offerings. Further, in part as a result of the $1.7 million of low-interest support from the Payroll Protection Program, we have not had to lay off employees, and thereby have been able to supply growers during the critical spring growing season without significant interruptions. At the same time, we are conserving cash through prudent expense control and restricting non-essential travel while serving customers and working to ensure the safety of our employees, customers and partners.

The following are the more significant financial results for the three months ended ~~September 30, 2019:~~March 31, 2020:

● Revenues increased approximately ~~28.4%~~10.7% year over year to ~~$7.0~~$9.7 million from ~~$5.4~~$8.7 million for the same period in ~~2018~~2019

●
Gross profits increased approximately ~~36.7%~~10.7% year over year to ~~$3.6~~$5.6 million from ~~$2.6~~$5.0 million for the same period in ~~2018. Gross~~2019 and gross margins increased ~~year over year~~ to ~~51.5%~~58% from ~~48.3%~~57% for the same period in the prior year

●
Operating expenses were ~~$13.4~~$11.2 million in the ~~third~~first quarter of ~~2019,~~2020, compared with ~~$6.8~~$8.6 million in the ~~third~~first quarter of ~~2018~~2019

● Net loss in the ~~third~~first quarter of ~~2019~~2020 was ~~$16.4~~$7.0 million, as compared with a net loss of ~~$4.5~~$3.9 million in ~~third~~first quarter of ~~2018~~
~~The following are the more significant financial results for the nine months ended September 30, 2019:~~
● ~~Revenues increased approximately 46.3% year over year to $22.7 million from $15.5 million for the same period in 2018~~
● ~~Gross profit increased 66.7% to $12.4 million, and gross margins increased year over year to 54.6% from 47.9% for the same period in the prior year~~
● ~~Operating expenses in the first nine months of~~ 2019 ~~were $32.2 million, compared with $21.6 million in the same year to date period in 2018.~~
● ~~Net loss year to date was $27.0 million, compared with a net loss of $14.6 million in the first nine months of 2018.~~

Other significant developments for our business during the three months ended ~~September 30, 2019~~March 31, 2020 include (i) our ~~acquisitions of Pro Farm and the Jet-Ag and Jet-Oxide product lines; (ii) the approval of Stargus biofungicide in Mexico by the Ministry of Health COFEPRIS to control downy mildews, late blight and~~entry into a ~~range of other plant-related diseases in zucchini, squash, chayote, melon, cucumber, watermelon and potato crops; (iii) field tests of MBI-015 using commercial rates~~distribution agreement with Anasac Chile S.A. for the ~~Company’s novel bioherbicide demonstrated control~~development and distribution of ~~a target weed, palmer amaranth approaching that of a current post-emergent chemical herbicide;~~Grandevo and ~~(iv) Regalia~~Venerate in Chile; (ii) our product Pacesetter becoming available domestically to corn, soybean and ~~Stargus biofungicides were approved~~wheat growers; and (iii) our Jet Oxide 15% product being allowed by the U.S. Environmental Protection Agency (“EPA”) for use against human coronavirus on ~~hemp plants.~~industrial hard surfaces.
In addition, in ~~August 2019,~~March 2020, we called the exercise of ~~10,000,000~~6,000,000 shares of ~~certain~~common stock pursuant to outstanding warrants at $1.00 per ~~share. Included~~share, which is included in the results above for the three months ended ~~September 30, 2019, is~~March 31, 2020, and which includes a non-cash charge of $1,564,000 related to the incremental fair value of the previous warrant due to the modification allowing us to call the warrants as needed to fund our operations. Pursuant to the warrant amendment and plan of reorganization agreement, in addition to issuing 10,000,000 common shares, we issued 10,000,000 new warrants to purchase shares at a higher exercise price of $1.75 and expiring on January 1, 2023. Included in the results above for the three months ended September 30, 2019, is a non-cash charge of $4,751,000$1,391,000 related to the fair value of new warrants to purchase up to 6,000,000 shares of common stock at an exercise price of $1.75 at any time prior to January 2, 2023 also issued pursuant to the call exercise.
Finally, in April 2020, we entered into a warrant exchange agreement with certain warrant holders reducing the number of shares subject to the outstanding Company warrants as of March 31, 2020 from 52.6 million to 36.4 million. Pursuant to the warrant exchange agreement, warrants representing the right to purchase up to 46.0 million shares of common stock at varying exercise prices and expiration dates were exchanged for warrants representing the right to purchase up to 29.9 million shares of common stock with an exercise price of $0.75 per share. The new warrants have five different expirations dates, three in 2020 and two in 2021 and as of the date of this Quarterly Report, the new warrants ~~issued.~~
~~We acquired Pro Farm at an enterprise value~~that were subject to the first expiration date of ~~$31.8 million, and consideration for the acquisition consisted of a combination of $6.2 million of cash and approximately 12.7 million~~May 1, 2020 were exercised to purchase 3,392,581 shares of ~~our~~ common stock ~~as well as the potential payment~~resulting in gross proceeds of up to a total of $7.5 million of additional shares of our common stock a portion of which is payable each year from 2021 through 2024 based on the achievement of agreed commercial milestones. Consideration for the Jet-Ag and Jet-Oxide acquisitions was approximately $2,534,000 in cash, of which $544,200 was paid upon closing and the remainder is to be paid in four installments over a 16-month window. The asset purchase agreement also contains a provision providing five earn-out payments yearly from 2020 through 2024 based on the Company’s total future sales of Jet-Ag purchased through a specified supplier. Acquisition costs for the Pro Farm acquisition totaled $2,718,000, and is one of the primary factors contributing to the increase in our operating expenses for the three and nine months ended September 30, 2019.
$2,500,000.

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 the fair value of assets and liabilities acquired in connection with the acquisition method of accounting, revenue recognition, including assumptions and estimates used in determining the timing and amount of revenue to recognize, inventory valuation, share-based compensation, fair value of financial instruments and warrants, and our going concern assessment have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

~~In February 2016, the FASB issued ASU 2016-02,~~~~Leases (Topic 842),~~to provide clarity over the accounting for leases, requiring registrants to record all lease liabilities and a corresponding right-of-use asset for the underlying asset. As documented in Note 5 of the condensed consolidated financial statements, the adoption of this standard had a material impact on these financial statements and is expected to have a material impact on our future financial statements.
~~In January 2017, the FASB issued ASU 2017-01,~~~~Business Combinations (Topic 805),~~to provide clarity over the accounting for acquired assets that do not constitute a business allowing registrants use a screen test to determine whether a substantial portion of the fair value of the acquired assets or group of assets is concentrated in one asset or a similar group of assets. If such criteria are met, the Company would be able to forego accounting for the transaction as a business combination. As documented in Note 2 of the condensed consolidated financial statements, the adoption of this standard had a material impact on these financial statements and is expected to have a material impact on our future financial statements.
Key Components of Our Results of Operations

Revenues

Our total revenues were ~~$7.0~~$9.7 million and ~~$5.4~~$8.7 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $22.7 million and $15.5 million for the nine months ended September 30, 2019 and 2018,~~ respectively. We generate our revenues primarily from product sales, which are principally attributable to sales of our Regalia, Grandevo and Venerate product lines, but also included sales of Majestene, ~~Haven,~~Stargus, LumiBio Kelta, Jet-Ag Foramin, UBP-110, ~~Jet-Oxide and Stargus. Additionally, the company saw increased sales in its cultivated garden business, including sales to hemp producers.~~Jet-Oxide. We believe our revenues ~~were negatively~~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. However, we presently expect revenues to continue to increase year-over-year for 2020 despite the impact of COVID-19, in part due to our expanded seed treatment offerings.
28
Product Revenues

Product revenues consist of revenues generated primarily from sales to customers, net of rebates and cash discounts. Product revenues constituted ~~98%~~99% of our total revenues for each of the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 99% and 98% for the nine months ended September 30, 2019 and 2018,~~ respectively. Product revenues in the United States constituted ~~92%~~86% and ~~91%~~94% of our total revenues for each of the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and 94% and 91% of our total revenues for the nine months ended September 30, 2019 and 2018,~~ respectively.

We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenues since we sell to highly concentrated, traditional distributor-type customers. While we expect product sales to a limited number of customers to continue to be our primary source of revenues, as we continue to develop our pipeline and introduce new products to the marketplace, we anticipate that our revenue stream will be diversified over a broader product portfolio and customer ~~base.~~base, including as a result of our Pro Farm product offerings.

License Revenues

License revenues generally consist of revenues recognized under our strategic collaboration and distribution agreements for exclusive distribution rights ~~either~~ for ~~Regalia, for other~~our commercial ~~products,~~product offerings, or for our broader pipeline of products, for certain geographic markets or for market segments that we do not address directly through our internal sales force. Our strategic collaboration and distribution agreements generally outline overall business plans and include payments we receive at signing and for the achievement of certain testing validation, regulatory progress and commercialization events. As these activities and payments are associated with exclusive rights that we provide over the term of the strategic collaboration and distribution agreements, revenues related to the payments received are deferred and recognized as revenues over the term of the exclusive period of the respective agreements, which we estimate to be between 5 and 17 years based on the terms of the contract and the covered products and regions. For each of the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ license revenues constituted 2%1% of total revenues, respectively. As of ~~September 30, 2019, including agreements with related parties discussed below,~~March 31, 2020, we had received an aggregate of $4.1 million in payments under our strategic collaboration and distribution agreements. There will be an additional $0.8 million in payments under these agreements that we ~~could~~can potentially receive if the testing validation, regulatory progress and commercialization events occur.

Cost of Product Revenues and Gross Profit

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

We have entered into in-license technology agreements with respect to the use and commercialization of two of our commercially available product lines, Grandevo and Haven, and certain products under development. Under these licensing arrangements, we typically make royalty payments based on net product revenues, with royalty rates varying by product and ranging between 2% and 5% of net sales, subject in certain cases to aggregate dollar caps. These royalty payments are included in cost of product revenues, but they have historically not been significant. The exclusivity and royalty provisions of these agreements are generally tied to the expiration of underlying patents. The in-licensed U.S. patent for Grandevo is expected to expire in 2024 but based on a pending in-licensed patent application could expire later than 2024, if issued. The licensed patents for Haven began to expire in November 2019. After the termination of these provisions, we may continue to produce and sell these products. While third parties thereafter may develop products using the technology under expired patents, we do not believe that they can produce competitive products without infringing other aspects of our proprietary technology, including pending patent applications related to Regalia, Grandevo, Zequanox, and Haven and we therefore do not expect the expiration of the patents or the related exclusivity obligations to have a significant adverse financial or operational impact on our business.
We expect to see increases in gross profit over the life cycle of each of our products as gross margins are expected to increase over time as production processes improve and as we gain efficiencies and increase product yields. While we expect margins to improve on a product-by-product basis, our overall gross margins may vary as we introduce new products. In particular, we may experience downward pressure on overall gross margins as we ~~rollout Haven and Stargus and~~continue to expand sales of ~~Grandevo~~our more recent commercially available products including Haven, Stargus, our Jet and ~~Zequanox.~~Pro Farm products. 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.

We manufacture our Regalia, Grandevo and Zequanox products at our manufacturing plant. We continue to use third party manufacturers for Venerate, Majestene, Haven, and Stargus, and for spray-dried powder formulations of Grandevo and Zequanox. We expect gross margins to improve using this facility as sales volumes increase enough to reduce under absorbed labor and overhead from our facility.
Research, Development and Patent Expenses

Research, development and patent expenses include personnel costs, including salaries, wages, benefits and share-based compensation, related to our research, development and patent and regulatory staff in support of product discovery, development, and ~~development~~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 ~~$3.8~~$3.2 million and ~~$2.7~~$2.9 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $10.3 million and $7.7 million for the nine months ended September 30, 2019 and 2018,~~ respectively. We have utilized a significant portion of our research and development resources to improve margins on existing products and pipeline products to ~~market.~~market including supporting manufacturing and quality. We are also seeking collaborations with third parties to develop and commercialize more early stage candidates, on which we have elected not to expend significant resources given our reduced budget. Since some of our key research, development and patent resource employees are working remotely as a result of COVID-19, and due to some reliance on external suppliers who are also impacted by COVID-19, our expenses may not be at the level they otherwise would be during this period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel costs, including salaries, wages, benefits and share-based compensation, related to our executive, sales, marketing, finance and human resources personnel, as well as professional fees, including legal and accounting fees, and other selling costs incurred related to business development and to building product and brand awareness. We create brand awareness through programs such as speaking at industry events, trade show displays and hosting local-level grower and distributor meetings. In addition, we dedicate significant resources to technical marketing literature, targeted advertising in print and online media, webinars and radio advertising. Costs related to these activities, including travel, are included in selling expenses.

~~Although~~Outside of operating expenses resulting from our Pro Farm subsidiaries, we generally expect selling, general, and administrative expenses to remain approximately flat in most ~~departments, we have been actively building~~departments. We continue to build a sales and marketing organization that provides us with a better ability to educate and support customers and for our product development staff to undertake responsibility for technical sales support, field trials and demonstrations to promote sales growth. ~~In particular, since the previous year, we~~However, as a result of COVID-19, such efforts have ~~been increasing~~slowed. We expect to continue to increase our marketing communications campaigns and ~~putting~~put more “boots on the ground”, which we believe should increase grower demand, or pull-through, and develop new customers, as well as expand business with existing customers.

As previously highlighted, during the quarter ended September 30, 2019, we incurred transaction-specific costs in the amounts of $2.7 million related to our acquisitions and $1.4 million related to our previously reported litigation and the accrual of its October 2019 settlement. We do not believe that the increases in expenses attributable to these transactions are representative of our normal operations.
Interest Expense

~~Beginning in February 2018, after the Company extinguished a significant portion~~Interest expenses are primarily driven by outstanding debt financing arrangements however not all of ~~its~~our current debt ~~either through extinguishment, our~~instruments are currently generating interest related expenses decreased significantly. As a result of the transaction the Company recognized a one-time gain on extinguishment of debt of $9.2 million which was offset by a change in fair value of derivative liability of $5.2 million and a loss on extinguishment of debt of $2.2 million.expenses. See ~~Notes~~Note 7 and 1311 to our ~~accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” in our Annual Report on Form 10-K.~~
~~Interest Income~~
Interest income consists primarily of interest earned on cash balances. Our interest income will vary each reporting period depending on our average cash balances during the period and market interest rates.condensed consolidated financial statements.

Income Tax Provision

~~Since our inception, we have been subject to~~
As of March 31, 2020 the Company recognized $34,000 in income ~~taxes principally in~~tax provisions for foreign tax purposes and no amounts for the ~~United States. We anticipate that as we further expand our sales into foreign countries, we will become subject to taxation based on the foreign statutory rates and our~~comparative three-month period ended March 31, 2019. The effective tax rate ~~could fluctuate accordingly.~~
~~We believe our~~(calculated as the ration of income tax ~~provision could be impacted further~~expense to pre-tax income) was 0.005%. The effective tax rate for the first quarter of 2020 reflects additional foreign income tax required by the ~~operating activities attributable to our~~ acquisition of Pro Farm. ~~As of September 30, 2019, no amounts were recognized~~The Company does not recognize benefits from tax losses in the United States or for ~~income tax provision purposes for the~~certain Pro Farm activities from the closing date of the acquisition through September 30, 2019. The Company is still in its preliminary stage of assessing the tax impact of the transaction including completing a transfer pricing study which could impact our income tax provision.subsidiaries.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of September 30, 2019, based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have taken a full valuation allowance against all of our U.S. deferred tax assets.

Results of Operations

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

Comparison of Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,
THREE MONTHS ENDED MARCH 31,
2019 2018 2019 2018 2020 2019
Revenues:
Product 98 % 98 % 99 % 98 % 99 % 99 %
License 2 % 2 % 1 % 2 % 1 1
Total revenues 100 % 100 % 100 % 100 % 100 100
Cost of product revenues 49 % 52 % 45 % 52 % 42 43
Gross profit 51 % 48 % 55 % 48 % 58 57
Operating Expenses:
Research, development and patent 54 % 49 % 46 % 50 % 34 34
Selling, general and administrative 138 % 77 % 96 % 90 % 83 65
Total operating expenses 192 % 126 % 142 % 140 % 116 99
Loss from operations -140 % -77 % -87 % -92 % (59 ) (42 )
Other income (expense):
Interest expense -5 % -6 % -4 % -11 % (3 ) (4 )
Interest expense to related parties 0 % 0 % 0 % -3 %
Change in estimated fair value of
financial instruments 0 % 0 % 0 % -33 %
Gain on extinguishment of debt, net (1) 0 % 0 % 0 % -14 %
Gain on extinguishment of debt, related
party (1) 0 % 0 % 0 % 59 %
Loss on modification of warrants -22 % 0 % -7 % 0 %
Loss on issuance of new warrants -68 % 0 % -21 % 0 % (14 ) -
Change in fair value of contingent consideration 2 -
Other income (expense), net 1 % 0 % 1 % 0 % 2 0
Total other expense, net -95 % -5 % -32 % -2 % (14 ) (3 )
Loss before income taxes -235 % -83 % -119 % -94 %
Net loss -235 % -83 % -119 % -94 %
Loss before taxes (72 ) (45 )
Income tax expense 0 0
Net Loss (73 )% (45 )%
⁽¹⁾ The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K.
Product Revenues

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,
THREE MONTHS ENDED MARCH 31,
2019 2018 2019 2018 2020 2019
(Dollars in thousands) (Dollars in thousands)
Product revenues $ 6,859 $ 5,310 $ 22,342 $ 15,171 $ 9,535 $ 8,601
% of total revenues 98 % 98 % 99 % 98 % 99 % 99 %

Product revenues during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 increased by ~~$1.5~~approximately $0.9 million, or ~~29.2% and by $7.2 million, or 47.3%, respectively,~~10.9% to the comparative periods in ~~2018,~~2019, as a result of higher demand for and sales of our products, led by sales of Regalia, Venerate, and Grandevo product families. For the three months ended March 31, 2020, the Company experienced greater diversity in sales of product offering including Majestene and Stargus. Product revenues include $0.4 million from the sale of our Pro Farm product offerings. We believe demand for our products have increased as a result of our previous investments in resources in sales and ~~marketing.~~marketing even in a period impacted by the wide-spread impact COVID-19.

License Revenues

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,
THREE MONTHS ENDED MARCH 31,
2019 2018 2019 2018 2020 2019
(Dollars in thousands) (Dollars in thousands)
License revenues $ 107 $ 115 $ 337 $ 330 $ 115 $ 115
% of total revenues 2 % 2 % 1 % 2 % 1 % 1 %

License revenues remained consistent for each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, and 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 milestones from previous agreements.

Cost of Product Revenues and Gross Profit
THREE MONTHS ENDED MARCH 31,
2020 2019
(Dollars in thousands)
Cost of product revenues $ 4,081 $ 3,729
% of total revenues 42 % 43 %
Gross profit 5,569 4,987
% of total revenues 57.7 % 57.2 %

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,

2019 2018 2019 2018
(Dollars in thousands)
Cost of product revenues $ 3,381 $ 2,803 $ 10,298 $ 8,075
% of total revenues 49 % 52 % 45 % 52 %
Gross profit 3,585 2,622 12,381 7,426
% of total revenues 51.5 % 48.3 % 54.6 % 47.9 %
For the three months ended ~~September 30, 2019,~~March 31, 2020, cost of product revenues increased by ~~$0.6~~$0.35 million or ~~20.6%~~9.4%. For the three months ended ~~September 30, 2019, gross profit increased to 51.5% from 48.3% in the same period ended September 30, 2018. The~~March 31, 2020, cost of product revenues and gross profit ~~as a percentage of revenue increases were led by higher gross margins achieved for Grandevo sales~~remained consistent with the prior period at 43% and ~~an overall increase in sales volume of Regalia, Venerate and Grandevo during the three months ended September 30, 2019 as compared to the same periods in 2018.~~
~~For the nine months ended September 30, 2019, cost of product revenues increased by $2.2 million or 27.5%. For the nine months ended September 30, 2019, gross profit increased to 54.6% from 47.9%~~57%, in the same period ended September 30, 2018. The cost of product revenues and gross profit as a percentage of revenue increases were led by higher gross margins achieved for Grandevo and Venerate sales and an overall increase in sales volume of Regalia and Venerate during the nine months ended September 30, 2019 as compared to the same periods in 2018.respectively.

Research, Development and Patent Expenses

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,
THREE MONTHS ENDED MARCH 31,
2019 2018 2019 2018 2020 2019
(Dollars in thousands) (Dollars in thousands)
Research, development and patent $ 3,760 $ 2,658 $ 10,336 $ 7,685 $ 3,234 $ 2,942
% of total revenues 54 % 49 % 46 % 50 % 34 % 34 %

Research, development and patent expenses for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 increased by ~~$1.1~~$0.3 million, or ~~41.4% and $2.7 million, or 34.5%, respectively, as we continued~~9.9%. The increase was driven by our continuing to focus our research and development resources on margin improvement, improved formulations of already commercialized products, ~~and accelerating the~~ research and development on our pipeline of new ~~products.~~products and incremental increase related to research and development from our Pro Farm operations.

Selling, General and Administrative Expenses

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,
THREE MONTHS ENDED MARCH 31,
2019 2018 2019 2018 2020 2019
(Dollars in thousands) (Dollars in thousands)
Selling, general administrative expenses $ 9,598 $ 4,161 $ 21,876 $ 13,938 $ 7,993 $ 5,674
% of total revenues 138 % 77 % 96 % 90 % 83 % 65 %

Selling, general and administrative expenses for the three months ended ~~September 30, 2019~~March 31, 2020 increased by ~~$5.4~~$2.3 million, or ~~130.7%~~40.9%. The increase for the three months ended ~~September 30, 2019~~March 31, 2020 compared to the ~~third~~first quarter of ~~2018~~2019 was due primarily to ~~a $2.7~~our Pro Farm operations of $1.1 million, ~~increase~~increases in ~~acquisition related costs, $1.4~~$0.6 million related ~~primarily~~ to ~~a legal settlement and~~amortization of the ~~remaining related to salaries, wages,~~acquired intangibles both of which were not included in the comparative prior period. Additionally, expenses increased by $0.5 million from stock-based compensation and ~~compensation bonuses~~other employee related expenses, increase of ~~$1.0 million.~~
~~Selling, general~~$0.3 million in connection with professional and ~~administrative expenses for the nine months ended September 30, 2019 increased by $7.9 million, or 56.7%. The increase for the nine months ended September 30, 2019 compared~~consulting services related to the ~~same period ended September 30, 2018 was due primarily to a $3.7~~financial statement audit. These increases were offset by $0.1 million ~~increase~~each in ~~acquisition related costs, $1.9 million related primarily to a~~ legal, ~~settlement~~marketing expenses, and ~~the remaining related to salaries, wages and compensation bonuses of $2.4 million.~~corporate bonuses.

Other Expense, Net

THREE MONTHS ENDED
SEPTEMBER 30,

NINE MONTHS ENDED
SEPTEMBER 30,

2019 2018 2019 2018
(Dollars in thousands)
Interest expense $ (355 ) $ (300 ) $ (1,014 ) $ (1,759 )
Interest expense to related parties - - - (451 )
Change in estimated fair value of derivative liability - - - (5,177 )
Loss on extinguishment of debt, net(1) - - - (2,196 )
Gain on extinguishment of debt, related party(1) - - - 9,183
Loss on modification of warrants (1,564 ) - (1,564 ) -
Loss on issuance of new warrants (4,751 ) - (4,751 ) -
Other (expense) income, net 77 14 126 (13 )
$ (6,593 ) $ (286 ) $ (7,203 ) $ (413 )
THREE MONTHS ENDED MARCH 31,
2020 2019
(Dollars in thousands)
Interest expense $ (337 ) $ (306 )
Loss on issuance of August 2019 warrants (1,391 ) -
Change in fair value of contingent consideration 237 -
Other (expense) income, net 159 18
Total other income (expense), net $ (1,332 ) $ (288 )
% of total revenues (14 )% (3 )%
~~(1)~~ The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K.
For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, other expense, net, increased by ~~$6.3~~$1.0 million ~~and $6.8 million, respectively,~~ as compared to the same period in ~~2018,~~2019, respectively, primarily due to ~~$1.6~~$1.4 million in loss recognized for the ~~modification of previously outstanding warrants and $4.8 million in loss recognized~~ for the issuance of ~~new~~August 2019 warrants in connection with the Company’s call option of ~~the exercise of 10,000,000~~6,000,000 shares under outstanding ~~warrants.~~
~~For the nine months ended September 30, 2018, other expense, net increased~~warrants offset by ~~$2.2~~$0.2 million related a loss on extinguishment of debt associated with the convertible debt that was converted into common stock during the nine months ended September 30, 2018 as further discussed in Note 7 to the condensed consolidated financial statements. There was no comparable expense recognized during the three and nine months ended September 30, 2019 or the three months ended September 30, 2018.
During the fourth quarter of 2017 and first quarter of 2018, as further discussed in Note 7 to the condensed consolidated financial statements, we made draws on a convertible note. There was a certain feature of this note that was valued as a derivative. An expense of $5.2 million was recognized related to the change in ~~the underlying~~ fair value of ~~this feature from December 31, 2017~~the Company’s contingent consideration related to February 5, 2018, the date the feature and the underlying note were extinguished and converted, respectively. There was no comparable expense recognized during the three and nine months ended September 30, 2019 or the three months ended September 30, 2018. We recognized a loss on extinguishmentis acquisition of debt during the nine months ended September 30, 2018 as a result of the conversion of $10 million of outstanding debt into common stock in partial extinguishment of this debt and extinguishment of $6 million in convertible debt. See Note 7 of the condensed consolidated financial statements for further discussion. There was no comparable expense recognized during the three and nine months ended September 30, 2019 and the three months ended September 30, 2018.Pro Farm.

Seasonality and Quarterly Results

In recent years, we have increasingly had higher sales during the first half of the year than the second ~~half, and expect this trend to continue.~~half. However, the level of seasonality in our business may change due to a number of factors, ~~including,~~such as our expansion into new geographical territories (including as the result of the acquisition of Pro Farm), the introduction of new products, the timing of introductions of new ~~formulations of~~ products, and the impact of weather and climate change. It is possible that our business may become more seasonal, or experience seasonality in different periods, than anticipated, particularly if we expand into new geographical territories, ~~such as the southern hemisphere,~~ add or change distributors or distributor programs or introduce new products ~~such as seed treatment~~ with different applicable growing ~~seasons, or if a more significant component of our revenue becomes comprised of sales of Zequanox, which has a separate seasonal sales cycle compared to our crop protection products.~~
seasons. Notwithstanding any such seasonality, we expect substantial fluctuation in sales year over year and quarter over quarter as a result of athe number of variables ~~upon~~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, may, accordingly affect decisions by our distributors, direct customers and end users about the types and amounts of pest management and plant health products to purchase and the timing of use of such products. In addition, disruptions that cause delays by growers in harvesting or planting can result in the movement of orders to a future quarter, which would negatively affect the ~~current~~ quarter and cause fluctuations in our operating results. Customers also may purchase large quantities of our products in a particular quarter to store and use over long periods of time or time their purchases to manage their inventories, which may cause significant fluctuations in our operating results for a particular quarter or year, and low commodity prices may discourage growers from purchasing our products in an effort to reduce their costs and increase their margins for a growing season.

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

Liquidity and Capital Resources

Our historical operating results indicate substantial doubt exists related to our ability to continue as a going concern.
In April 2020, the Company entered into an unsecured note in the amount of $1,723,000 (the “Note”) under the Paycheck Protection Program (the “PPP”). The Note may be used for payroll costs, costs related to certain group health care benefits and insurance premiums, rent payments, utility payments, mortgage interest payments and interest payments on any other debt obligation that were incurred before February 15, 2020. PPP loan recipients can apply for and be granted forgiveness for all or a portion of loan, with such forgiveness to be determined, based on the use of the loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. The Company currently believes that its use of the Note proceeds will meet the conditions for forgiveness. (Refer to Note 11)
In April 2020, the Company entered into a Warrant Exchange Agreement (the “Warrant Exchange Agreement”) with certain of our historical investors.
Pursuant to the Warrant Exchange Agreement, the Investors have exchanged certain previously issued and outstanding warrants (the “Prior Warrants”) to purchase an aggregate of up to 45,977,809 shares of the Company’s common stock, for new warrants (the “New Warrants”) to purchase an aggregate of up to 29,881,855 shares of Common Stock (the “Warrant Shares”). All of the New Warrants were issued to the Investors upon execution of the Warrant Exchange Agreement.
The New Warrants all have an exercise price of $0.75 per share, and expire in five tranches, as follows: (i) May 1, 2020, with respect to 3,392,581 Warrant Shares, (ii) September 15, 2020, with respect to 2,714,065 Warrant Shares, (iii) December 15, 2020, with respect to 13,027,512 Warrant Shares, (iv) March 15, 2021, with respect to 5,862,380 Warrant Shares, and (v) and December 15, 2021 with respect to 4,885,317 Warrant Shares. In addition, the Investors agreed to exercise all the New Warrants subject to the first tranche, for an aggregate of approximately $2.5 million, on or before their expiration date, which exercise was completed on May 1, 2020. (Refer to Note 11)
We believe that our existing cash and cash equivalents of ~~$7.9~~$10.1 million at ~~September 30, 2019,~~March 31, 2020, expected revenues and tightly managed operating costs, ~~and our ability to utilize the option to call~~ the exercise of a portion of outstanding warrants, including those which were issued in April 2020, will be sufficient to fund operations as currently planned through at least one year from the date of the issuance of these financial statements. We ~~believe that the actions discussed above are probable of occurring and mitigate the substantial doubt raised by our historical operating results. However, we~~ cannot predict, with certainty, the outcome of our actions to grow revenues or manage or reduce ~~costs.~~costs, or that our outstanding warrants will be exercised by the warrant holders. We have based this belief on assumptions and estimates that may prove to be wrong, and we could spend our available financial resources less or more rapidly than currently ~~expected.~~expected, including adverse impacts of the current COVID-19 pandemic on our operations. We may continue to require additional sources of cash for general corporate purposes, which may include operating expenses, working capital to improve and promote our commercially available products, advance product candidates, expand our international presence and commercialization, general capital expenditures and satisfaction of debt obligations. We may seek additional capital through debt financings, collaborative or other funding arrangements with partners, or through other sources of financing. Should we seek additional financing from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when required or on acceptable terms, we may be required to scale back or to discontinue the promotion of currently available products, scale back or discontinue the advancement of product candidates, reduce headcount, file for bankruptcy, reorganize, merge with another entity, or cease operations. We incorporated additional information regarding risks related to our capital and liquidity described in Part II— Item 1A— “Risk Factors.”

Since our inception, we have incurred significant net losses, and we expect to incur additional losses related to the continued development and expansion of our business. Our liquidity may be negatively impacted as a result of slower than expected adoption of our products.

We had the following debt arrangements in place as of ~~September 30, 2019~~March 31, 2020 (in thousands):

PRINCIPAL PRINCIPAL
STATED ANNUAL BALANCE (INCLUDING STATED ANNUAL BALANCE (INCLUDING
DESCRIPTION INTEREST RATE ACCRUED INTEREST) PAYMENT/MATURITY INTEREST RATE ACCRUED INTEREST) PAYMENT/MATURITY
Promissory Notes⁽¹⁾⁽⁵⁾ 8.00 % $ 2,787 Due December 31, 2022 8.00 % $ 2,885 Due December 31, 2022
Promissory Note⁽²⁾⁽⁶⁾ 7.50 % $ 8,685 Monthly/June 2036 6.25 % $ 8,549 Monthly/June 2036
Promissory Notes⁽³⁾ 8.00 % $ 5,998 Due December 31, 2022 8.00 % $ 6,199 Due December 31, 2022
Secured Borrowing⁽⁴⁾ 12.78 % $ 4,958 Varies/November 2019 12.78 % $ 8,663 Varies/June 2020
Loan Facility 1.00 % $ 83 Proportionately each September 2022, 2023, 2024, 2025 1.00 % $ 79 Proportionately each September 2022, 2023, 2024, 2025
Loan Facility 2.60 % $ 63 February 2020 2.60 % $ 84 May 2020
Secured Borrowing 15.00 % $ 1,315 December 2019

⁽¹⁾ ~~In February 2018, the maturity date and all interest payments were extended to December 2022.~~ See Note 7 ~~of the condensed consolidated financial statements.~~
⁽²⁾ ~~See Note 7 of the condensed consolidated financial statements.~~
⁽³⁾ ~~In February 2018, the maturity date and all interest payments were extended to December 2022. See Note 7 of the condensed consolidated financial statements.~~
⁽⁴⁾ ~~Payable through the lender’s direct collection of certain accounts receivable through June 2019. See Note 7 of the condensed consolidated financial statements.~~
In February 2018, we issued, pursuant to the Securities Purchase Agreement entered into on December 15, 2017, 70,514,000 unregistered shares of our common stock and we also converted $51.0 million in outstanding debt principal (including $6.0 million outstanding under the Secured December 2017 Convertible Note and $45.0 million outstanding under long-term senior secured debt instruments) into a portion of the previously mentioned common shares (the “February Stock and Debt Conversion Transaction”). The gross proceeds to us from the offering were approximately $24.0 million, and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the aggregate net proceeds to the Company totaled $21.8 million. Of the $7.5 million in principal that remained as of June 30, 2019 under these partially converted notes, the maturity dates and future interest payments were extended until the amended maturity date of December 31, 2022. On an annualized basis through 2022, these amendments are expected to save us approximately $4.9 million in cash interest payments. See Notes 7 and 11 of the condensed consolidated financial statements for ~~further discussion~~each of the ~~Company’s~~following debt ~~arrangements.~~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 June 2020.

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

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

NINE MONTHS ENDED SEPTEMBER 30, MARCH 31,
2019 2018 2020 2019
(in Thousands) (in Thousands)
Net cash used in operating activities $ (16,395 ) $ (16,814 ) $ (6,292 ) $ (7,650 )
Net cash used in investing activities $ (6,611 ) $ (496 ) $ (673 ) $ (116 )
Net cash provided in financing activities $ 12,684 $ 36,607 $ 10,833 $ 3,131
Net increase (decrease) in cash, cash equivalents, and restricted cash $ (10,322 ) $ 19,297 $ 3,868 $ (4,635 )

Cash Flows from Operating Activities

Net cash used in operating activities of ~~$16.4~~$6.3 million during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 primarily resulted from our net loss of ~~$27.0~~$7.1 million and ~~the~~cash used in operating assets and liabilities ~~from our acquisition~~ of ~~Pro Farm and Jet-Ag and Jet-Oxide including cash and contingent consideration to be paid in the future.~~$2.5 million. This ~~uses were~~use was partially offset by non-cash charges of ~~$10.5~~$3.2 million consisting of ~~$1.6 million related to loss on modification of previously outstanding warrants, $4.8~~$1.4 million related to loss on issuance of new warrant in connection with our call of the exercise of ~~10,000,000~~6,000,000 shares under outstanding warrants, ~~$1.4~~$0.9 million of depreciation and amortization, ~~$1.9~~$0.9 million of share-based compensation expense, ~~$0.6~~and $0.2 million of amortization of right-of-use assets, ~~and~~offset by $0.2 million ~~of non-cash interest expense.~~in changes to the Company’s contingent consideration in connection with the Pro Farm acquisition.

Net cash used in operating activities of ~~$16.8~~$7.7 million during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 primarily resulted from our net loss of ~~$14.6~~$3.9 million and cash used by operating assets and liabilities of ~~$3.9~~$5.0 million. These uses were partially offset by non-cash charges of ~~$10.9~~$1.3 million consisting of ~~$5.2 million of fair value change of financial instruments, $2.2 million loss on extinguishment of debt, $1.4~~$0.5 million of depreciation and amortization, ~~$1.3~~$0.6 million of share-based compensation expense, $0.2 million of amortization of right-of-use assets and ~~$0.8~~$0.1 million of non-cash interest expense. These non-cash charges were offset by a gain of $9.2 million related to gain on extinguishment of debt with related parties. The above includes revised numbers for the nine months ended September 30, 2018 as disclosed in the Notes 16 to our accompanying Notes to Consolidated Financial Statements included in Part II-Item 8-“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K.

40
Cash Flows from Investing Activities

Net cash used in investing activities were $6.6 million and $0.5 million during the nine months ended September 30, 2019 and 2018, respectively. Cash flow from investing activities included $5.8 million, net related to the acquisition of Pro Farm and $0.5 million related to the acquisition of product lines Jet-Ag and Jet-Oxide with the remainderOther than as a result ~~from~~of purchases of property, plant and equipment to support our ~~operations.~~operations, the company made the first of a number of contingent payments in the amount of $0.5 million in connection with the purchase of the Jet-Ag product lines for the three-month period ended March 31, 2020.

Other than as a ~~results~~result of purchases of property, plant and equipment to support our operations, no other amounts were used in investing activities for the ~~nine-month~~three-month period ended ~~September 30, 2018.~~March 2019.

Cash Flows from Financing Activities

Net cash provided in financing activities of ~~$12.7~~$10.8 million during the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 consisted primarily of ~~$2.9~~$5 million in net reductions and repayment of debt, ~~offset by $10.0~~$5.9 million related to the exercise of previously outstanding ~~warrants.~~warrants, net of registration costs and $0.1 million in proceeds from employee equity related instruments.

Net cash provided in financing activities of ~~$36.6~~$3.1 million during the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 consisted ~~primarily~~ of ~~$34.5 million in~~ net ~~proceeds from the issuance of common stock, $17.4 million in proceeds from the issuance of debt, offset by~~ reductions and repayment of ~~debt of $15.2 million.~~debt.

~~Contractual Obligations~~
~~The following is a summary of our contractual obligations as of September 30, 2019 (in thousands):~~
TOTAL 2019 2020 - 2021 2022-2023 2024 AND
BEYOND
(In thousands)
Operating lease obligations $ 6,024 $ 309 $ 2,384 $ 2,514 $ 817
Debt 22,524 6,389 574 8,164 7,397
Interest payments 9,587 158 1,225 4,288 3,916
Total $ 38,135 $ 6,856 $ 4,183 $ 14,966 $ 12,130
Operating leases consist of contractual obligations from agreements for non-cancelable office space and leases used to finance the acquisition of equipment. Debt and capital equipment lease payments and the interest payments relating thereto include promissory notes and capital lease obligations in accordance with the payment terms under the agreements.
In June 2013 and then amended in April 2014, we entered into a lease agreement for approximately 27,300 square feet of office and laboratory space located in Davis, California. The initial term of the lease is for a period of 60 months and commenced in August 2014. The monthly base rent is $44,000 for the first 12 months with a 3% increase each year thereafter. Concurrent with this amendment, in April 2014, we entered into a lease agreement with an affiliate of the landlord to lease approximately 17,400 square feet of office and laboratory space in the same building complex in Davis, California. The initial term of the lease is for a period of 60 months and commenced in August 2014. The monthly base rent is $28,000 with a 3% increase each year thereafter. In November 2018, the Company elected to exercise the first extension option under the lease, extending the lease term for another 60 months. An amended lease agreement was executed on April 25, 2019.
In January 2016, we entered into an agreement with a sublessee to sublease approximately 3,800 square feet of vacant office space in the aforementioned building complex pursuant to the terms of our lease agreement. The initial term of the sublease is for a period of approximately 43 months and commenced on February 1, 2016. The monthly base rent is approximately $5,000 per month for the first 12 months with increases of approximately 5% each year thereafter. The terms of this lease ended in August 2019 and we are currently subject to month to month terms under the original agreement.
Inflation

We believe that inflation has not had a material impact on our results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

Off-Balance Sheet Arrangements

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

Recently Issued Accounting Pronouncements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

Interest Rate Risk

We had cash and cash equivalents of ~~$7.9~~$10.1 million as of ~~September 30, 2019,~~March 31, 2020, which was held for working capital purposes. We do not enter into investments for trading or speculative purposes. We entered into a promissory note in June 2014, which bears interest at the prime rate plus 2%. A change in market interest rates of 1% would have an impact of approximately $0.1 million on our future annual interest expense. All of our other debt is at fixed interest rates and thus a change in market interest rates would not have an impact on interest expense.

Foreign Currency Risk

Revenue and expenses have been primarily denominated in U.S. dollars and foreign currency fluctuations have not had a significant impact on our historical results of operations. In addition, our strategic collaboration and distribution agreements for current products provide for payments in U.S. dollars. With the acquisition of Pro Farm and as we market new products internationally, our product revenues and expenses may be in currencies other than U.S. dollars, and accordingly, foreign currency fluctuations may have a greater impact on our financial position and operating ~~results.~~results, including the impact of COVID-19 on currencies globally.

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 ~~September 30, 2019.~~March 31, 2020.

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 ~~September 30, 2019.~~March 31, 2020. 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 ~~September 30, 2019.~~March 31, 2020.

Changes in Internal Control

For the three months ended ~~September 30, 2019, the only~~March 31, 2020, 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 related to those internal controls over acquisitions.

Limitations on Effectiveness of Controls and Procedures

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Note 10 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q in Part I, Item 1, “Financial Information” describes certain legal proceedings to which we are subject.None.

ITEM 1A. RISK FACTORS

Except as set forth below, we have not identified any material changes to the risk factors previously disclosed in Part I—Item 1A—“Risk Factors” in our Annual Report filed on Form 10-K for the fiscal year ended December 31, ~~2018.~~2019. Our business, financial condition and operating results can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the Annual Report, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. You should carefully consider the risks and uncertainties described in our Annual Report filed on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, together with all of the other information in this Quarterly Report on Form 10-Q, including ~~the section titled~~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.

Our business is subject to risks arising from epidemic diseases, such as the recent outbreak of the COVID-19 illness.
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a “public health emergency of international concern,” has spread across the globe and is impacting worldwide economic activity. A public health epidemic, including COVID-19, poses the risk that we or our employees, suppliers, distributors and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that have been mandated by governmental authorities including current statewide shelter in place mandates in California and Michigan where the Company’s headquarters and manufacturing facilities, respectively, are located that may extend beyond May 2020. Under the mandated shelter in place orders the Company has scaled down certain aspects of our business and we cannot determine when operations will revert to levels that are similar to those immediately prior to the shelter in place orders in early- and mid- March 2020. Additionally, the continued spread of COVID-19 and the measures taken by the governments of countries affected could disrupt the supply chain for, the manufacture or shipment of, and the demand for our products and adversely impact our business, financial condition or results of operations. The COVID-19 outbreak and mitigation measures may also have an adverse impact on global economic conditions, which could have an adverse effect on our business and financial condition, including by limiting our ability to obtain financing or to rely on our existing financing facilities. Although we presently expect continued revenue growth in 2020 despite the impact of COVID-19, the extent to which the COVID-19 outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
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We ~~face risks associated with growth~~will additional financing in the future to meet our business requirements and ~~acquisitions.~~to service our debt. Such capital raising may be costly, difficult or not possible to obtain and, if obtained, could significantly dilute current stockholders’ equity interests, and we may be unable to repay our secured indebtedness.

We expect to continue to incur significant losses until we are able to significantly increase our revenue. Accordingly, we will need significant additional financing, whether from exercise of outstanding warrants or, potentially, from additional sources, to maintain and expand our business, including, for example, working capital associated with increased sales, costs associated with increased headcount, potential capital expenditures to grow capacity at our Bangor manufacturing facility and potential acquisitions of complementary technologies, as well as to meet the financial covenants of and pay the principal and interest under our debt agreements, under which approximately $24.4 million of principal and deferred interest payments remained outstanding as of May 8, 2020, inclusive of the Company’s PPP loan (Refer to Note 7).
As ~~part~~of May 8, 2020, we have outstanding warrants with certain of our ~~business strategy,~~shareholders to purchase approximately 26.5 million shares of our common stock at $0.75 per share, 5.4 million shares of our common stock at $1.00 per share, and 1.1 million shares of our common stock at $1.25 per share, which, if all exercised in cash, would result in an aggregate of $26.6 million in proceeds to us and would significantly reduce our need for additional financing. However, there can be no assurances that any of these warrants will be exercised when we ~~regularly evaluate opportunities for growth through expansion~~require funds or at all, particularly if our common stock trades at prices below the applicable exercise price. Further, certain warrant holders are eligible to exercise via cashless “net” exercise if we do not have an effective resale registration statements in place by March 31, 2021 or if our existing resale registration statement is no longer available. Any exercise of ~~sales and product offerings in existing or new markets, through acquiring~~our outstanding warrants will dilute the ownership of our other product lines and businesses or through other strategic or commercial transactions. For example, in September 2019, we completed our acquisition of Pro Farm and the Jet-Ag® and Jet-Oxide® product lines. In the future, westockholders.
We may also ~~pursue~~seek additional funds from public or private equity offerings, debt financings, strategic collaborations involving up-front cash payments or other ~~expansion opportunities.~~
~~Although~~means. However, additional capital may not be available on terms acceptable to us, or at all. As a result of the late filing of our Quarterly Report on Form 10-Q for the period ended September 30, 2019, until one year after we ~~only intend~~became current in our filings, or December 2020 at the earliest, we are not eligible to sell securities using our registration statements on Form S-3, including any shelf registration statement, which will limit our ability to raise financing in capital markets transactions (including, for example, at-the-market offerings). Further, we believe recent uncertainty in the economy due to worldwide COVID-19 public health emergency has and may continue to depress our stock price and severely reduce market liquidity overall. Any additional equity financing we do raise be significantly dilutive to stockholders or, in some cases, require us to seek stockholder approval for the financing or result in antidilution adjustments to the prices of our outstanding warrants, reducing potential proceeds from their exercise. Any debt financing, if available, may include restrictive covenants and bear high rates of interest. In addition, our existing loan agreements contain certain restrictive covenants that either limit our ability to or require a mandatory prepayment if we incur additional indebtedness and liens and enter into various specified transactions. We therefore may not be able to engage in acquisitions that, if consummated, will be accretive to us and our stockholders, acquisitions require significant management attention and resources to integrating new properties, businesses and operations. Additionally, we will need to successfully integrate the additional properties into our operating structure in order to realize the anticipated benefits of the acquisitions. Potential difficulties we may encounter as part of the integration process include the following:
● ~~the inability to successfully incorporate the assets in a manner that permits us to achieve the full revenue and other benefits anticipated to result from the acquisitions;~~
● ~~the inability to retain key employees or customers of the acquired businesses;~~
● complexities associated with managing the combined business, including difficulty addressing possible differences in cultures and management philosophies and the challenge of integrating complex systems, technologies, networks and other assets of each of the companies in a seamless manner that minimizes any ~~adverse impact on customers, suppliers, employees and other constituencies; and~~
● ~~difficulties associated with internal controls, information systems and operational functions of the acquired companies; and~~
● ~~potential unknown liabilities and unforeseen increased expenses associated with the acquisitions.~~
~~In addition, it is possible that the integration process could result in:~~
● ~~diversion of the attention of our management; and~~
● ~~the disruption of, or the loss of momentum in, each our ongoing business or inconsistencies in standards, controls, procedures and policies.~~
~~Any~~ of the foregoing transactions unless we obtain the consent of our lenders or prepay the outstanding amounts under the debt agreements, which could ~~adversely affect our ability~~require us to ~~maintain relationships with customers, suppliers, employees~~pay additional prepayment penalties. In addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other ~~constituencies or~~costs. We also may be required to recognize non-cash expenses in connection with certain securities we issue, such as warrants, which may adversely impact our ~~ability to achieve the anticipated benefits, or could reduce our earnings or otherwise adversely affect our business and~~ financial results.

~~There can be no assurance~~Certain of our debt agreements also contain financial covenants, including maintaining minimum current, debt-to-worth and loan-to-value ratios and provisions providing for an event of default if there is a material adverse change in our financial condition or if we are in default under certain of our other agreements. We are not in compliance with certain of these covenants and have received waivers from our lenders, none whom have previously declared an event of default on our indebtedness. Breach of covenants included in our debt agreements, which could result in the lenders demanding payment of the unpaid principal and interest balances. If we fail to pay any principal or interest under our indebtedness when due, or are otherwise in violation of certain covenants under our debt agreements, this may result in the acceleration of our indebtedness, which would have a material adverse effect upon our business and would likely require us to seek to renegotiate these debt arrangements with the lenders, as we may not have sufficient funds to repay that indebtedness.
If our outstanding warrants are not exercised in cash, if we cannot raise more money when needed, or if we are unable to use our future working capital, borrowings or equity financing to repay or refinance the amounts outstanding under our debt agreements or to renegotiate our debt arrangements with lenders, we may have to reduce our capital expenditures, scale-back our development of new products, reduce our workforce or license to others products that we ~~will be able~~otherwise would seek to ~~identify, acquire, develop or profitably manage additional companies or operations or successfully integrate such companies or operations, including Pro Farm, into~~commercialize ourselves. Any of these eventualities would likely have a material adverse impact on our ~~existing operations without substantial costs, delays or other problems.~~value and the value of our equity.
~~Risks related~~Our stock price does not meet and may in the future fail to ~~our operations outside~~meet the continued listing requirements of the ~~United States~~Nasdaq Capital Market. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely ~~affect our operating results.~~affected if we are delisted from the Nasdaq Capital Market.

~~We face risks arising~~As previously disclosed in our Current Report on Form 8-K filed on April 24, 2020, we received a notification letter from ~~our business activities outside~~the Listing Qualifications Department of the ~~United States~~Nasdaq Capital Market indicating that as of April 21, 2020 we were not in compliance with the $1.00 minimum closing bid price requirement. Under Nasdaq Listing Rules, the Company usually has 180 calendar days from the date of the notification to regain compliance with Nasdaq Listing Rules. However, on April 16, 2020, Nasdaq filed an immediately effective rule change with the Securities and ~~with non-U.S. customers and suppliers. Instability~~Exchange Commission resulting in the ~~macroeconomic, political, legal, trade, financial, labor or market conditions in~~compliance periods for various price-based continued listing requirements being tolled until July 1, 2020. Thus, we have until December 28, 2020, to regain compliance by having the ~~countries where we, or~~closing bid price of our customers or suppliers, operate could negatively impact our business activities and operations. Some foreign countries in which we operate or may operate have authorities that regulate biopesticides, biostimulants, or plant health and nutrition products.common stock exceed $1.00 for a minimum of ten (10) consecutive trading days during the grace period. If we do not ~~have appropriate certifications,~~regain compliance by December 28, 2020, we ~~could~~may be ~~unable~~eligible for a second 180 day compliance period, provided that, on such date, we meet the continued listing requirement for market value of publicly held shares and all other applicable initial listing requirements for the Nasdaq Capital Market (other than the minimum closing bid price requirement) and we provide written notice to market and sell our products. Adverse changes in foreign or cross-border regulations applicable to us or customers, such as labor, environment, trade, tax, currency and price regulations could limit our operations, make the manufacture and distributionNasdaq of our ~~products difficult. In our cross-border business activities,~~intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary.
There is no assurance, however, that we ~~could experience longer customer payment cycles, difficulty~~will regain compliance during the grace period or be able to maintain compliance with Nasdaq’s listing requirements in ~~collecting accounts receivable~~the future. If we are not able to regain compliance during the grace period, or an inability to protect our intellectual property. The failure to comply with laws governing international business may result in substantial penalties and fines. Transactions with non-U.S. entities expose us to business practices, local customs, and legal processes withany extension of the grace period for which we may ~~not~~ be ~~familiar, as well as difficulty enforcing contracts~~eligible, Nasdaq will notify us that our common stock will be suspended and ~~international political and trade tensions. Any expansion of our activities outside of the United States could increase our risk profile.~~subject to delisting. If we are ~~unable~~subject to ~~successfully manage~~delisting, we may appeal Nasdaq’s determination to delist to a hearings panel. During any appeal process, shares of our common stock would continue to trade on Nasdaq. If our common stock were delisted from Nasdaq, among other things, it would likely lead to a number of negative implications, including an adverse effect on the ~~risks associated~~price of our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws with respect to shares issued in future offerings, greater difficulty in obtaining financing, potential loss of confidence by employees, loss of institutional investor interest and fewer business development opportunities. In the event of a delisting, we would take actions to restore our ~~foreign and cross-border business activities,~~compliance with Nasdaq’s listing requirements, but we can provide no assurance that any such action taken by us would allow our ~~results~~common stock to become listed again, stabilize the market price or improve the liquidity of ~~operations, financial condition, liquidity and cash flows could be negatively impacted.~~our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

39
ITEM 6. EXHIBITS

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

INDEX TO EXHIBITS

EXHIBIT
NUMBER
EXHIBIT DESCRIPTION

~~4.1~~10.1 ~~Warrant~~ Amendment ~~and Plan~~No. 2 dated as of Reorganization Agreement, dated August 6, 2019, by and among Marrone Bio Innovations, Inc., Ospraie AG Science LLC, Ardsley Partners Renewable Energy Fund, L.P. and Ivan Saval (incorporated by referenceJanuary 7, 2020, to ~~Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on August 8, 2019).~~
~~4.2~~ Form of Warrant issuable pursuant to Warrant Amendment and Plan of Reorganization Agreement, dated August 6, 2019, by and among Marrone Bio Innovations, Inc., Ospraie AG Science LLC, Ardsley Partners Renewable Energy Fund, L.P. and Ivan Saval (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, as filed with the SEC on August 8, 2019).
10.1* ~~Share~~Invoice Purchase Agreement dated ~~August 7, 2019, by and among Marrone Bio Innovations, Inc., Pro Farm Technologies OY, the Shareholders and Matti Tiainen as Shareholders’ Representative~~March 24, 2017 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on ~~August 8, 2019)~~January 9, 2020).

10.2 ~~Registration Rights~~Amended Inventory Financing Addendum, dated as of January 6, 2020, to Invoice Purchase Agreement dated ~~August 6, 2019, by and between Marrone Bio Innovations, Inc. and the investors named therein.~~March 24, 2017 (incorporated by reference to Exhibit ~~10.3~~10.1 to the Company’s Current Report on Form 8-K, as filed with the SEC on ~~August 8, 2019)~~January 9, 2020).
10.3* ~~Asset Purchase Agreement dated September 10, 2019, by and among Austin Grant, Inc., Marrone Bio Innovations, Inc., and Bill Grant and Lucie Grant.~~

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

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

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

101 Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, (ii) Condensed Consolidated Statements of Operations for the Three ~~and Nine~~ Months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Condensed Consolidated Statements of Stockholders’ Equity for the Three ~~and Nine~~ Months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iv) Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ and (v) Notes to Condensed Consolidated Financial Statements

* Confidential portions of this exhibit have been omitted as permitted by applicable regulations.
40
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Davis, State of California, on ~~November 18, 2019.~~May 11, 2020.

MARRONE BIO INNOVATIONS, INC.

/s/ Pamela G. Marrone
Pamela G. Marrone
Chief Executive Officer
41

	SEPTEMBER 30, 2019			DECEMBER 31, 2018
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	7,899		$	18,221
Accounts receivable		7,346			2,720
Inventories		8,832			8,224
Prepaid expenses and other current assets		1,933			971
Total current assets		26,010			30,136
Property, plant and equipment, net		13,477			14,512
Right of use assets, net		4,722			—
Intangible assets		24,409			—
Goodwill		7,100			—
Restricted cash		1,560			1,560
Other assets		1,042			359
Total assets	$	78,320		$	46,567
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,807		$	1,692
Accrued liabilities		15,110			6,871
Deferred revenue, current portion		441			438
Lease liability, current portion		862			—
Debt, current portion, net		6,590			2,318
Total current liabilities		24,810			11,319
Deferred revenue, less current portion		2,093			2,399
Lease liability, less current portion		4,177			—
Debt, less current portion, net		11,719			11,819
Debt due to related parties		7,300			7,300
Other liabilities		3,664			794
Total liabilities		53,763			33,631
Commitments and contingencies
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at September 30, 2019 and December 31, 2018		—			—
Common stock: $0.00001 par value; 250,000 shares authorized, 133,404 and 110,691 shares issued and outstanding as of September 30, 2019 and December 31, 2018		1			1
Additional paid in capital		335,064			296,409
Accumulated deficit⁽¹⁾		(310,508	)		(283,474	)
Total stockholders’ equity		24,557			12,936
Total liabilities and stockholders’ equity	$	78,320		$	46,567

	MARCH 31,			DECEMBER 31,
	2020			2019
Assets
Current assets:
Cash and cash equivalents	$	10,120		$	6,252
Accounts receivable		10,417			5,925
Inventories, net		7,077			8,149
Prepaid expenses and other current assets		1,812			1,390
Total current assets		29,426			21,716
Property, plant and equipment, net		13,184			13,260
Right of use assets, net		4,361			4,567
Intangible assets, net		23,254			23,842
Goodwill		6,740			6,764
Restricted cash		1,560			1,560
Other assets		867			1,008
Total assets	$	79,392		$	72,717
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	6,509		$	3,379
Accrued liabilities		11,175			12,467
Deferred revenue, current portion		450			427
Lease liability, current portion		933			913
Debt, current portion, net		8,917			3,899
Total current liabilities		27,984			21,085
Deferred revenue, less current portion		1,882			1,986
Lease liability, less current portion		3,742			3,970
Debt, less current portion, net		11,635			11,847
Debt due to related parties		7,300			7,300
Other liabilities		1,984			2,971
Total liabilities		54,527			49,159
Commitments and contingencies
Stockholders’ equity:
Preferred stock: $0.00001 par value; 20,000 shares authorized and no shares issued or outstanding at March 31, 2020 and December 31, 2019		—			—
Common stock: $0.00001 par value; 250,000 shares authorized, 145,541 and 139,526 shares issued and outstanding as of March 31, 2020 and December 31, 2019		1			1
Additional paid in capital		352,536			344,206
Accumulated deficit		(327,672	)		(320,649	)
Total stockholders’ equity		24,865			23,558
Total liabilities and stockholders’ equity	$	79,392		$	72,717

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2019			2018			2019			2018
Revenues:
Product	$	6,859		$	5,310		$	22,342		$	15,171
License		107			115			337			330
Total revenues		6,966			5,425			22,679			15,501
Cost of product revenues		3,381			2,803			10,298			8,075
Gross profit		3,585			2,622			12,381			7,426
Operating Expenses:
Research, development and patent		3,760			2,658			10,336			7,685
Selling, general and administrative		9,598			4,161			21,876			13,938
Total operating expenses		13,358			6,819			32,212			21,623
Loss from operations		(9,773	)		(4,197	)		(19,831	)		(14,197	)
Other income (expense):
Interest expense		(355	)		(300	)		(1,014	)		(1,759	)
Interest expense, related parties		—			—			—			(451	)
Change in fair value of financial instruments		—			—			—			(5,177	)
Loss on extinguishment of debt, net⁽¹⁾		—			—			—			(2,196	)
Gain on extinguishment of debt, related party⁽¹⁾		—			—			—			9,183
Loss on modification of warrants		(1,564	)		—			(1,564	)		—
Loss on issuance of new warrants		(4,751	)		—			(4,751	)		—
Other income (expense), net		77			14			126			(13	)
Total other income (expense), net		(6,593	)		(286	)		(7,203	)		(413	)
Net loss⁽¹⁾	$	(16,366	)	$	(4,483	)	$	(27,034	)	$	(14,610	)
Basic and diluted net loss per common share:	$	(0.14	)	$	(0.04	)	$	(0.24	)	$	(0.15	)
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:		116,186			110,568			112,553			98,067

	THREE MONTHS ENDED MARCH 31,
	2020			2019
Revenues:
Product	$	9,535		$	8,601
License		115			115
Total revenues		9,650			8,716
Cost of product revenues		4,081			3,729
Gross profit		5,569			4,987
Operating Expenses:
Research, development and patent		3,234			2,942
Selling, general and administrative		7,993			5,674
Total operating expenses		11,227			8,616
Loss from operations		(5,658	)		(3,629	)
Other (expense) income:
Interest expense		(337	)		(306	)
Loss on issuance of August 2019 warrants		(1,391	)		—
Change in fair value of contingent consideration		237			—
Other income, net		159			18
Total other (expense) income, net		(1,332	)		(288	)
Loss before taxes		(6,990	)		(3,917	)
Income tax expense		(34	)		—
Net loss	$	(7,024	)	$	(3,917	)
Basic and diluted net loss per common share:	$	(0.05	)	$	(0.04	)
Weighted-average shares outstanding used in computing basic and diluted net loss per common share:		141,572			110,691

	COMMON STOCK				ADDITIONAL PAID IN		ACCUMULATED			TOTAL STOCKHOLDERS’ EQUITY
	SHARES		AMOUNT		CAPITAL		DEFICIT			(DEFICIT)
Balance at January 1, 2018		31,351	$	—	$	214,921	$	(265,572	)	$	(50,651	)
ASC 606 Adjustment		—		—		—		2,311			2,311
Net loss(1)		—		—		—		(5,257	)		(5,257	)
Settlement of restricted stock units		228		—		—		—			—
Issuance of RSUs for 2017 bonuses		—		—		205		—			205
Share-based compensation		—		—		491		—			491
Conversion of related party notes for common stock and warrants(1)		20,000		—		21,685		—			21,685
Conversion of secured promissory notes for common stock and warrants(1)		5,714		—		6,196		—			6,196
Conversion of convertible notes for common stock and warrants(1)		12,000		—		16,843		—			16,843
Fair value of common stock and warrants issued to placement agent in connection with private placement and note conversion		800		—		1,610		—			1,610
Issuance of common stock and warrants in private placement, net of offering costs and underwriter commissions		32,000		1		20,310		—			20,311
Balance at March 31, 2018		102,093	$	1	$	282,261	$	(268,518	)	$	13,744
Net loss		—		—		—		(4,870	)		(4,870	)
Settlement of restricted stock units		11		—		—		—			—
Net settlement of options		3		—		—		—			—
Share-based compensation		—		—		382		—			382
Issuance of common stock, in follow-on offering, net of offering costs and underwriter commissions		8,366		—		12,665		—			12,665
Balance at June 30, 2018		110,473	$	1	$	295,308	$	(273,388	)	$	21,921
Net loss		—		—		—		(4,483	)		(4,483	)
Settlement of restricted stock units		99		—		—		—			—
Net settlement of options		18		—				—			—
Share-based compensation		—		—		437		—			437
Exercise of warrants		78		—		98		—			98
Balance at September 30, 2018		110,668	$	1	$	295,843	$	(277,871	)	$	17,973

					ADDITIONAL					TOTAL
	COMMON STOCK				PAID IN		ACCUMULATED			STOCKHOLDERS’
	SHARES		AMOUNT		CAPITAL		DEFICIT			EQUITY

Balance at January 1, 2019		110,691	$	1	$	296,409	$	(283,474	)	$	12,936
Net loss		—		—		—		(3,917	)		(3,917	)
Share-based compensation		—		—		558		—			558
Balance at March 31, 2019		110,691	$	1	$	296,967	$	(287,391	)	$	9,577

	THREE MONTHS ENDED MARCH 31,
	2020			2019
Cash flows from operating activities
Net loss	$	(7,024	)	$	(3,917	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		891			455
Gain on disposal of equipment		(9	)		—
Right of use assets amortization		206			199
Share-based compensation		907			558
Non-cash interest expense		61			73
Loss on issuance of August 2019 warrants		1,391			—
Change in fair value of contingent consideration		(237	)		—
Net changes in operating assets and liabilities:
Accounts receivable		(4,492	)		(6,039	)
Inventories		1,072			670
Prepaid Expenses and other assets		(281	)		(336	)
Accounts payable		3,068			726
Accrued and other liabilities		(1,500	)		310
Lease Liability		(208	)		(150	)
Deferred revenue		(137	)		(199	)
Net cash used in operating activities		(6,292	)		(7,650	)
Cash flows from investing activities
Payment of future contingent consideration in connection with previous asset purchase		(540	)		—
Sale of property, plant, equipment		2			—
Purchases of property, plant and equipment		(135	)		(116	)
Net cash used in investing activities		(673	)		(116	)
Cash flows from financing activities
Proceeds from secured borrowings		11,319			6,714
Reductions in secured borrowings		(6,322	)		(3,511	)
Financing costs		(64	)		—
Exercise of stock options		12			—
Proceeds from employee stock purchase plan		84			—
Exercise of warrants		6,000			—
Repayment of debt		(196	)		(72	)
Net cash provided by financing activities		10,833			3,131
Net (decrease) increase in cash and cash equivalents and restricted cash		3,868			(4,635	)
Cash and cash equivalents and restricted cash, beginning of period		7,812			19,781
Cash and cash equivalents and restricted cash, end of period	$	11,680		$	15,146

Supplemental disclosure of cash flow information
Cash paid for interest	$	269		$	223
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment included in accounts payable and accrued liabilities	$	93		$	10

	CUSTOMER
	A			B			C
Three months ended September 30,
2019		26	%		13	%		10	%
2018		31	%		13	%		19	%

	CUSTOMER
	A			B			C
Nine months ended September 30,
2019		26	%		12	%		10	%
2018		22	%		12	%		20	%

	CUSTOMER
	A			B			C			D

March 31, 2020		21	%		17	%		14	%		12	%
December 31, 2019		44	%		1	%		5	%		1	%

	MARCH 31, 2020		DECEMBER 31, 2019
Cash and cash equivalents	$	10,120	$	6,252
Restricted cash, less current portion		1,560		1,560
Total cash, cash equivalents and restricted cash	$	11,680	$	7,812

	SEPTEMBER 30, 2019			DECEMBER 31, 2018
Product revenues	$	348		$	457
Financing costs		614			604
License revenues		1,572			1,776
		2,534			2,837
Less current portion		(441	)		(438	)
	$	2,093		$	2,399

	SEPTEMBER 30,
	2019		2018
Stock options outstanding		12,056		7,256
Warrants to purchase common stock		52,647		52,725
Restricted stock units outstanding		1,918		1,049
Common shares to be issued in lieu of agent fees		498		498
Employee stock purchase plan		65		—
Maximum contingent consideration shares to be issued		5,972		—
		73,156		61,528

	ALLOCATION OF COST OF ASSET ACQUISITION

Cash paid, inclusive of future payments		2,534
Fair value of contingent consideration		190
Other cost to acquire assets		117
Total acquisition related costs	$	2,841

Intangible assets acquired:
Customer list		2,291
Tradename		458
Non-compete		92
Total assets acquired		2,841

	PRELIMINARY ALLOCATION AT ACQUISITION DATE

Accounts receivable	$	583
Inventory		524
Other current assets		212
Investments in subsidiary		537
Intangible assets:
Developed technology		16,362
Tradename		2,658
In process research and development		2,713
Goodwill		7,100
Total assets acquired		30,689

Accounts payable		431
Accrued liabilities		757
Debt		1,612
Non-controlling interest		(14	)
Net assets acquired	$	27,903

Cash paid, net of cash acquired		5,849
Fair Value of stock consideration		20,299
Fair value of contingent consideration		1,755
Total purchase price	$	27,903

	ALLOCATION AT ACQUISITION DATE

Accounts receivable	$	583
Inventory		523
Other current assets		211
Investments in subsidiary		537
Intangible assets:
Developed technology		16,362
Tradename		2,659
In process research and development		2,713
Goodwill		6,740
Total assets acquired		30,328

Accounts payable		408
Accrued liabilities		779
Debt		1,612
Non-controllinginterest		(14	)
Net assets acquired	$	27,543

Cash paid, net of cash acquired		5,849
Fair Value of stock consideration		20,299
Fair value of contingent consideration		1,395
Total purchase price	$	27,543

	PRO FORMA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019			PRO FORMA FOR THE THREE MONTHS ENDED MARCH 31, 2019

Product revenues	$	23,530		$	8,937
Cost of product revenues		10,700			3,927
Gross profit		12,830			5,010
Operating expenses and other income/expense		32,705
Net Loss	$	(19,875	)
Earnings per share:		(0.11	)
Operating expenses					9,480
Loss from operations				$	(4,470	)
Basic and diluted net loss per common share					(0.04	)

	PRO FORMA FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018

Product revenues	$	15,802
Cost of product revenues		8,236
Gross profit		7,566
Operating expenses and other income/expense		21,65	1
Net Loss	$	(14,145	)
Earnings per share:		(0.14	)

	THREE MONTHS ENDED			NINE MONTHS ENDED
	SEPTEMBER 30, 2019			SEPTEMBER 30, 2019

Operating lease cost	$	287		$	874
Short-term lease cost		20			53
Sublease income		(25	)		(73	)
	$	282		$	854

	NINE MONTHS ENDED
	SEPTEMBER 30, 2019
Cash paid for amounts included in the measurement of lease liabilities	$	678
Right-of-use assets obtained in exchange for operating lease liabilities	$	602

	OPERATING		OPERATING
	LEASES		LEASES
2019,remaining 3 months	$	292
2020		1,179
2020,remaining 9 months			$	884
2021		1,202		1,202
2022		1,238		1,238
2023 and beyond		2,092
2023				1,275
2024 and beyond				867
Total lease payments		6,003		5,466
Less: imputed interest		964		791
Total lease obligation		5,039		4,675
Less lease obligation, current portion		862		933
Lease obligation, non-current portion	$	4,177	$	3,742

	SEPTEMBER 30, 2019		DECEMBER 31, 2018

Accrued compensation	$	3,437	$	2,570
Accrued warranty costs		391		320
Accrued legal costs		1,032		69
Accrued customer incentives		4,459		2,170
Accrued liabilities, other		5,791		1,742
	$	15,110	$	6,871

Balance at December 31, 2018	$	320
Balance at December 31, 2019			$	327
Warranties issued (released) during the period		71		42
Settlements made during the period		-		-
Balance at September 30, 2019	$	391
Balance at March 31, 2020			$	369

	CONTINGENT CONSIDERATION LIABILITY
Fair value at December 31, 2019	$	1,737
Change in estimated fair value recorded of contingent consideration		(237	)
Fair value at March 31, 2020	$	1,500

	SEPTEMBER 30, 2019			DECEMBER 31, 2018
Secured promissory notes (“October 2012 and April 2013 Secured Promissory Notes”) bearing interest at 8.00% per annum, interest and principal due at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.	$	3,425		$	3,425
Secured promissory note (“June 2014 Secured Promissory Note”) bearing interest at prime plus 2% (7.25% as of September 30, 2019) per annum, payable monthly through June 2036, collateralized by certain of the Company’s deposit accounts and MMM LLC’s inventories, chattel paper, accounts, equipment and general intangibles, net of unamortized debt discount as of September 30, 2019 and December 31, 2018 of $190 and $205.		8,466			8,639
Secured revolving borrowing (“LSQ Financing”) bearing interest at (12.80% annually) payable through the lenders direct collection of certain accounts receivable through November 2019, collateralized by substantially all of the Company’s personal property.		4,957			2,073
Senior secured promissory notes due to related parties (“August 2015 Senior Secured Promissory Notes”) bearing interest at 8% per annum, interest and principal payable at maturity (December 31, 2022), collateralized by substantially all of the Company’s assets.		7,300			7,300
Research loan facility (“2018 Research Facility”) bearing interest at 1.00% per annum, interest payments are due annually on the anniversary date of the facility with principal payable in 25% increments on the anniversary date of the facility beginning on the fourth anniversary of the loan (September 2022), net of imputed interest as of September 30, 2019 of $10.		83			-
Financial institution facility (“2018 Bank Facility”) bearing interest at Euribor plus 2.40% (2.60% as of September 30, 2019) per annum, interest payable monthly and principal payable at maturity (February 29, 2020), 60% guaranteed by Export Credit Agency of Finland for a fee of 2.49%.		63			-
Secured borrowing (“Factoring Financing”) bearing interest at 15.00% per annum, interest and principal payable at maturity (December 17, 2019)		1,315			-
Debt, including debt due to related parties		25,609			21,437
Less debt due to related parties, non-current		(7,300	)		(7,300	)
Less current portion		(6,590	)		(2,318	)

Debt, non-current	$	11,719		$	11,819

Period ended September 30, 2019	Debt		Debt to Related Party
2019	$	6,390	$	-
Period ended March 31, 2020					Debt		Debt to Related Party
2020		276		-	$	8,939	$	-
2021		299		-		325		-
2022		2,794		5,000		2,796		5,000
2023		369		-		391		-
2024						413		-
Thereafter		7,396		-		6,902		-
Total future principal payments		17,524		5,000		19,766		5,000
Interest payments included in debt balance⁽¹⁾		975		2,300		975		2,300
	$	18,499	$	7,300	$	20,741	$	7,300

	SEPTEMBER 30, 2019
	Interest
	Expense		Related Party, Net		Non cash
Three Months Ended
June 2014 Secured Promissory Note	$	170	$	—	$	5
LSQ Financing		121		—		—
ASC 606 Financing Component		63		—		63
Other		1		—
	$	355	$	—	$	68

	SEPTEMBER 30, 2018
	Interest
	Expense		Related Party, Net		Non cash
Three Months Ended
June 2014 Secured Promissory Notes		166		—		5
LSQ Financing		56		—		—
ASC 606 Financing Component		78		—		78
	$	300	$	—		83

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

Principal (pre-conversion)	$	12,450
Discount (pre-conversion)		(134	)
Consideration of common stock and warrants provided at conversion		(6,196	)
Gain on extinguishment		(2,695	)
Principal and future interest at September 30, 2019	$	3,425