Consolidated Financial Statements
Years Ended December 31, 2020 and 2019
Novomer, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 2020 and 2019
Contents
Page | |
Independent Auditors' Report | 1-2 |
Consolidated Financial Statements | |
Consolidated Balance Sheets | 3-4 |
Consolidated Statements of Operations | 5 |
Consolidated Statements of Changes in Stockholders' Equity | 6 |
Consolidated Statements of Cash Flows | 7 |
Notes to Consolidated Financial Statements | 8-21 |
Independent Auditor's Report
To the Board of Directors
Novomer, Inc. and Subsidiaries
Rochester, New York
We have audited the accompanying consolidated financial statements of Novomer, Inc. (a Delaware corporation) and Subsidiaries (the "Company"), which comprise the consolidated balance sheets as of December 31, 2020 and 2019, and the related consolidated statements of operations, consolidated changes in stockholders' equity, and consolidated cash flows for the years then ended, and the related notes to the
consolidated financial statements.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Novomer, Inc. and Subsidiaries as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis-of-Matter Regarding Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will
continue as a going concern. As discussed in Note A to the consolidated financial statements, the Company has a net loss, negative cash from operations, and an accumulated deficit. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding those matters are described in Note A. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
/s/ Katz, Nannis & Solomon, PC
Waltham, Massachusetts
June 25, 2021
Novomer, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
2020 | 2019 | |||
Assets | ||||
Current Assets | ||||
Cash and cash equivalents | $ | 4,309,575 | $ | 9,500,385 |
Restricted cash, current portion | 125,000 | - | ||
Accounts receivable, net | 29,000 | 14,787 | ||
Inventories | 1,032,000 | 1,290,000 | ||
Prepaid expenses and other current assets | 144,680 | 317,226 | ||
Income tax receivable | 1,476,338 | - | ||
Total Current Assets | 7,116,593 | 11,122,398 | ||
Property, Equipment and Improvements | ||||
Laboratory equipment | 13,855,186 | 13,782,532 | ||
Leasehold improvements | 7,088,416 | 7,119,970 | ||
Computers and software | 493,056 | 497,937 | ||
Furniture and fixtures | 184,726 | 267,073 | ||
Capital lease equipment | 34,152 | 34,152 | ||
Construction in progress | 1,177,103 | 1,187,215 | ||
Total | 22,832,639 | 22,888,879 | ||
Accumulated depreciation | (6,685,301 | ) | (4,290,135 | ) |
Net Property, Equipment and Improvements | 16,147,338 | 18,598,744 | ||
Other Assets | ||||
Restricted cash | - | 2,044,132 | ||
Prepaid expenses, net of current portion | - | 18,008 | ||
Deposits | 77,206 | 70,206 | ||
Total Other Assets | 77,206 | 2,132,346 | ||
Total Assets | $ | 23,341,137 | $ | 31,853,488 |
See accompanying notes
Novomer, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
December 31,
2020 | 2019 | |||
Liabilities and Stockholders' Equity | ||||
Current Liabilities | ||||
Capital leases, current portion | $ | 5,149 | $ | 7,028 |
Accounts payable | 234,330 | 1,040,970 | ||
Accrued expenses | 1,774,104 | 321,975 | ||
Total Current Liabilities | 2,013,583 | 1,369,973 | ||
Commitments (Note C) | - | - | ||
Long-Term Liabilities | ||||
Capital leases, net of current portion | 2,921 | 7,478 | ||
Liability for preferred stock warrants | - | 850 | ||
Deferred rent | 1,493,243 | 1,794,179 | ||
Total Long-Term Liabilities | 1,496,164 | 1,802,507 | ||
Total Liabilities | 3,509,747 | 3,172,480 | ||
Stockholders' Equity | ||||
Series D convertible redeemable preferred stock | 26,127,764 | 26,127,764 | ||
Series A1 convertible redeemable preferred stock | 2,920,094 | 2,920,094 | ||
Series A2 convertible redeemable preferred stock | 3,774,999 | 3,774,999 | ||
Series B convertible redeemable preferred stock | 12,000,012 | 12,000,012 | ||
Series C convertible redeemable preferred stock | 9,999,995 | 9,999,995 | ||
Common stock | 8,112 | 8,105 | ||
Additional paid-in capital | 711,359 | 448,718 | ||
Accumulated deficit | (35,710,945 | ) | (26,598,679 | ) |
Total Stockholders' Equity | 19,831,390 | 28,681,008 | ||
Total Liabilities and Stockholders' Equity | $ | 23,341,137 | $ | 31,853,488 |
See accompanying notes.
Novomer, Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended December 31,
2020 | 2019 | |||||
Revenues | $ | - | $ | 1,299 | ||
Expenses | ||||||
Research and development expenses | 2,905,040 | 5,122,602 | ||||
Business development expenses | 45,555 | 250,103 | ||||
General and administrative expenses | 6,267,494 | 12,608,885 | ||||
Purchase commitment loss | 1,422,900 | - | ||||
Total Expenses | 10,640,989 | 17,981,590 | ||||
Loss From Operations | (10,640,989 | ) | (17,980,291 | ) | ||
Other Income (Expense) | ||||||
Interest income | 52,322 | 376,166 | ||||
Interest expense | (788 | ) | (945 | ) | ||
Changes in fair value of warrant liabilities | 851 | 2,372 | ||||
Other income | - | 6,000 | ||||
Total Other Income | 52,385 | 383,593 | ||||
Loss Before Income Taxes | (10,588,604 | ) | (17,596,698 | ) | ||
Benefit from Income taxes | 1,476,338 | - | ||||
Net Loss | $ | (9,112,266 | ) | $ | (17,596,698 | ) |
See accompanying notes.
Novomer, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 2020 and 2019
Convertible Redeemable Preferred Stock | Common Stock | ||||||||||||
Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total Stockholders' Equity | |||||||
Balance, January 1, 2019 | 49,175,323 | $ | 54,822,864 | 7,935,507 | $ | 7,935 | $ | 370,340 | $ | (9,001,981 | ) | $ | 46,199,158 |
Stock-based compensation | - | - | - | - | 40,091 | - | 40,091 | ||||||
Stock options exercised | - | - | 169,842 | 170 | 38,287 | - | 38,457 | ||||||
Net loss | - | - | - | - | - | (17,596,698 | ) | (17,596,698 | ) | ||||
Balance, December 31, 2019 | 49,175,323 | 54,822,864 | 8,105,349 | 8,105 | 448,718 | (26,598,679 | ) | 28,681,008 | |||||
Stock-based compensation | - | - | - | - | 260,968 | - | 260,968 | ||||||
Stock options exercised | - | - | 7,000 | 7 | 1,673 | - | 1,680 | ||||||
Net loss | - | - | - | - | - | (9,112,266 | ) | (9,112,266 | ) | ||||
Balance, December 31, 2020 | 49,175,323 | $ | 54,822,864 | 8,112,349 | $ | 8,112 | $ | 711,359 | $ | (35,710,945 | ) | $ | 19,831,390 |
See accompanying notes.
Novomer, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31,
2020 | 2019 | |||||
Operating Activities | ||||||
Net loss | $ | (9,112,266 | ) | $ | (17,596,698 | ) |
Adjustments to reconcile net loss to | ||||||
net cash operating activities: | ||||||
Depreciation | 2,472,987 | 2,409,141 | ||||
Stock-based compensation | 260,968 | 40,091 | ||||
Inventory write down | 367,500 | 1,241,643 | ||||
Purchase commitment loss | 1,422,900 | - | ||||
Change in fair value of preferred stock warrant liability | (850 | ) | (2,372 | ) | ||
Deferred rent | (300,936 | ) | (240,782 | ) | ||
Loss on disposal of property and equipment | 47,470 | 18,742 | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable | (14,213 | ) | 610,087 | |||
Inventory | (109,500 | ) | (1,663,912 | ) | ||
Prepaid expenses and other current assets | 190,554 | 86,483 | ||||
Income tax receivable | (1,476,338 | ) | - | |||
Security deposit | (7,000 | ) | 364 | |||
Accounts payable and accrued expenses | (768,000 | ) | (161,239 | ) | ||
Net Cash Operating Activities | (7,026,724 | ) | (15,258,452 | ) |
See accompanying notes.
Novomer, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2020 and 2019
A. Description of Business and Basis of Presentation
Novomer, Inc. (the "Company") was incorporated in January 2005 to commercialize certain chemistry technology licensed from Cornell University. The Company's operations, since inception, have been devoted primarily to organizing the Company, raising capital, and performing research and development activities. The Company has generated limited commercial revenue since inception. Management expects further business development and growth of the Company to be financed from additional equity capital raised and from joint development contracts with industrial partners and sales to customers.
The substantial majority of the Company's revenues since inception have been grants from governmental agencies, licensing fees and other fees for service rendered under development contracts. The principal risks faced by the Company at this stage of its development are successfully developing its technology and products, protecting intellectual property, raising needed capital to continue to operate the business during its development phase, and securing partnerships needed to move its technology to commercialization.
In 2017, the Company formed six subsidiaries (the "Subsidiaries"). Two of the Subsidiaries are incorporated in the USA, and four are incorporated in the Netherlands. One of the Subsidiaries in the Netherlands has a Cayman Islands address. The Subsidiaries were formed to support the Company's business initiatives in global markets. In October 2019, one of the Subsidiaries in the Netherlands was liquidated. In 2020, all of the remaining foreign Subsidiaries were liquidated.
The Company has incurred a loss for the year ended December 31, 2020 of $9,112,266, and has an accumulated deficit amounting to $35,710,945 at December 31, 2020. The Company also incurred cash flow deficits from operations amounting to $7,026,724 and $15,258,452 for the years ended December 31, 2020 and 2019, respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern within a year after the consolidated financial statements are available to be issued.
The future viability of the Company is dependent on its ability to generate cash flows from operating activities or to raise additional capital to finance its operations. Management's plans include, but are not limited to, seeking additional equity and debt financings, in addition to the reduction of operational expenses should it be deemed necessary. There is no assurance, however, that the Company will be successful in these efforts with terms and conditions favorable to the Company.
B. Summary of Significant Accounting Policies
Total restricted cash was $125,000 and $2,044,132 as of December 31, 2020 and 2019, respectively, and is presented with current and noncurrent assets in the accompanying consolidated balance sheets, respectively. Restricted cash reflects pledged cash deposited into savings accounts that is used as security primarily for leased space in Rochester, New York and Boston, Massachusetts (see Note C).
B. Summary of Significant Accounting Policies (continued)
The effect of changes in income tax rates on deferred income tax assets and liabilities is recognized as income or expense in the period that includes the enactment date. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance for any income tax benefits of which future realization is not more likely than not. When necessary, the Company provides reserves for potential payments of tax to various tax authorities related to uncertain tax positions.
The tax benefits recorded are based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any uncertainty related to the tax benefit, assuming that the matter in question will be raised by the tax authorities. At December 31, 2020, the Company had not identified any significant uncertain tax positions. The Company recognizes interest and penalties related to unrecognized tax benefits within the accompanying consolidated statements of operations within the benefit from (provision for) income taxes.
B. Summary of Significant Accounting Policies (continued)
Royalties from licensing agreements are based on a percentage of net sales and recognized as earned, net of any discounts.
B. Summary of Significant Accounting Policies (continued)
C. Commitments
Effective August 23, 2017, the Company entered into a 127-month lease agreement for an innovation center in Rochester, New York commencing in October 2017. The agreement requires a security deposit of $67,671 and a $2,000,000 letter of credit plus additional payments for real estate taxes and other expenses. The letter of credit is for construction and renovation costs being incurred by the landlord prior to the commencement date and first seven months of the lease. The letter of credit decreases annually by $200,000. During 2020, the lease agreement was amended to release the letter of credit and the leasehold improvements were pledged as collateral for the lease. Rent expense was $226,391 and $228,847 for the years ended December 31, 2020 and 2019, respectively.
The Company has rent escalations along with tenant improvement allowances under its lease arrangements which are amortized on a straight-line basis over the terms of the leases. Deferred rent including tenant improvement allowances amounted to $1,493,243 and $1,794,179 as of December 31, 2020 and 2019, respectively
At December 31, 2020, the future annual lease commitments are as follows:
2021 | $ | 416,789 |
2022 | 414,833 | |
2023 | 417,360 | |
2024 | 419,936 | |
2025 | 422,564 | |
Thereafter | 1,103,820 | |
Total | $ | 3,195,302 |
C. Commitments (continued)
2021 | $ | 6,087 |
2022 | 2,104 | |
Total minimum lease payments | 8,191 | |
Less amount representing interest | ( 121) | |
Present value of minimum lease payments | 8,070 | |
Less current portion | (5,149) | |
Capital lease obligation, net of current portion | $ | 2,921 |
D. Preferred Stock
In accordance with the Company's sixth amended and restated Certificate of Incorporation dated May 262016, the Company is authorized to issue 49,202,783 shares of $0.001 par value preferred stock, of which 3,808,478 shares are designated as Series A1 convertible redeemable preferred stock ("Series A1"), 4,547,151 shares are designated as Series A2 convertible redeemable preferred stock ("Series A2"), 20,191,822 shares are designated as Series B convertible redeemable preferred stock ("Series B"), 4,626,008 shares are designated as Series C convertible redeemable preferred stock ("Series C") and 16,029,324 shares are designated as Series D convertible preferred stock ("Series D").
The Company has the following shares of preferred stock issued and outstanding at December 31:
Preferred stock series | 2020 | 2019 |
Series A1 | 3,808,478 | 3,808,478 |
Series A2 | 4,547,281 | 4,547,281 |
Series B | 20,191,822 | 20,191,822 |
Series C | 4,598,418 | 4,598,418 |
Series D | 16,029,324 | 16,029,324 |
Total | 49,175,323 | 49,175,323 |
D. Preferred Stock (continued)
Holders of preferred stock have the following right and preferences:
Liquidation - In the event of any voluntary or involuntary liquidation event or a deemed liquidation event, the holders of Series D preferred stock shall be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of all other series of preferred stock and common stock, an amount per share equal to the sum of (i) the liquidation preference, plus (ii) any declared but unpaid dividends on such share of preferred stock. After the payment of all preferential amounts required to be paid to holders of Series D preferred stock, the holders of Series A1, Series A2, Series B and Series C preferred stock shall be entitled to receive, prior and in preference to any distribution of the proceeds to the holders of common stock, an amount per share equal to the sum of (i) the liquidation preference specified below, plus (ii) any declared but unpaid dividends on such share of preferred stock.
A deemed liquidation event includes a merger or consolidation in which the Company is a constituent party or a subsidiary of the Company is a constituent party and the Company issues shares of its capital stock pursuant to such merger or consolidation.
At December 31, 2020 and 2019 the liquidation preference of Series A1 preferred stock was $2,919,960. At December 31, 2020 and 2019 the liquidation preference of Series A2 preferred stock was $3,750,000. At December 31, 2020 and 2019 the liquidation preference of Series B preferred stock was $12,000,000. At December 31, 2020 and 2019 the liquidation preference of Series C preferred stock was $10,000,000. At December 31, 2020 and 2019 the liquidation preference of Series D preferred stock was $26,127,798.
Voting - Each holder of preferred stock shall be entitled to the number of votes equal to the number of shares of common stock into which the shares of preferred stock held by such holder could be converted as of the record date. The holders of preferred stock and the holders of common stock shall vote together as a single class and not as separate classes.
Redemption - At any time after October 20, 2021 upon written request by at least 69.5% of the holders of the Series Al, A2, B, C and D preferred stock, the shareholders have the right to require the Company to repurchase for cash any or all of the outstanding shares of the Series Al, A2, B, C and D preferred stock at the per-share amount equal to the greater of (i) the liquidation preference, plus any dividends declared but unpaid, and (ii) the fair market value of such share of preferred stock as determined by an independent third party, plus any dividends declared but unpaid.
Conversion - Each share of preferred stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, into that number of fully paid, non-assessable shares of common stock determined by dividing the original issue price for the relevant series of preferred stock by the conversion price. Mandatory conversion shall occur upon the firm commitment of an initial public offering provided that the aggregate proceeds from such offering are at least $30,000,000 and the price per share is at least $4.89 or upon the written request for such conversion from the holders of at least 75% of the outstanding share of preferred stock. The conversion price for each series of preferred stock is as follows: $0.6913 for Series Al, $0.7271 for Series A2, $0.5943 for Series B, $2.17466 for Series C and $1.63 for Series D.
E. Common Stock
In accordance with the Company's sixth amended and restated Certificate of Incorporation dated May 26, 2016, the Company is authorized to issue 80,000,000 shares of $0.001 par value common stock, of which 8,112,349 and 8,105,349 shares were issued and outstanding at December 31, 2020 and 2019, respectively. Common stock holders are entitled to one vote per share and are entitled to receive dividends when, as and if declared by the Board of Directors, subject to the limitations and preferences of the preferred stock.
During the years ended December 31, 2020 and 2019, stock options were exercised for 7,000 and 169,842 shares of common stock at exercise prices ranging from $0.08 to $0.48 per share resulting in total proceeds of $1,680 and $38,457, respectively.
F. Warrants
Common stock warrants - On August 22, 2018, the Company issued warrants to a consultant to purchase 201,303 shares of common stock at a purchase price of $0.48 per share at any time after issuance but no later than June 30, 2020. The Company estimated the value of the common stock warrants at issuance to be $27,889. The Company recorded the fair value of the warrants as a component of stock-based compensation and additional paid-in capital in its December 31, 2018 consolidated financial statements.
Valuation of warrants - The warrants to purchase preferred stock are measured and recorded at fair value for each reporting period and immediately prior to any exercise of warrants. Changes in the fair value of the warrants are recognized as a component of other income (expense) in the consolidated statements of operations.
In 2020, the warrants to purchase the Series C preferred stock expired. The preferred stock warrants liability of $851 was written off at the time of expiration, which the Company recognized as a gain included in other income (expense) in the accompanying consolidated statements of operations. The fair value of the Series C warrants to purchase the Series C preferred stock at December 31, 2020 and 2019 was measured using the Black-Scholes option-pricing model with the following assumptions:
2020 | 2019 | |
Estimated fair value | - | $1.27 |
Expected term (years) | - | 0.45-0.62 |
Expected volatility | - | 55.83% |
Expected dividends | - | 0.00% |
Risk-free rate of interest | - | 1.58%-1.60% |
G. Income Taxes
The components of the benefit from (provision for) income taxes for the years ended December 31, are as follows:
2020 | 2019 | |||
Current tax benefit | ||||
Federal | $ | 1,476,338 | $ | - |
Total benefit from income taxes | $ | 1,476,338 | $ | - |
The four subsidiaries incorporated in the Netherlands are subject to standard corporate income tax ("CIT") rates. As of December 31, 2020 all subsidiaries were liquidated and dissolved. There was no income tax expense recognized during the year ended December 31, 2020.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Deferred income tax assets and liabilities at December 31, consist of the following:
2020 | 2019 | |||
Net operating loss carryforwards | $ | 7,378,000 | $ | 8,053,900 |
Net operating loss carryforwards - foreign | - | 235,100 | ||
Other temporary differences and tax credit carryforwards, net | 1,613,800 | 864,400 | ||
Deferred income tax asset | 8,991,800 | 9,153,400 | ||
Less valuation allowance | (8,991,800) | (9,153,400) | ||
Net deferred income tax asset | $ | - | $ | - |
As of December 31, 2020 the Company has federal and state net operating loss carryforwards of approximately $25,000,000 and $41,000,000, respectively. The federal net operating loss carryforward can be carried forward indefinitely but is subject to the 80% taxable income limitation. As a result of the COVID-19 Crisis, under the Coronavirus Aid Recovery and Economic Relief Act (the "CARES Act"), the 80% taxable income limitation was suspended through the 2020 tax year. The state net operating loss carryforwards expire at various dates through 2040. In addition, under the CARES Act, net operating losses generated in the 2018, 2019, and 2020 tax year can be carried back to the previous five tax years (beginning with earliest first). Under provisions of the Internal Revenue Code Section 382, certain substantial changes in the Company's ownership may limit the amount of the net operating loss carryforwards which can be utilized to offset future taxable income. The Company also has federal and state tax credit carryforwards of $755,000 and $313,000, respectively, which expire through 2020. In assessing the realizability of net deferred tax assets, management considers whether it is more likely than not that the net deferred tax assets will be realized.
G. Income Taxes (continued)
The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing future deductible amounts become deductible. Management has established a full valuation allowance against net deferred tax assets at December 31, 2020, since it is more likely than not that these future tax benefits will not be realized.
During 2020, the valuation allowance decreased by $161,600, mainly due to the use of net operating losses.
Although the outcome of tax audits is always uncertain, management has analyzed the Company tax positions taken for all open tax years and has concluded that no liability from uncertain tax positions is required in the Company's financial statements.
H. Stock Incentive Plan
2009 Stock Incentive Plan
During 2009, the Company authorized the adoption of the 2009 Stock Incentive Plan (the "2009 Plan") for the purpose of providing incentive stock options, nonqualified stock options, stock grants and stock-based awards to directors, officers, key employees, advisors and consultants of the Company. The maximum number of shares available under the 2009 Plan is 10,261,508; of such reserved shares options to purchase 4,652,873 shares of common stock were outstanding under the 2009 Plan at December 31, 2020. At December 31, 2020, the number of shares available for future grants under the 2009 Plan was 4,953,455. In August 2019, the Company amended the 2009 Plan to extend the Plan an additional five years.
2007 Stock Incentive Plan
The Company adopted the 2007 Stock Incentive Plan (the "2007 Plan") under which the Board of Directors or the Compensation Committee of the Board may, in its discretion, grant incentive stock options, nonqualified stock options, stock appreciation rights, stock awards and performance units to directors, officers, key employees, advisers and consultants of the Company. The maximum number of shares available under the 2007 Plan was 2,453,807 shares. Options issued under the 2007 Plan will remain outstanding until they either expire or are exercised. As of December 31, 2019, all remaining options issued under the 2007 Plan had expired. No further shares are available for future grants under the 2007 Plan.
Under the terms of the 2009 Plan and 2007 Plan (collectively referred to as the "Stock Plans"), options and restricted stock that have not vested prior to a participant's termination of employment with the Company are forfeited upon termination. This agreement, among other things, imposes limitations on the transfer of shares of common stock to competitors and requires transfers to comply with applicable securities laws. Stock options typically expire 10 years from the grant date. Awards granted may be subject to other vesting terms as determined by the Board of Directors or the Compensation Committee.
H. Stock Incentive Plan (continued)
The fair value of each option award is estimated on the date of grant using the Black-Scholes option‑pricing model that uses the assumptions noted in the table below. Expected volatility for the Company's common stock was determined based on an average of the historical volatility of a peer group of similar public companies. The expected term of options granted to employees was calculated using the simplified method, which represents the average of the contractual term of the option and the weighted‑average vesting period of the option.
The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate expected term. The expected term of options granted to nonemployees is the remaining contractual term as of the measurement date. The assumed dividend yield is based upon the Company's expectation of not paying dividends in the foreseeable future.
The risk-free rate for periods within the expected life of the option is based upon the U.S. Treasury yield curve in effect at the time of grant.
2020 | 2019 | |
Expected life (years) | 6.00-6.07 | 5.96-6.07 |
Expected volatility | 58.47%-61.90% | 53%-54% |
Dividend yield | - | - |
Risk-free interest rate | 0.41%-0.54% | 1.69%-2.34% |
In determining the exercise prices for options granted, the Company's Board of Directors has considered the fair value of the common stock as of the measurement date. The fair value of the common stock has been determined by the Board of Directors after considering a broad range of factors, including the results of a third-party valuation, the illiquid nature of an investment in the Company's common stock, the Company's historical financial performance and financial position, the Company's future prospects and opportunity for liquidity events, and recent sale and offer prices of redeemable convertible preferred stock in private transactions negotiated at arm's length.
H. Stock Incentive Plan (continued)
A summary of all stock option activity in the Stock Plans for the year ended December 31, 2020, is as follows:
Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (years) | Intrinsic Value |
Outstanding as of January 1, 2020 | 8,044,305 | $ 0.39 | ||
Granted | 647,500 | $ 0.51 | ||
Exercised | (7,000) | $ 0.24 | ||
Forfeitures | (4,031,932) | $ 0.30 | ||
Outstanding as of December 31, 2020 | 4,652,873 | $ 0.48 | 8.26 | $122,135 |
Options exercisable as of December 31, 2020 | 1,557,053 | $ 0.43 | 6.71 | $121,482 |
Options vested or expected to vest as of December 31, 2020 | 4,652,873 | $ 0.48 | 8.26 | $122,135 |
The weighted-average fair value of stock options granted in 2020 and 2019 was $0.28 and $0.27, respectively. Cash proceeds received from the exercise of options was $1,680 and $38,457 during the years ended December 31, 2020 and 2019, respectively. The intrinsic value of options exercised was $1,890 and $48,162 for the years ended December 31, 2020 and 2019, respectively.
Compensation expense recognized in connection with the stock plans amounted to $260,968 and $40,091 for the years ended December 31, and 2019, respectively. As of December 31, 2020, the total unrecognized stock-based compensation expense related to the options is approximately $800,746.
The estimation of stock-based awards that will vest ultimately requires judgment, and to the extent actual results differ from the Company's estimates, such amounts will be recorded as an adjustment in the period estimates are revised.
I. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy defines inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy of inputs is as follows:
I. Fair Value Measurements (continued)
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities.
Level 2 - Valuation is determined from quoted prices for similar assets or liabilities in active markets, quoted prices for identical instruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The table provides information regarding assets and liabilities recorded at fair value in the Company's consolidated balance sheets as follows:
Fair Value Measurements at December 31, 2020 | ||||
Total | Level 1 | Level 2 | Level 3 | |
Description | ||||
Assets: Cash equivalents | $ 1,726,313 | $ 1,726,313 | $ - | $ - |
Liabilities: Preferred stock warrants | $ - | $ - | $ - | $ - |
Fair Value Measurements at December 31, 2019 | ||||
Total | Level 1 | Level 2 | Level 3 | |
Description | ||||
Assets: Cash equivalents | $ 8,850,415 | $ 8,850,415 | $ - | $ - |
Liabilities: Preferred stock warrants | $ 850 | $ - | $ - | $ 850 |
The fair value of cash equivalents presented in the table above was composed of the Company's investment in a publicly traded money market instrument.
The fair values for the warrants included in Level 3 are estimated using industry option pricing models, such as the Black-Scholes model, with assumptions discussed in Note F.
The following table indicates the changes in fair value of the instruments that are measured using Level 3 inputs:
Warrants | ||
Balance as of January 1, 2019 | $ | 3,222 |
Change in fair value | (2,372) | |
Balance as of December 31, 2019 | 850 | |
Change in fair value | (850) | |
Balance as of December 31, 2020 | $ | - |
I. Fair Value Measurements (continued)
The Company's financial instruments consist of cash and cash equivalents, receivables, accounts payable, long-term debt including capital leases, and warrant liabilities. The carrying amounts of accounts receivable and accounts payable are considered reasonable estimates of their fair value, due to the short maturity of these instruments. Based on the borrowing rates currently available to the Company for long-term debt with similar terms and average maturities as the Company's long-term debt, the fair values of long-term debt and capital leases were not significantly different than the carrying values at December 31, 2020 and 2019.
J. 401(k) Plan
The Company began offering a 401(k) plan to employees as of January 1, 2008. All permanent employees working at least 32 hours a week are eligible and can join immediately upon hire. The plan offers no match or profit sharing, and all amounts contributed by the employee vest immediately.
K. Concentrations
L. Subsequent Events
The Company has evaluated subsequent events through June 25, 2021, the date the consolidated financial statements were available to be issued, and determined that no additional subsequent events had occurred that would require recognition or disclosure in these consolidated financial statements.
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Danimer Scientific Inc. published this content on 27 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2021 11:57:08 UTC.