UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-39378
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) | |
(916 ) 231-9329
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
Trading Symbol(s) |
Name of each exchange on which registered: | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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. | Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| ☒ | Smaller reporting company | |||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in ☒
Rule 12b-2
of the Exchange Act). Yes ☐ No The number of shares of the registrant’s Common Stock, par value $0.0001 per share outstanding was 141,248,470 , as of August 1
3
, 2021. ORIGIN MATERIALS, INC.
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company makes forward-looking statements in this Quarterly Report on Form
10-Q
(this “Report”) and in documents incorporated herein by reference. All statements, other than statements of present or historical fact included in or incorporated by reference in this Report, regarding the Company’s future financial performance, as well as the Company’s strategy, future operations, financial position, estimated revenues, and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Report, the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” the negative of such terms and other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations, assumptions, hopes, beliefs, intentions and strategies regarding future events and are based on currently available information as to the outcome and timing of future events. The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of the Company, incident to its business. These forward-looking statements are based on information available as of the date of this Report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements in this Report and in any document incorporated herein by reference should not be relied upon as representing the Company’s views as of any subsequent date, and the Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
As a result of a number of known and unknown risks and uncertainties, the Company’s actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:
| • | any further changes to the Company’s financial statements or this Report that may be required due to SEC comments or further guidance regarding the accounting treatment of the Assumed Common Stock Warrants (as defined in Note 15 to the unaudited condensed consolidated financial statements in this Report); |
| • | the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting; |
| • | the Company’s ability to remediate the material weakness in its internal control over financial reporting; |
| • | the quantitative effects of the restatement of our previously issued consolidated financial statements as of and for the period ended December 31, 2020; |
| • | costs related to the Business Combination (as defined herein) and the Company’s ability to recognize the anticipated benefits of the Business Combination; |
| • | the Company’s future financial and business performance, including financial projections and business metrics; |
| • | changes in the Company’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans; |
| • | the Company’s ability to scale in a cost-effective manner; |
| • | the Company’s ability to raise capital; |
| • | the Company’s ability to secure additional project financing and government incentives; |
| • | the Company’s ability to complete construction of its plants in the expected timeframe and in a cost-effective manner; |
| • | the Company’s ability to procure necessary capital equipment and to produce its products in large commercial quantities; |
| • | the impact of government laws and regulations and liabilities thereunder, including any decline in the value of carbon credits; |
| • | any increases or fluctuations in raw material costs; |
1
| • | the ability to maintain the listing of the Company’s common stock on the Nasdaq; and |
| • | the impact of worldwide economic, political, industry, and market conditions, including the continued effects of the global COVID-19 pandemic. |
Other risks and uncertainties set forth in this Report, including risk factors discussed in Item 1A under the heading, “Risk Factors”.
2
PART I. — FINANCIAL INFORMATION
Item 1. Financial Statements
ORIGIN MATERIALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) |
June 30, 2021 (Unaudited) |
December 31, 2020 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
$ | $ | ||||||
Restricted cash |
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Other receivables |
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Grants receivable |
— | |||||||
Prepaid expenses and other current assets |
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Total current assets |
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Property, plant, and equipment, net |
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Intangible assets, net |
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Total assets |
$ |
$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
$ | $ | ||||||
Accrued expenses |
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Derivative liability |
— | |||||||
Stockholder convertible notes payable |
— | |||||||
Total current liabilities |
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PPP Loan |
— | |||||||
Earnout liability |
— | |||||||
Canadian Government Research and Development Program Liability |
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Redeemable convertible preferred stock warrants |
— | |||||||
Assumed common stock warrants liability |
— | |||||||
Stockholder note |
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Related party other liabilities, long-term |
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Other liabilities, long-term |
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Total liabilities |
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Commitments and contingencies (See Note 18) |
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STOCKHOLDERS’ EQUITY |
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Preferred stock, $ |
— |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
) | ( |
) | ||||
Accumulated other comprehensive income |
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Total stockholders’ equity |
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Total liabilities, redeemable convertible preferred stock and stockholders’ deficit |
$ |
$ |
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
ORIGIN MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(In thousands, except share and per share data) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
| Operating Expenses |
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| Research and development |
$ | $ | $ | $ | ||||||||||||
| General and administrative |
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| Depreciation and amortization |
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| Total operating expenses and loss from operations |
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| Other (income) expenses |
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| Interest expense, net of capitalized interest |
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| Change in fair value of derivative liability |
( |
) | ( |
) | ||||||||||||
| Change in fair value of warrants liability |
( |
) | ||||||||||||||
| Change in fair value of earnout liability |
( |
) | — | ( |
) | — | ||||||||||
| Other income, net |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| |
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| Total other (income) expenses, net |
( |
) | ( |
) | ( |
) | ||||||||||
| |
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| Net income (loss) |
( |
) | ( |
) | ||||||||||||
| |
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| Other comprehensive income (loss) |
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| Foreign currency translation adjustment, net of tax |
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| Total comprehensive income (loss) |
( |
) | ||||||||||||||
| |
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| Net income (loss) per share, basic |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
| |
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| Net income (loss) per share, diluted |
$ | $ | ( |
) | $ | $ | ( |
) | ||||||||
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| Weighted-average common shares outstanding, basic |
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| Weighted-average common shares outstanding, diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
ORIGIN MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(Unaudited)
(In Thousands, Except Share Amounts)
| Redeemable Convertible Preferred Stock | Accumulated Other Comprehensive Income (loss) |
Total Stockholders’ Equity |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Legacy Origin Common Stock |
Common Stock | Additional Paid-in Capital |
Accumulated Deficit |
||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2019 (as previously reported) |
$ | $ | $ | $ | — | — | $ | — | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||||||||
Retrospective application of the recapitalization due to the Business Combination (Note 4) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at December 31. 2019, effect of Business Combination (Note 4) |
— | — | — | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||
Common stock issued upon exercise of stock options |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss |
— | — | — | — | — | — | — | — | — | — | — | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||
BALANCE, March 31, 2020 |
— | — | — | — | — | — | — | — | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||||||||||||||||||||||||||
Common stock issued upon exercise of stock options |
— | — | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2020 |
— | — | — | — | — | — | — | — | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
ORIGIN MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (continued)
(Unaudited)
(In Thousands, Except Share Amounts)
| Redeemable Convertible Preferred Stock | Accumulated Other Comprehensive Income (loss) |
Total Stockholders’ Equity |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Common Stock | Additional Paid-in Capital |
Accumulated Deficit |
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| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||
BALANCE, December 31, 2020 (as previously reported) |
$ | $ | $ | — | — | $ | — | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||||||||||||||||||||
Retrospective application of the recapitalization due to the Business Combination (Note 4) |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance at December 31. 2020, effect of Business Combination (Note 4) |
— | — | — | — | — | — | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued upon exercise of stock options |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | — | — | — | ( |
) | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
BALANCE, March 31, 2021 |
— | — | — | — | — | — | — | — | $ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||||||||||||||||||||||||||
Reclassification of stockholders’ convertible notes payable |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Reclassification of redeemable convertible preferred stock warrant liability |
— | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Business Combination, net of redemptions and equity issuance costs of $ |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Reclassification of equity to liability related to earn out provisions of Business Combination (see note 13) |
— | — | — | — | — | — | — | — | — | — | ( |
) | — | — | ( |
) | ||||||||||||||||||||||||||||||||||||||||
Stock-based compensation |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Net income |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
— | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
BALANCE, June 30, 2021 |
— | — | — | — | — | — | — | — | $ | $ | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
ORIGIN MATERIALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, |
||||||||
| (in thousands) | 2021 |
2020 |
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Cash flows from operating activities |
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Net income (loss) |
$ | $ | ( |
) | ||||
Adjustments to reconcile net loss to net cash from operating activities: |
||||||||
Depreciation and amortization |
||||||||
Stock-based compensation |
||||||||
Amortization of debt issuance costs |
||||||||
Accretion of debt discount |
||||||||
Change in fair value of derivative liability |
( |
) | ||||||
Change in fair value of warrants liability |
||||||||
Change in fair value of earnout liability |
( |
) | — | |||||
Changes in operating assets and liabilities: |
||||||||
Other receivables |
( |
) | ||||||
Grants receivable |
( |
) | ||||||
Prepaid expenses and other current assets |
( |
) | ||||||
Accounts payable |
( |
) | ( |
) | ||||
Accrued expenses |
||||||||
Related party payable |
— | |||||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash flows from investing activities |
||||||||
Purchases of property, plant, and equipment, net of grants |
( |
) | ( |
) | ||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
Cash flows from financing activities |
||||||||
Proceeds from notes payable, net of debt issuance costs |
||||||||
Payment of short-term debt |
( |
) | — | |||||
Proceeds from Canadian Government Research and Development Program |
||||||||
Issuance of common stock |
||||||||
Business combination, net of issuance costs paid |
— | |||||||
Net cash provided by financing activities |
||||||||
Effects of foreign exchange rate changes on the balance of cash and cash equivalents, and restricted cash held in foreign currencies |
( |
) | ||||||
Net increase (decrease) in cash and cash equivalents, and restricted cash |
( |
) | ||||||
Cash and cash equivalents, and restricted cash, beginning of the period |
||||||||
Cash and cash equivalents, and restricted cash, end of the period |
$ | $ | ||||||
Supplemental disclosure of cash flow information |
||||||||
Conversion of stockholder convertible notes payable to common stock |
$ | $ | — | |||||
Reclassification of redeemable convertible preferred stock warrants to common stock |
$ | $ | — | |||||
Reclassification of contingently issued equity to liability |
$ | $ | — | |||||
Net assets assumed from business combination |
$ | $ | — | |||||
Debt discount related to derivative liability |
$ | $ | — | |||||
Business combination transaction costs, accrued but not paid |
$ | $ | — | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
ORIGIN MATERIALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. |
Organization and Business |
Unless the context otherwise requires, references in these notes to “Origin”, “the Company”, “we”, “us” and “our” and any related terms are intended to mean the post-Business Combination Origin Materials, Inc. and its consolidated subsidiaries.
The Company’s mission to help enable the world’s transition to sustainable materials by replacing petroleum-based materials with decarbonized materials in a wide range of end products, such as food and beverage packaging, clothing, textiles, plastics, car parts, carpeting, tires, adhesives, soil amendments and more. The Company’s technology converts sustainable feedstocks, such as sustainably harvested wood, agricultural waste, wood waste and corrugated cardboard, into materials and products that are currently made from fossil feedstocks, such as petroleum and natural gas. The Company’s products are intended to compete directly with petroleum-derived products on both performance and price, as well as provide a significant unit cost advantage over products made from other
low-carbon
feedstocks. The Company is currently developing and constructing its first manufacturing plant in Ontario, Canada (Origin 1), which is expected to become operational by 2022. The Company is also currently in the planning phase for the construction of a significantly larger manufacturing plant (Origin 2), with which is expected to become operational in 2025.
On June 25, 2021 (the “Closing Date”), Artius Acquisition Inc. (“Artius”), a special purpose acquisition company, consummated the Merger Agreement and other Related Agreements (the “Merger Agreement”) dated February 16, 2021, by and among Artius, Zero Carbon Merger Sub Inc., a Delaware corporation and a wholly owned subsidiary of Artius (“Merger Sub”), and Micromidas, Inc. a Delaware corporation (“Legacy Origin”).
Pursuant to the terms of the Merger Agreement, a business combination between Artius and Legacy Origin was effected through the merger of Merger Sub with and into Legacy Origin, with Legacy Origin surviving as the surviving company and as a wholly-owned subsidiary of Artius (the “Merger” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). On the Closing Date, Artius changed its name to Origin Materials Inc. (collectively with its subsidiaries, the “Company”).
For additional information on the Business Combination, please refer to Note 4, , to these condensed consolidated financial statements.
Business Combination
Beginning in March 2020, the
COVID-19
pandemic and the measures imposed to contain this pandemic have disrupted and are expected to continue to impact the Company’s business. The magnitude of the impact of the COVID-19
pandemic on the Company’s productivity, results of operations and financial position, and its disruption to the Company’s business and battery development and timeline, will depend in part, on the length and severity of these restrictions and on the Company’s ability to conduct business in the ordinary course. 2. |
Risks and Liquidity |
Prior to the Business Combination, the Company primarily financed its operations through the sale of convertible preferred stock, borrowings under convertible promissory notes and borrowings under loan agreements. The Company now believes that the Business Combination has provided substantial liquidity and that its $471 million of cash and cash equivalents and restricted cash will enable it to fund its planned operations for at least twelve months from the issuance date of these condensed consolidated financial statements.
8
3. |
Summary of Significant Accounting Policies |
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and pursuant to the regulations of the U.S. Securities and Exchange Commission (“SEC”).
Pursuant to the Merger Agreement, the merger between Merger Sub and Legacy Origin was accounted for as a reverse recapitalization in accordance with U.S. GAAP (the “Reverse Recapitalization”). Under this method of accounting, Artius was treated as the “acquired” company and Legacy Origin is treated as the acquirer for financial reporting purposes.
Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Legacy Origin issuing stock for the net assets of Artius, accompanied by a recapitalization. The net assets of Artius are stated at historical cost, with no goodwill or other intangible assets recorded.
Legacy Origin was determined to be the accounting acquirer based on the following predominant factors:
| • | the Company’s Board of Directors (the “Board”) and management are primarily composed of individuals associated with Legacy Origin; |
| • | Legacy Origin’s senior management comprise the senior management roles of the Company and are responsible for the day-to-day |
| • | the Company assume the “doing business as” name of the Legacy Origin; and |
| • | The intended strategy and operations of the Company continue Legacy Origin’s current strategy and operations as a carbon negative materials company with a mission to enable the world’s transition to sustainable materials. |
The consolidated assets, liabilities and results of operations prior to the Reverse Recapitalization are those of Legacy Origin. The shares and corresponding capital amounts and losses per share, prior to the Business Combination, have been retroactively restated based on shares reflecting the Exchange Ratio (as defined below) established in the Business Combination.
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements as well as reported amounts of expenses during the reporting periods. Estimates made by the Company include, but are not limited to, those related to the valuation of common stock prior to the Business Combination, valuation of convertible preferred stock warrants, and valuation of convertible preferred stock tranche liabilities, carrying amount and useful lives of property and equipment and intangible assets, impairment assessments, stock-based compensation expense, among others. The Company bases these estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from those estimates.
9
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying interim condensed consolidated balance sheet as of June 30, 2021, the interim condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity, the interim condensed consolidated statements of operations and comprehensive loss, and the interim condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in management’s opinion, include all adjustments consisting of only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of June 30, 2021 and its results of operations and cash flows for the six months ended June 30, 2021 and 2020. The financial data and the other financial information disclosed in the notes to these condensed consolidated financial statements related to the
six-month
periods are also unaudited. The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full fiscal year or any other period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Legacy Origin’s audited financial statements and notes thereto for the year ended December 31, 2020 included the Company’s Form
8-K/A
as filed with the SEC on July 1, 2021. Principles of Consolidation
The unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable rules and regulations of the SEC and include the accounts of the Company and its wholly-owned subsidiaries, Micromidas Pioneer, LLC, Origin Materials Canada Holding Limited, Origin Materials Canada Polyesters Limited, Origin Material Canada Pioneer Limited, and Origin Materials Canada Research Limited. All intercompany accounts and transactions have been eliminated in consolidation.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company maintains its cash and cash equivalents accounts with a financial institution where, at times, deposits exceed federal insurance limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on these deposits.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an initial maturity of three months or less at the date of purchase to be cash equivalents. The Company maintains such funds in cash deposits and money market accounts.
Restricted cash consists of cash held in a control account as collateral for the Company’s credit card services, escrow services, and standby letter of credit. These restricted cash balances have been excluded from cash and cash equivalents balance and are included within other current assets in the condensed consolidated balance sheets based on the respective maturity dates.
In October 2019, the Company entered into an escrow agreement for $1.3 million, whereby the funds would be used for construction and transportation services in connection with Origin 1. At June 30, 2021 and December 31, 2020, the escrow account had a balance of $0.3
10
Cash, cash equivalents, and restricted cash consisted of the following (in thousands):
June 30, 2021 |
December 31, 2020 |
|||||||
Cash and cash equivalents |
$ | $ |
$ | |||||
Restricted cash |
||||||||
Total cash, cash equivalents, and restricted cash |
||||||||
Fair Value of Financial Instruments
The Company applies the fair value measurement accounting standard whenever other accounting pronouncements require or permit fair value measurements. Fair value is defined in the accounting standard 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 under current accounting guidance prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (Level 1, Level 2, and Level 3).
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk) in a principal market.
The carrying amounts of working capital balances approximate their fair values due to the short maturity of these items. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest rate, currency, or credit risks arising from its financial instruments. The fair value of debt approximates its carrying value based on prevailing market rates.
The fair values of the assumed common stock warrants which are publicly traded are level 1 inputs. The fair value of the assumed common stock warrants which are not publicly traded are level 2 inputs. The earnout liability, derivative liability and redeemable convertible preferred stock warrant liability were estimated using Level 3 inputs.
Other Receivables
Other receivables consist of amounts due from foreign governmental entities related to the Canadian harmonized sales tax (HST) and goods and services tax (GST) for goods and services transacted in Canada.
11
AgriScience Grant
In January 2019, the Company entered into an agreement in which it will participate in the AgriScience Program Cluster Component grant through the Canadian Agricultural Partnership, whereby the Company will receive reimbursements for eligible expenditures up to approximately $2.7 million Canadian dollars through March 2022. Grants are received through reimbursements from the Canadian government and recognized, upon completion of scope of services on a quarterly basis. Grants are recognized as a reduction of property, plant, and equipment or expense based on the nature of the cost the grant is reimbursing. During the six months ended June 30, 2021 and 2020 the Company received $0.1 million and $0.1 million in grants, recorded in other income, net on the consolidated statements of operations and comprehensive loss.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost and depreciated or amortized using the straight-line method over the estimated useful lives of the respective assets. Existing useful lives range from to five years . Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the lease term. Major additions and improvements are capitalized, while replacements, repairs, and maintenance that do not extend the life of an asset are charged to operations. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation or amortization are removed from the accounts. Construction in progress relates to costs capitalized in conjunction with major improvements that have not yet been placed in service, and accordingly are not currently being depreciated. The Company capitalizes interest cost incurred on funds used to construct property, plant and equipment. The estimated useful lives of assets are as follows:
| Computer Equipment | ||
| Office Furniture | ||
| Machinery and Equipment | ||
| Leasehold Improvements |
Intangible Assets
Intangible assets are recorded at cost and are amortized using the straight-line method over the estimated useful lives of the respective assets, ranging from 7 to 15 years. The cost of servicing the Company’s patents is expensed as incurred. Upon retirement or sale, the cost of intangible assets is disposed of and the related accumulated amortization is removed from the accounts.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including property, equipment, software and intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If indicators of impairment exist, management identifies the asset group which includes the potentially impaired long-lived asset, at the lowest level at which there are separate, identifiable cash flows. If the total of the expected undiscounted future net cash flows for the asset group is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying amount of the asset. For the six months period ended June 30, 2021 and 2020, no
Government Loans
Government loans are classified as a noncurrent liability and recorded at amortized cost. Forgiveness of the balances due is recorded through earnings and occurs when there is confirmation from the governmental authority that the Company has complied with the conditions for forgiveness attached to the loan.
12
Debt Issuance Costs
The costs incurred in connection with the issuance of debt obligations, principally financing and legal costs, are capitalized. These costs are accreted over the term of the debt using the interest method. During the six months ended June 30, 2021 and 2020, accretion expense for debt issuance cost was $2.4 million and $0 million, respectively.
Redeemable Convertible Preferred Stock Warrants Liability
Free-standing warrants issued by Legacy Origin for the purchase of shares of its convertible preferred stock were classified as liabilities on the accompanying balance sheets at fair value using an Option-Pricing Model (“OPM”). Prior to the Business Combination, the liability recorded was adjusted for changes in the fair value at each reporting date and recorded as interest expense in the accompanying unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss. As a result of the Business Combination, the Legacy Origin warrants each converted into a warrant to purchase shares of the Company’s Common Stock converted at the Exchange Ratio. The fair value of the warrants upon consummation of the Business Combination (see Note 4), as adjusted based on the price of the underlying Common Stock, was reclassified to additional
paid-in
capital. Assumed Common Stock Warrants Liability
The Company assumed 24,150,000 public warrants (the “Public Warrants”) and 11,326,667 private placement warrants (the “Private Placement Warrants”, and the Public Warrants together with the Private Placement Warrants, the “Assumed Common Stock Warrants”) upon the Business Combination, all of which were issued in connection with initial public offering and entitle each holder to purchase one share of Class A Common Stock at an exercise price of at $11.50 per share. As of June 30, 2021, 24,150,000 Public Warrants and 11,326,667 Private Placement Warrants are outstanding. The Public Warrants are publicly traded and are exercisable for cash unless certain conditions occur, such as the failure to have an effective registration statement related to the shares issuable upon exercise or redemption by the Company under certain conditions, at which time the warrants may be cashless exercised. The Private Placement Warrants are transferable, assignable or salable in certain limited exceptions. The Private Placement Warrants are exercisable for cash or on a cashless basis, at the holder’s option, and are
Artius’
non-redeemable
so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will cease to be Private Placement Warrants, and become Public Warrants and be redeemable by the Company and exercisable by such holders on the same basis as the other Public Warrants. The Company evaluated the Assumed Common Stock Warrants under ASC , and concluded they do not meet the criteria to be classified in stockholders’ equity. Specifically, the exercise of the Assumed Common Stock Warrants may be settled in cash upon the occurrence of a tender offer or exchange that involves 50 % or more of our Class A stockholders. Because not all of the voting stockholders need to participate in such tender offer or exchange to trigger the potential cash settlement and the Company does not control the occurrence of such an event, the Company concluded that the Assumed Common Stock Warrants do not meet the conditions to be classified in equity. Since the Assumed Common Stock Warrants meet the definition of a derivative under ASC 815, the Company recorded these warrants as liabilities on the Condensed Consolidated Balance Sheets at fair value, with subsequent changes in their respective fair values recognized in the change in fair value of Assumed Common Stock Warrant liabilities within the Consolidated Statement of Operations and Comprehensive Loss at each reporting date. The Public Warrants were publicly traded and thus had an observable market price to estimate fair value, and the Private Placement Warrants were effectively valued similar to the Public Warrants, as described in Note 5.
815-40,
Derivatives and Hedging-Contracts in Entity’s Own Equity (“ASC
815-40”)
13
Earnout Liability
The Company has recorded an earnout liability related to future contingent equity shares related to the Business Combination (Note 13). The Company recorded these instruments as liabilities on the condensed consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in earnings at each reporting date.
Research and Development Cost
Costs related to research and development are expensed as incurred.
Stock-Based Compensation
The Company has issued common stock options under two equity incentive plans. The Company estimates the calculated value of stock options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
Assumptions used to value the equity instruments are as follows:
| • | Expected term |
| • | Expected volatility |
| • | Expected dividend |
| • | Forfeiture |
| • | Risk-free interest rate zero-coupon issues with the same or substantially equivalent remaining term. |
Income Taxes
Deferred income taxes are determined using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred income tax asset is considered to be unlikely.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters as a component of income tax expense.
14
Functional Currency Translation
The functional currency of the Company’s wholly-owned subsidiaries is the Canadian dollar, whereby their assets and liabilities are translated at
period-end
exchange rates except for nonmonetary capital transactions and balances, which are translated at historical rates. All income and expense amounts of the Company are translated at average exchange rates for the respective period. Translation gains and losses are not included in determining net loss but are accumulated in a separate component of stockholders’ equity. Foreign currency transaction gains and losses are included in the determination of net loss in the period in which they occur. These amounts are included in other income, net, of the unaudited consolidated statements of operations and comprehensive loss. Comprehensive Loss
The Company’s comprehensive income or loss consists of net income or loss and other comprehensive loss. Foreign currency translation gains and losses are included in the Company’s other comprehensive income or loss.
Basic and Diluted Net Loss Per Share
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For the purposes of the diluted net loss per share calculation, the convertible preferred stock, common stock options, convertible preferred stock warrants, common stock warrants, convertible notes, earnout shares, and sponsor vesting shares are considered to be potentially dilutive securities. Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the
two-class
method required for participating securities. The two-class
method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. All series of the Company’s convertible preferred stock are considered to be participating securities because, in addition to cumulative dividends, all holders are entitled to receive a non-cumulative
dividend on a pari passu basis in the event that a dividend is paid on the common stock. The two-class
method requires loss available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in undistributed earnings as if all loss for the period had been distributed. The holders of the convertible preferred stock do not have a contractual obligation to share in the Company’s losses. Accordingly, the Company’s net loss is attributed entirely to common stockholders. Since the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods. Reclassifications
Certain amounts in prior periods have been reclassified to conform with the report classifications of the three months and six months ended June 30, 2021, noting the Company has reflected the reverse recapitalization pursuant to the Business Combination for all periods presented within the unaudited condensed consolidated balance sheets and condensed consolidated statements of redeemable convertible preferred stock and stockholders’ equity.
15
Segment Reporting
The Company operates in a segment. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its
Co-Chief
Executive Officers are the CODM. To date, the Company’s CODM has made such decisions and assessed performance at the Company level. As of June 30, 2021 and December 31, 2020, the Company had $48.8 million and $45.4 million, respectively, of assets located outside of the United States.
Emerging Growth Company Status
Following the closing of the Business Combination, the Company is an “emerging growth company” (“EGC”), as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. The Company may take advantage of these exemptions until it is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to avail itself of the extended transition period and, therefore, while the Company is an EGC it will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs, unless it chooses to early adopt a new or revised accounting standard. As a result of this election, the condensed consolidated financial statements may not be comparable to companies that comply with public company FASB standards’ effective dates. We will no longer qualify as an emerging growth company for Securities Act or Exchange Act reporting after December 31, 2021.
4. |
Business Combination |
On June 25, 2021, Legacy Origin and Artius completed the Business Combination pursuant to the Merger Agreement with Legacy Origin (Micromidas, Inc.) surviving the merger as a wholly owned subsidiary of Artius, which became Origin Materials, Inc. Cash proceeds from the Business Combination totaled approximately $385.4 million, which included funds held in Artius’s trust account and the completion of the concurrent PIPE and Backstop Financing.
In accordance with the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, (i) all shares of Legacy Origin’s Series A, Series B, and Series C Preferred Stock, and Common Stock (collectively, “Legacy Origin Stock”) issued and outstanding immediately prior to the effective time of the Merger were converted into the right to receive their pro rata portion of shares of Company Common Stock (the “Common Stock”) issued as Merger consideration (the “Merger Consideration”); (ii) holders of Legacy Origin’s Convertible Notes Payable, plus accrued interest also received shares of Company common stock; (iii) each option exercisable for Legacy Origin Stock that was outstanding immediately prior to effective time of the Merger was assumed and continues in full force and effect on the same terms and conditions as were previously applicable to such options, subject to adjustments to exercise price and number of shares Common Stock issuable upon exercise based on the final conversion ratio calculated in accordance with the Merger Agreement. Additionally, as part of the consideration transferred, stockholders of Legacy Origin and Artius were given the right to additional shares in the Company. These shares vest to the holder upon the share price of the Company reaching certain targets over a future period (“Earnout Shares”, see Note 13).
The Company accounted for the Business Combination as a reverse recapitalization, which is the equivalent of Legacy Origin issuing stock for the net assets of Artius, accompanied by a recapitalization, with Artius treated as the acquired company for accounting purposes. The determination of Artius as the “acquired” company for accounting purposes was primarily based on the fact that subsequent to the Business Combination, Legacy Origin will comprise all of the ongoing operations of the combined entity, a majority of the governing body of the combined company and Legacy Origin’s senior management will comprise all of the senior management of the combined company. The net assets of Artius were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Legacy Origin. The shares and corresponding capital amounts and loss per share related to Legacy Origin’s outstanding convertible preferred stock and common stock prior to the Business Combination have been retroactively restated to reflect the conversion ratio established in the Merger Agreement
(1.00 Legacy Origin share for approximately 2.11 shares of New Origin , the “Conversion Ratio”)
. 16
In connection with the Business Combination, the Company incurred underwriting fees and other costs considered direct and incremental to the transaction totaling $36.7 million, consisting of legal, accounting, financial advisory and other professional fees. These amounts are reflected within additional
paid-in
capital in the condensed consolidated balance sheet as of June 30, 2021. PIPE Financing
Concurrent with the execution of the Business Combination, the Company entered into subscription agreements with certain investors (the “PIPE Investors”) pursuant to which the PIPE Investors subscribed for and purchased an aggregate of 20,000,000 shares of Common Stock for an aggregate purchase price of $200 million.
Backstop Agreement
Concurrent with the execution of the Business Combination, the Company entered into various subscription agreements (the “Subscription Agreements”) with certain current shareholders of the Company or their affiliates (collectively, the “Subscribers”), pursuant to which the Subscribers agreed, subject to certain conditions in the Subscription Agreements, to purchase an aggregate amount of 4,300,001 shares of common stock of the Company, par value $0.0001 per share (the “Subscription Shares”), at $10.00 per share.
Summary of Net Proceeds
The following table summarizes the elements of the net proceeds from the Business Combination as of June 30, 2021 (in thousands):
Cash—Trust Account (net of redemptions of $ |
$ | |||
Cash |
||||
Cash—PIPE & Backstop Financing |
||||
Non-cash net assets assumed from Artius |
||||
Less: Fair value of assumed common stock warrants |
( |
) | ||
Less: Underwriting fees and other issuance costs paid prior to June 30, 2021 |
( |
) | ||
Additional Paid-in-Capital from Business Combination, net of issuance costs paid |
$ | |||
Less: Non-cash net assets assumed from Artius |
( |
) | ||
Add: Non-cash fair value of assumed common stock warrants |
||||
Add: Other issuance costs included in accounts payable and accrued liabilities |
||||
Less: Accrued liabilities extinguished through proceeds from Business Combination |
( |
) | ||
Cash proceeds from the Business Combination |
$ | |||
17
Summary of Shares Issued
The following table summarizes the number of shares of Common Stock outstanding immediately following the consummation of the Business Combination:
Artius shares outstanding prior to the Business Combination, excluding |
||||
Less: redemption of Artius shares |
||||
Shares issued pursuant to the PIPE and Backstop Financing |
||||
Business Combination and PIPE Financing shares, excluding |
||||
Conversion of Legacy Origin Series A preferred stock for common stock |
||||
Conversion of Legacy Origin Series B preferred stock for common stock |
||||
Conversion of Legacy Origin Series C preferred stock for common stock |
||||
Conversion of Legacy Origin convertible notes for common stock |
||||
Conversion of Legacy Origin common stock for common stock |
||||
Issuance of common stock upon exercise of warrants |
||||
Total shares of New Origin common stock outstanding immediately following the Business Combination |
||||
The 4,500,000 of Sponsor Vesting Shares (Note 13) are not issued shares and are not included in the table, above.
5. |
Recent Accounting Pronouncements |
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU loss limitation in interim-period tax accounting. The Company early adopted the new standard as of January 1, 2021. The adoption of the standard had no material impact on the Company’s financial results.
2019-12,
Income Taxes (Topic 740), to simplify the accounting for income taxes. The new guidance changes various subtopics of accounting for income taxes including, but not limited to, accounting for “hybrid” tax regimes, tax basis step-up
in goodwill obtained in a transaction that is not a business combination, intraperiod tax allocation exception to incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax law, and year-to-date
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU , as amended, with guidance regarding the accounting for and disclosure of leases. This update requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheets. This update also requires lessees and lessors to disclose key information about their leasing transactions. This guidance will become effective for the Company for the current annual reporting period ending December 31, 2021 and interim periods thereafter. The Company is currently evaluating the impact of this standard on its unaudited consolidated financial statements.
2016-02,
Leases (Topic 842)
In June 2016, the FASB issued ASU , which requires a financial asset (or a group of financial assets) measured on the basis of amortized cost to be presented at the net amount expected to be collected. This ASU requires that the income statement reflect the measurement of credit losses for newly recognized financial assets as well as the increases or decreases of expected credit losses that have taken place during the period. This ASU requires that credit losses of debt securities designated as be recorded through an allowance for credit losses and limits the credit loss to the amount by which fair value is below amortized cost. This guidance will become effective for the Company for the current annual reporting period ending December 31, 2021 and interim periods thereafter. The Company is currently evaluating the impact of this standard on its unaudited consolidated financial statements.
2016-13,
Measurement of Credit Losses on Financial Instruments
available-for-sale
18
In August 2020, the FASB issued ASU , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The guidance is effective for fiscal years beginning on or after December 15, 2021, with early adoption permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of the guidance on its unaudited consolidated financial statements.
2020-06,
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity
In March 2020, the Financial Accounting Standards Board issued ASU , which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (“LIBOR”). The guidance provides certain expedients and exceptions to applying U.S. GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. The provisions of the new standard may be adopted as of the beginning of the reporting period when the election is made until December 31, 2022. The Company is evaluating the impact this ASU will have on its financial position, results of operations, cash flows, and disclosures. The Company has not elected an adoption date.
No. 2020-04,
Reference Rate Reform
6. |
Fair Value Measurement |
The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (amounts in thousands):
Fair Value as of June 30, 2021 |
||||||||||||||||
(in thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Assets: |
||||||||||||||||
Money market funds in cash and cash equivalents |
$ | $ | — | $ | — | $ | ||||||||||
Total fair value |
$ | $ | $ | $ | ||||||||||||
Liabilities: |
||||||||||||||||
Assumed common stock warrants (Public) |
$ | $ | — | $ | — | $ | ||||||||||
Assumed common stock warrants (Private Placement) |
— | — | ||||||||||||||
Earnout liability |
— | — | ||||||||||||||
Total fair value |
$ | $ | $ | $ | ||||||||||||
19
Fair Value as of December 31, 2020 |
||||||||||||||||
(in thousands) |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Assets: |
||||||||||||||||
Money market funds in cash and cash equivalents |
$ | $ | — | $ | — | $ | ||||||||||
Total fair value |
$ | $ | — | $ | — | $ | ||||||||||
Liabilities: |
||||||||||||||||
Redeemable convertible preferred stock warrants liability |
$ | — | $ | — | $ | $ | ||||||||||
Derivative liability |
— | — | ||||||||||||||
| $ | — | $ | — | $ | $ | |||||||||||
The Company performs routine procedures such as comparing prices obtained from independent sources to ensure that appropriate fair values are recorded. Because the transfer of Private Placement Warrants to anyone outside of certain permitted transferees of Artius Acquisition Partners LLC (the “Sponsor”) would result in the Private Placement Warrants having substantially the same terms as the Public Warrants, the Company determined that the fair value of each Private Placement Warrant is consistent with that of a Public Warrant. Accordingly, the Private Placement Warrants are classified as Level 2 financial instruments.
The value of the redeemable convertible preferred stock warrants liability and the derivative liability are classified as Level 3 measurements under the fair value hierarchy, as these liabilities have been valued based on significant inputs not observable in the market.
As of June 30, 2021 and December 31, 2020, the carrying values of cash and cash equivalents, accounts payable and accrued liabilities approximate their respective fair values due to their short-term nature.
Redeemable Convertible Preferred Stock Warrant Liability
In connection with the issuance of Series A preferred stock during 2012, the Company issued preferred stock warrants to purchase 1,000,000 shares of Series A preferred stock at an exercise price of $2.7233 per share. These warrants were initially exercisable any time within 10 years of issuance. In November 2019, as part of the Bridge Notes issuance (see Note 11), these Series A preferred stock warrants had their contractual exercise period extended 10 years to October 2032 .
In connection with the issuance of Series A preferred stock during 2015, the Company issued preferred stock warrants to purchase 1,134,653 shares of Series A preferred stock at an exercise price of $2.7233 per share. These warrants were initially exercisable any time within 10 years of issuance. In November 2019, as part of the Bridge Notes issuance (see Note 11), these Series A preferred stock warrants had their contractual exercise period extended 10 years to October 2035 .
In connection with the issuance of Series A preferred stock during April 2016, the Company issued a preferred stock warrant to purchase 122,400 shares of Series A preferred stock at an exercise price of $2.7233 per share. This warrant is exercisable and expires in April 2036 .
In connection with the issuance of convertible promissory notes in 2016, the Company in 2016 and 2017 issued preferred stock warrants to purchase 331,927 and 35,412 shares, respectively, of Series B preferred stock at an exercise price of $7.486 July 2026 and June 2036 through January 2037 .
20
At December 31, 2020, the fair value of the preferred stock warrants was determined using the probability-weighted expected return method which estimates the fair value of the warrants through an analysis of future values for the Company, assuming various future outcomes. A Black-Scholes option pricing model (BSM) is utilized in this method, to the extent necessary, based on current conditions. At December 31, 2020, due to the increasing likelihood of the merger, the BSM was not necessary to execute the model. A summary of key assumptions in the BSM for determining the fair value of redeemable convertible preferred stock warrants include:
December 31, 2020 |
||||
Expected life (years) |
||||
Risk-free interest rate |
% | |||
Expected volatility |
% | |||
Dividend yield |
% | |||
The preferred stock warrants were reclassified to equity through the closing of the business combination (see Note 4).
Derivative Liability
The Company evaluated the stockholder convertible notes payable in accordance with ASC 815 Derivatives and Hedging and determined that the embedded components of these contracts qualify as a derivative to be separately accounted for as a liability. The Company records the fair value of the embedded components in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivatives was calculated using a model that estimated the value that would be paid to transfer the liability in an orderly transaction between market participants at the measurement date. The fair value of the derivative liabilities is revalued on each balance sheet date with a corresponding gain or loss recorded in the consolidated statement of operations.
The following table sets forth a summary of the activities of the Company’s redeemable convertible preferred stock warrant liability and derivative liability, which represents a recurring measurement that is classified within Level 3 of the fair value hierarchy wherein fair value is estimated using significant unobservable inputs:
Three Months Ended June 30, |
||||||||
| (in thousands) | 2021 |
2020 |
||||||
Beginning warrant liability balance |
$ | $ | ||||||
Change in fair value |
( |
) | ||||||
Reclassification to APIC upon recapitalization |
( |
) | — | |||||
Ending warrant liability balance |
$ | — | $ | |||||
Three Months Ended March 31, |
||||||||
| (in thousands) | 2021 |
2020 |
||||||
Beginning derivative liability balance |
$ | $ | ||||||
Change in fair value |
( |
) | ( |
) | ||||
Ending derivative liability balance |
$ | — | $ | |||||
21
7. |
Property, Plant and Equipment |
Property, plant, and equipment consisted of the following:
June 30, 2021 |
December 31, 2020 |
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Land |
$ | $ | ||||||
Pilot plant |
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Lab equipment |
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Machinery and equipment |
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Computer and other equipment |
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Construction in process |
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Less accumulated depreciation and amortization |
( |
) | ( |
) | ||||
Total property, plant, and equipment, net |
$ | $ | ||||||
For the three months ended June 30, 2021 and 2020, depreciation expense totaled $0.1
At June 30, 2021 and December 31, 2020, the Company capitalized $0.8 million and $0.7 million, respectively, of interest cost into Origin 1. At June 30, 2021 and December 31, 2020 a cumulative translation adjustment of $0.7 million and $0.9 million, respectively, is included in total property, plant, and equipment as a result of foreign currency transaction gains and losses.
8. |
Intangible Assets |
Intangible assets consisted of the following:
June 30, 2021 |
December 31, 2020 |
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Patents |
$ | $ | ||||||
Less accumulated amortization |
( |
) | ( |
) | ||||
| $ | $ | |||||||
The weighted average useful life of the intangible assets was 9.87 years. For the three months ended June 30, 2021 and 2020, amortization expense was $14,189 and $5,222 , respectively.
9. |
Consortium Agreement |
In December 2016, the Company entered into a consortium agreement with two Legacy Origin Series B preferred stock investors to collaborate on development of a process to commercialize 500,000 . The agreement expires once performance of the research and development program has been completed.
bio-based,
decarbonizing materials for application on an industrial scale at a competitive price. Under the consortium agreement, the Company received $In August 2018, the agreement was amended, whereby a Legacy Origin Series C preferred stock investor (the “Legacy Origin Series C Investor”, and collectively with the two Legacy Origin Series B investors, the “Legacy Origin Investors”) was added to the agreement and committed to invest $1,500,000 of research and development in the consortium. As of June 30, 2021, the Legacy Origin Series C Investor had not invested any funds in the consortium.
In 2020 an additional counterparty, that is an unrelated party, was added to the consortium agreement. During three months ended June 30, 2021 and 2020, the Company received $0 and $0.1 million, respectively, under the consortium agreement which was recorded as other income, net in the consolidated statement of operations and comprehensive loss.
22
10. |
Offtake Arrangements |
The Company maintains four separate offtake supply agreements (the “Offtake Agreements”). All are with stockholders or affiliates of stockholders. Pursuant to the Offtake Agreements, the Company will construct manufacturing plants with specific capacity and product quality requirements within certain timeframes for the manufacture of product for sale to the counterparties to the agreements, and the counterparties will make minimum annual purchases at a set price, subject to adjustments, all as defined in the agreements.
The Offtake Agreements allow the customers to terminate the agreements if specified construction and product delivery requirements are not satisfied. For example, under two of these agreements, if Origin 1 has not commenced commercial operation by December 31, 2021 or Origin has not delivered specified product volume from Origin 1 by September 30, 2022, then the customer may terminate the agreement and any outstanding secured promissory notes resulting from advance payments made to Origin will become due immediately (see Note 11). These outstanding obligations, together with accrued interest, totaled an aggregate of $10.8 million and $10.7 million as of June 30, 2021 and December 31, 2020 respectively (see Notes 11 and 12). These agreements also require the Company to pay liquidated damages up to an aggregate of $0.9 million if Origin 1 has not commenced commercial operation by December 31, 2020 or the Company has not delivered specified product volume from Origin 1 by September 30, 2021. In September 2020, the counterparties to these agreements agreed to waive compliance with the milestones and their right to liquidated damages until June 30, 2021, in order to facilitate the negotiation of amendments to the agreements, including the milestone achievement dates. In June 2021, one of the counterparties agreed to further extend this deadline through September 30, 2021. A third offtake agreement is terminable by the customer if commercial operation or delivery of product from Origin 1 has not occurred by December 31, 2022.
The Company believes enforcement of the liquidated damages provisions was not probable and expects to secure amendments to these offtake agreements pursuant to its ongoing discussions with these customers. However, the Company cannot guarantee that it will be successful in amending these offtake agreements.
One of the Offtake Agreements provides the counterparty the option, exercisable within one year of the first delivery of product from Origin 1, to enter into a contract to purchase a range of quantities of product from Origin 2 for a maximum term of 10 years. If the option is exercised and the Company directly or indirectly constructs Origin 2, the Company must either enter into an agreement with the counterparty within 90 days or pay a fee. The are no impacts to these unaudited condensed consolidated financial statements from this stipulation.
11. |
Debt |
PPP Loan
In April 2020, the Company executed a promissory note (the “PPP Note”) evidencing an unsecured loan in the amount of $0.9 million under the Paycheck Protection Program (the “PPP Loan”). The Paycheck Protection Program (or “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 (“SBA”). The Loan has been made through First Republic Bank (the “Lender”).
The PPP Loan has a two-year term and bears interest at a rate of 1.00 % per annum, accruing upon funding. Unless the PPP Loan is forgiven, the Company will be required to make monthly payments of principal and interest to the Lender. The Company does not intend to seek forgiveness of the PPP loan.
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The PPP Note contains customary events of default relating to, among other things, payment defaults, providing materially false and misleading representations to the SBA or Lender, or breaching the terms of the PPP Loan documents. The occurrence of an event of default may result in the immediate repayment of all amounts outstanding, collection of all amounts owing from the Company, or filing suit and obtaining judgment.
Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for payment of payroll costs and any payments of mortgage interest, rent, and utilities. However, no assurance is provided that forgiveness for any portion of the PPP Loan will be obtained.
The PPP Loan was paid in full during the 3 months ended June 30, 2021.
Stockholder Convertible Notes Payable
In November 2019, the Company entered into secured convertible note agreements (“Bridge Notes”) with certain Legacy Origin preferred stockholders, whereby the Company can borrow up to $6 million. The Bridge Notes bear an annual interest rate of 10 % and mature on March 31, 2021 , unless converted. If the Company issues shares of a new series of preferred stock prior to maturity, the outstanding principal and unpaid accrued interest will convert at 70 % of the per share price of the new series of preferred stock. Upon a liquidation event, as defined in the agreements, the Company will repay purchasers in cash an amount equal to 200 % of the outstanding principal amount plus the outstanding principal and accrued interest. The Bridge Notes are collateralized by substantially all of the Company’s assets. At December 31, 2020, there was $3.3 million, outstanding on the Bridge Notes. The conversion and liquidation features were deemed to be derivatives under ASC 815 (see Note 6) and separately measured and recognized from the Bridge Notes through a debt discount.
In January of 2021, the Company amended the Bridge Notes to extend the maturity date from March 31, 2021 to September 30, 2021 . The amendment also added a SPAC transaction to the conversion provision such that the Bridge Notes convert if the Company issues at least $50 million of shares of a new series of preferred stock or closes a SPAC transaction (each a “Qualified Financing”) prior to maturity. In a Qualified Financing that is a preferred stock issuance, the notes convert at 70% of the cash price paid per share for the preferred shares. In a Qualified Financing that is a SPAC transaction, the notes convert at the lesser of (i) 70% of the per share value attributed to the shares of the Company’s common stock as set forth in the Merger Agreement or (ii) the per share value that would be attributed to the Company’s common stock assuming a 700 million. These notes fully converted into New Origin common stock upon consummation of the business combination (see Note 4).
pre-transaction
valuation of the Company in connection with the SPAC transaction of $In February of 2021 the Company issued $10 million of new, unsecured convertible notes (the “Convertible Notes”). The Convertible Notes bear an annual interest rate of 8 % and mature on September 30, 2021 , unless converted. If the Company issues at least $50 million worth of shares of a new series of preferred stock prior to maturity or closes a SPAC transaction (each a “Qualified Financing”), the outstanding principal and unpaid accrued interest will convert at 80% of the per share price of the new series of preferred stock or, in the case of a SPAC transaction, at 80% of the per share value attributed to the shares of the Company’s common stock as set forth in the Merger Agreement. Upon a Change of Control (other than a Qualified Financing), as defined in the Convertible Notes, the Company will repay purchasers in cash an amount equal to the outstanding principal and accrued interest plus a repayment premium equal to 100% of the outstanding principal amount of the notes. Debt issuance costs are recorded against the outstanding payable balance. These notes fully converted into New Origin common stock upon consummation of the business combination (see Note 4).
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Stockholder Note
In November 2016, the Company received a $5 million prepayment from a stockholder for product from Origin 1 pursuant to an Offtake Agreement (see Note 10). The prepayment was to be credited against the purchase of products over the term of the Offtake Agreement. The prepayment was secured by a promissory note (the “Promissory Note”) to be repaid in cash in the event that the prepayment could not be credited against the purchase of product, for example, if Origin 1 was never constructed. The Promissory Note was collateralized substantially by Origin 1 and other assets of Origin Material Canada Pioneer Limited. In May 2019, the Company and stockholder amended the Offtake Agreement and Promissory Note. The amendment added accrued interest of $0.2 million to the principal balance of the prepayment and provided for the prepayment amount to be repaid in three annual installments rather than being applied against the purchase of product from Origin 1. The Promissory Note would bear interest at 3.50 % per annum and be repaid in three installments of $2.2 million, $2.1 million, and $2.1 million (inclusive of accrued but unpaid interest) on December 20, 2024, December 19, 2025, and December 18, 2026, respectively, unless the Bridge Notes have not been converted or repaid by December 30, 2021, in which case the Promissory Note maturity date would be December 31, 2021 . At June 30, 2021 and December 31, 2020, the total debt outstanding was $5.2
12. |
Other liabilities, long-term and related party other liabilities, long-term |
Other Liabilities, Long-term
In September 2019, the Company entered into a $5.0 million prepayment agreement for the purchase of products from Origin 2. The prepayment is to be made in two equal installments: the first $2.5 million was in October 2019 and the remaining $2.5 million is due within 30 days of the customer confirming that a sample from Origin 1 meets the customer’s specifications. The Company and customer agreed to work in good faith to execute an Offtake Agreement, the agreed terms of which are set forth in the prepayment agreement, whereby 100 % of the prepayment will be applied against future purchases. The prepayment agreement provides the customer a capacity reservation of up to a specified annual volume of product from Origin 1 for a term of ten years , pursuant to the terms of an Offtake Agreement. At June 30, 2021 and December 31, 2020, the total amount outstanding on this agreement was $2.5
Related Party Other Liabilities, Long-term
In November 2016, the Company received a $5 million prepayment from a stockholder for product from Origin 1 pursuant to an Offtake Agreement (see Note 10). The prepayment is to be credited against the purchase of products from Origin 1 over the term of the Offtake Agreement. Specifically, repayment is effected by applying a credit to product purchases each month over the first five years of operation of Origin 1 up to $7.5 million, which is equal to 150 % of the prepayment amount. If product purchases are not sufficient to recover the advances, the application of the credit to purchases as payment of the advances will continue until fully repaid. The prepayment is secured by a note to be repaid in cash in the event the prepayment cannot be credited against the purchase of product, for example, if Origin 1 is never constructed. The note is collateralized substantially by Origin 1 and other assets of Origin Material Canada Pioneer Limited. If repaid in cash, the note bears an annual interest rate of the three-month London Interbank Offered Rate (LIBOR) plus 0.25 % (0.38 % at June 30, 2021) and matures five years from the commercial operation date of Origin 1. At June 30, 2021 and December 31, 2020 the total note principal outstanding was $5.1 0.1
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13. |
Earnout liability |
As additional consideration for the Merger, within ten (10) Business Days after the occurrence of a Triggering Event, Artius shall issue or cause to be issued to each 25,000,000 Earnout Shares in the aggregate. A Triggering Event is defined as the following:
Pre-Closing
Origin Holder the number of shares of Artius Class A Common Stock equal to the product of (i) the number of shares of Company Common Stock, Company Series A Preferred Stock, Company Series B Preferred Stock, Company Series C Preferred Stock, and the net number of shares of Company Capital Stock that would be issuable in respect of Vested Company Options in the event such options were exercised (on a net exercise basis with respect to only the applicable exercise price, immediately prior to the Closing and settled in the applicable number of shares of Company Common Stock, rounded down to the nearest whole share) held by such Pre-Closing
Origin Holder as of immediately prior to the Effective Time; and (ii) the Earnout Exchange Ratio (such issued shares of Artius Class A Common Stock, collectively, the “Earnout Shares”). Notwithstanding anything to the contrary herein, in no event shall Artius be required to issue more than (a) a $15.00 Stock Price Level is reached during the three (3 ) year period following the Closing Date;
(b) a $20.00 Stock Price Level is reached during the four (4 ) year period following the Closing Date; or
(c) a $25.00 Stock Price Level is reached during the five (5 ) year period following the Closing Date.
A Sponsor Letter Agreement was delivered in connection with the Merger such that 4,500,000 million of the shares held by Sponsor (“Sponsor Vesting Shares”) shall be subject forfeiture based on the same vesting requirements as the Earnout Shares. These shares shall not be transferred prior to the date in which they vest. Dividends and other distributions with respect to Sponsor Vesting Shares shall be set aside by Artius and shall be paid to the Sponsor upon the vesting of such Sponsor Vesting Shares.
The Company evaluated the Earnout Liability under ASC , and concluded they do not meet the criteria to be classified in stockholders’ equity. Specifically, there are contingent exercise provisions and settlement provisions that exist. Holders may receive differing amounts of shares depending on the company’s stock price or the price paid in a change of control. It is noted that all remaining shares would be issuable (or the forfeiture provisions would lapse) upon any change of control involving the company and all remaining shares would be issuable (or the forfeiture provisions would lapse) upon a bankruptcy or insolvency of the company. This means that settlement is not solely impacted by the share price of the Company (that is, the share price observed in or implied by a qualifying event), but also by the occurrence of a qualifying event. This causes the arrangement to not be indexed to the Company’s own shares and liability classification is appropriate. The Company recorded these instruments as liabilities on the condensed consolidated balance sheet at fair value, with subsequent changes in their respective fair values recognized in earnings at each reporting date. The earnout liability was fair valued using a monte carlo open-ended model. The inputs used for the model were a dividend yield of 0 %, volatility of 63 %, and interest rate of 0.87 %. At June 30, 2021 and December 31, 2020 the balance of the earnout liability was $158 million and $0 , respectively. A gain of $45.5
815-40,
Derivatives and Hedging-Contracts in Entity’s Own Equity (“ASC
815-40”)
change-in-control
change-in-control
14. |
Canadian Government Research and Development Program Liability |