The active ingredient of severalfollowing tables present a breakdown of our products, 1-Methylcyclopropene ("1-MCP")revenue based on solutions, crop and geography for the year ended December 31, 2019.

AgroFresh has two solutions for the pre-harvest market. Our Harvista™ technology is used in pre-harvest management of pome fruit, such as apples and pears. Just as we believe SmartFresh revolutionizedextended its post-harvest apple storage, we believe Harvista can have a similar impact in the orchard. Harvista slows ripening (starch conversion), reduces fruit drop, and holds fruit on the tree longer to promote better color and fruit size, thereby bringing new benefits to the grower and the retailer. It also extends the harvest window to allow growers maximum flexibility in harvest timing while providing peace of mind. LandSpring is a plant-growth regulator ("PGR") for pre-transplant use on seedlings to help them withstand transplanting and other stresses encountered in the field. 2017 was the first year of sales for LandSpring and it received positive reaction from key launch customers.

We are subject to extensive national, state and local government regulations. We have completed more than 400 comprehensive international health and environmental tests that have shown the AgroFresh family of products, including SmartFresh and Harvista, to be safe for consumers, workers and the environment. 1-MCP,1-Methylcyclopropene ("1-MCP"), the active ingredient in the AgroFresh products, is metabolized by the natural processes in fruits and leaves no residue. The AgroFresh products have been approved by over 50 authorities including the U.S. Environmental Protection Agency and the European Commission.

According to the FAO,Food and Agriculture Organization of the United Nations, over 1.3 billion metric tons of food, or approximately one third of the total food produced worldwide, is lost to spoilage or waste each year, includingyear. Euromonitor reports that retailers are often judged on their fresh food valued at an estimated $48.3 billion in the U.S. alone. An October 2013 TESCO Consumer Study found that nearly 45% of all fresh fruits and vegetables, including 40% of apples and 20% of bananas, are lost to spoilage. Loss or waste along the food supply chain has a variety of causes, including degradation of fresh produce during storage and transportation.

Loss or shrinkage along the food supply chain has a variety of causes, including degradation of fresh produce during storage and Ipsos Interactivetransportation.

Pre-harvestNear-harvest treatments commonly used to increase the value of crops and reduce pre-harvestharvest losses include the use of

Post-harvest treatments to maximize quality and reduce loss include treatments to manage the effects of ethylene and to prevent microbial contamination. Naturally occurring ethylene triggers the acceleration of ripening in certain crops which results in a reduction of post-harvest life.

One class of post-harvest treatments enhances quality and reduces losses by controlling the environment in which produce is stored. CAControlled Atmosphere ("CA") and Dynamic Controlled Atmosphere (“DCA”) systems are used to keep stored crops within their optimal ranges of temperature and levels of oxygen and carbon dioxide. Specific oxygen and carbon dioxide levels can lower respiration in fresh produce and delay ripening. CA systems have been used for many decades with fruits and vegetables to preserve freshness. DCA, a more recent innovation, seeks to adjust levels of oxygen and carbon dioxide dynamically as the produce in storage breathes and matures. CA and DCA are only effective at preserving freshness while the fruit is kept in cold storage. However, 1-MCP treatments have been found to be complementary to these technologies by helping to better maintain the quality of apples and pears during cold storage and maintaining freshness for up to 90 days after the applesthey are removed from cold storage.

We are an agricultural innovator in proprietary advanced technologies that enhance the freshness, quality, and value of fresh produce. We currently offer SmartFresh applications at customer sites predominately through a direct service model utilizing third-party contractors. We also provide advisory services based on our extensive knowledge on the use of 1-MCP collected through tens of thousands of monitored applications done as a part of the service model. Our pricing to customers is based on the service provided, not on the product sold. We operate in over 4550 countries and derive the majority of our revenue working with customers to protect the value of apples, pears and other produce during storage. We also offer Harvista pre-harvest technology in the U.S,U.S., Canada, Argentina, Chile, Turkey, Israel, ChileAustralia and South Africa.Africa, and are expanding into Brazil starting in 2020. LandSpring an additional pre-harvest technology for seedlings, is being marketed primarily in the U.S. RipeLock, an innovative quality management system isand SmartFresh diversification efforts are being marketed mainly in the U.S., EuropeMexico and Australia.Peru. ActiMist a platform of foggable fungicides was launched in the U.S. and is being expanded into other countries subject to regulatory approval. Line extensions and new services are planned for introduction to seek to strengthen our global position in post-harvest storage and to capitalize on adjacent growth opportunities in pre-harvestnear-harvest markets.

Tecnidex’s business,AgroFresh has extended its post-harvest leadership with the acquisition of Tecnidex, a leading provider of fungicides, sanitizers, waxes, and coatings primarily focused on the citrus is mainly concentratedmarket. For over 35 years, Tecnidex has been helping fruit and vegetable producers offer clean, safe and high-quality products to customers in southern Europe18 countries with particular strength in the Mediterranean region. Tecnidex brought a broad catalogue of solutions that enhanced our fungicide offering, ActiMist, an innovative delivery system of foggable fungicides. Our fungicide offerings further diversify our revenue by expanding our ability to provide solutions and North Africa and expands our product offering into other types of fungicides, as well as waxes and coatings.service to the citrus industry.

1-MCP, the active ingredient in SmartFresh, LandSpring Harvista and RipeLock,Harvista, is an ethylene action inhibitor with a proven ability to maintain freshness and extend the shelf life of certain fresh produce. The 1-MCP molecule is structurally similar to ethylene, a naturally occurring plant hormone that occurs in certain fruits and vegetables. Ethylene helps produce grow and ripen, but eventually causes over-ripening and spoilage. 1-MCP works by blocking the ethylene receptors in plant cells, which temporarily delays the ripening process, enabling the produce to better maintain the qualities associated with freshness.

Fruits and vegetables are classified as climacteric or non-climacteric, a term referring to the process of fruit maturation. The climacteric event is a stage of fruit ripening associated with higher ethylene production and changes in the fruit including pigment changes and sugar release. The climacteric event marks the peak of edible ripeness, with fruits having the best taste and texture for consumption. The role of SmartFresh is to delay the onset of the climacteric stage until the product is ready for consumption. Apples, pears, kiwifruit, plums, persimmon, bananas, melons, peaches and tomatoes are examples of climacteric fruit. Our managementThe Company continues to evaluate the commercial value of 1-MCP with a range of other climacteric fruit.

The value of SmartFresh with any crop is determined by both the biological efficacy with that crop and the utility value the application delivers to the customer. The biological efficacy with apples is high; apples are sensitive to ethylene and SmartFresh is effective at delaying ripening. In addition, SmartFresh brings high utility value by helping to keep apples fresh year-round despite their limited harvest window. This has resulted in the widespread adoption of SmartFresh by apple growers and packers throughout the world. The cost of SmartFresh translates into less than one cent per pound of apples, which is small relative to both the value of the crop and the importance of maintaining the quality of that crop during storage. Retail prices of apples in the U.S. typically range from $1.30-$4.50 per pound depending on the variety. The use of SmartFresh gives growers and packers the ability to store apples from one season to the next without losing their just picked quality characteristics.

Beneficial effects of SmartFresh have been proven across numerous apple varieties throughout the world. SmartFresh is also effective with other crops that are highly sensitive to ethylene, including pears, kiwifruit, plums, persimmons, avocados, melons, tomatoes and broccoli, each of which requires a different application method and supply chain logistics beyond storage rooms. We also offer a corresponding solution for flowers, the latter marketed under the EthylBloc brand name through two strategic partners that have a strong position in the global flower market.

AgroFresh’s business historically has been highly seasonal, driven by the timing of apple harvests in the northern and various private label brands.southern hemispheres. The first half of the year is when the southern hemisphere harvest occurs, and the second half of the year is when the northern hemisphere harvest occurs. Since the northern hemisphere harvest of our two core crops of apples and pears is typically larger, a significant portion of our sales and profits are historically generated in the second half of the year. In addition to this seasonality, factors such as weather patterns may impact the timing of the harvest within the two halves of the year. Crop diversification is an important way to achieve balanced revenues across the year, and the ability to service the citrus segment provides an opportunity for the Company to increase revenue in the fourth and first quarters, which are the two strongest quarters for citrus crops. Our acquisition of a controlling interest in Tecnidex and an increased presence in the citrus category has moderately reduced the historic concentration of sales in the second half of the year.

We believe that we have developed deep, trusted relationships with our customers by combining our effective SmartFresh product with application expertise and trusted advisory services. Over the past decade we have amassed a valuable proprietary database of technical information on the best practices for the effective use of SmartFresh on a wide range of apple and pear varieties.varieties, since each fruit and fruit variety requires a different treatment protocol. The advisory services component utilizes this information to help maximize the profitability of our customers’ operations.

Complementing our post-harvest solutions, Harvista is a pre-harvestused for near-harvest management product that brings ethylene management into orchardsof apples, pears, cherries and fields.blueberries. Our Harvista product line includes several proprietary 1-MCP formulations that are specifically designed to keepslow ripening, reduce fruit drop, and hold fruit on the tree longer which allows moreto promote better color and fruit size, developmentthereby bringing new benefits to the grower. With maximum flexibility in application timing, it extends the harvest window by allowing growers to factor in ever-changing weather conditions and reduceslabor availability, providing peace of mind. We have found that the combination of Harvista in the orchard and SmartFresh in the storage room results in improved fruit stress.

Harvista extends the “ideal harvest window,” the period during which fruit quality is at its peak, by keeping the fruit on the tree longer. For pome fruits, Harvista can extend the length of the harvest windowwindow” for up to an additional 14 days. This added flexibility creates significant benefits both in terms of harvest logistics and crop profitability. Widening the harvest window allows for better scheduling and the optimization of limited resources, such as harvest crews and equipment. The extended harvest window can result in increased average size and weight of fruit. Overall, the value of the crop is enhanced by bigger average sizes,fruit size, better color, and fewer defects.

We offer Harvista for apples, pears, cherries and pearsblueberries through a pre-scheduled application service including aerial and/or ground applications.applications depending on the crop and growing region. Typically, our technical staff designs the protocol in consultation with the customer, and either a third-party service providers makeprovider or the applications. We have also implemented a program to allow customers to make their own applications through AgroFresh-owned sprayers or using kits to modifycustomer makes the customers' own sprayers. This gives orchard operators flexibility to manage the application timing to meet orchard conditions.application.

Harvista is currently available in the U.S., Canada, Turkey, Argentina, Brazil, Israel, Chile, Australia and South Africa, and the Company is currently compiling data for registrations in more than ten more countries, which are expected to be granted on a country by country basis over the next five years. In 2017, we received regulatory approval to apply Harvista to cherries.cherries in the U.S. and blueberries in Chile. Additional registrations and label expansions are expected to be pursued as new formulations and/or crop concepts are validated.

Our StorEdgeTo continue to evolve and AdvanStore platforms are usefulincrease the value we provide to our customers, we recently launched our FreshCloud suite of produce monitoring and screening solutions. FreshCloud Storage Insights combines proprietary sensor technology and data analytics in monitoringthe storage room to offer customers real-time access to unique insights into the condition of producetheir stored fruit. FreshCloud Predictive Screening predicts the risk of disorder development during storage. StorEdge provides confirmation, within days that a SmartFresh application was completed successfullystorage by analyzing gene expression at commercial harvest, resulting in more informed storage management decisions. FreshCloud Transit Insights combines sensor technology and provides additional data about storage room conditions the customers can useproprietary algorithms to identify issues. The AdvanStore offering includes on-going monitoring, analytics and feedbackprovide insights as to enable the customer to more optimally manage the condition of the stored commodity and receive early notice of conditions present in the room that may be detrimental to the quality of the produce. Through internal innovation, use of sophisticated analysis and external alliances, the AdvanStore platform reflects our strategy to provide proprietary complete storage solutions to customers by leveraging our extensive knowledge of fruit physiology.during transit.

LandSpring technology is a PGR for use on seedlings to help them withstand transplanting and other stresses encountered in the field. LandSpring’s active ingredient, 1-MCP, preventsLandSpring suppresses the ethylene signals that would prompt a stress event in the seedling and reduce growth. Among the number of protective benefits, this technology makes seedlings less sensitive to stresses such as heat, cold, UV radiation, drought, flooding and salinity that often occur after planting. When applied before transplanting, LandSpring results in greater plant vigor and a healthier crop that is better able to withstand adverse environmental conditions and give growers the opportunity to increase yield.

Our success depends on our ability to attract and develop the talent to effectively implement our strategy. AgroFresh changed its organizational structure and leadership team to support its strategic growth and diversification objectives. The goal of the organizational change is to consolidatehas consolidated the Company’s core business units under a global general managerfour seasoned commercial directors while adding leadership and focus to accelerate new business development activities. Over the past year,In 2018, we have been strengthening and deepening our management organization. We have hired a vice president and global general manager to lead our post-harvest offerings and a director of global retail solutionscrop diversification to lead the RipeLockdiversification of commercial opportunities.opportunities as well as expansion into crops other than pome fruit and citrus. In 2019, we added a business leader to target citrus expansion in California, Peru and Mexico.

The Company’sCompany's core post-harvest business includes SmartFresh, ActiMist, StorEdge and AdvanStore, allsolutions designed to strengthenimprove the company’s leadership inyields of growers and packers. These solutions include SmartFresh, Harvista, ActiMist, FreshCloud Storage Insights, FreshCloud Predictive Screening and a large range of fungicides, waxes and coatings, marketed under the post-harvest space. There is one global general manager with separate regional leads for North America, EMEA, Latin Americabrands Textar and APAC.Teycer, respectively.

The 2017 acquisitionIntegration of Tecnidex continued to progress well in 2019, with all functional departments now aligned with AgroFresh’s global structure, including consolidation of all sales teams. In addition, SAP was managed as a separate business unit and integration is well under wayimplemented across the Tecnidex organization in 2018.April 2019.

The technical sales support group housed within the Research and Development organization, supports the sales team. Technical sales supportteam and runs customer-specific trials for local crop varieties or specialized storage and distribution conditions and conducts follow-up with customers. These individuals workThis team works closely with customers to provide advice on appropriate protocols for SmartFresh, Harvista and Harvistaother product applications depending on crop, variety, region, and climatic conditions. The technical sales support group draws on our extensive knowledge base of 1-MCP applications across all regions and conditions.

Marketing and communications functions areThe marketing function is organized on a global and regional basis. The regionalThis includes global brand management and corporate brand/image stewardship and regionally developed marketing strategies and tactics to drive growth and customer penetration. Marketing personnel are embedded within the Company’s operating regions to provide maximum ability to collaborate with local sales teams manage the core post-harvest business'sand capitalize on business opportunities. Regional marketing needs, while the Global marketing department is responsible for corporate brand stewardship

 

No single customer accounted for more than 10% of net sales in 2017, 2016,2019, 2018 or 2015.2017.

Research and development plays an important role at AgroFresh in supporting customers as well as developing line extensions and new products. ApproximatelyResearch and development is a truly global function with less than half of our research and developmentR&D resources are located in facilities in North America, withand the remainder across theour other regions. Approximately 30% of our research and development resources are third-party contractors. During fruit harvest times (August to November in the Northern Hemisphere and late January to early May in the Southern Hemisphere), we hire additional third-party contract scientists to assist AgroFresh in the execution of experiments involving Harvista, SmartFresh, and AdvanStoreFreshCloud technologies. Most of the regional research and development facilities focus on business aligned research and development initiatives to develop line extensions and create new products. Research and development makes use of core competencies in a number of technical areas including post-harvest physiology, analytical chemistry, regulatory sciences, regulatory affairs, formulation science, formulation process development, organic chemistry and delivery systems. Initiatives focused on next generation solutions utilize expertise in material science, molecular biology, postharvestpost-harvest pathology, diagnostics and sensor technology.

 

We are a technology-based solutions provider and, as such, rely on a combination of important intellectual property strengths, including licenses, patents, trademarks, copyrights and trade secret protection laws to protect our proprietary technology and our intellectual property. We seek to control access to and distribution of our proprietary information. We enter into confidentiality agreements with our employees, consultants, customers, service providers and vendors that generally provide that any confidential or proprietary information developed by us or on our behalf be kept confidential including, but not limited to, information related to our proprietary manufacturing process and SmartFresh service model. In the normal course of business, we provide our intellectual property and/or our products protected by our intellectual property to third parties through licensing or restricted use agreements.

We are subject to extensive national, state and local government regulation, and we have an internalthe Company has a regulatory team that we believe is best in class, which leverages a global network of highly-experienced regulatory consultants. Through this network, we have successfully obtained registrations for SmartFresh, Harvista, RipeLock, and LandSpring in every country where the review process has been completed, and the registration process for Harvista continues in many additional countries. We have completed more than 400

For a discussion of the various risks we may face from regulation and compliance matters, see “Risk Factors” in Item 1A of this report.

As of December 31, 2017,2019, we had approximately 284292 full-time employees. None of our employees in North America are members of a union or subject to the terms of a collective bargaining agreement. In certain other countries where we operate (including

(including Brazil, France, Germany, Italy, Netherlands and Spain), employees are members of unions or are represented by works councils. In addition, certain of our activities have been performed historically by seasonal and part-time third-party contingent staff.

Please see Note 1619 to the audited consolidated and combined financial statements for geographic sales information.

Our website is at http://www.agrofresh.com. We make available free of charge, on or through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after electronically filing or furnishing these reports to the Securities and Exchange Commission ("SEC"). Information contained on our website is not a part of this Annual Report on Form 10-K. We have adopted a code of business conduct applicable to our employees including our principal executive, financial and accounting officers, and it is available free of charge, on our website’s investor relations page.

The SEC maintains an Internet site at http://www.sec.gov that contains our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, if any, or other filings filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, and our proxy and information statements. All reports that we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC, 20549. Information about the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.

Ownership of our securities involves a high degree of risk. Holders of our securities should carefully consider the following risk factors and the other information contained in this report, including our historical financial statements and related notes included herein. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or businesses in general, may also impair our business or operations. If any of the following risks or uncertainties actually occur, our business, financial condition and operating results could be adversely affected in a material way. This could cause the trading prices of our securities to decline, perhaps significantly, and you may lose part or all of your investment.

 

We serve established and knowledgeable customers in the business of growing, storing and handling fresh produce and flowers. Key SmartFresh patents have expired or will expire over the next two years.

 

Actions by new or existing competitors, including introduction of competing products or services, promotions, combinations with other products or services, or price-cutting may lower our sales or require actions to retain and attract customers which could adversely affect our profitability. Increased competition from existing or new competitors could result in price reductions, increased competition for materials, reduced margins or loss of market share, any of which could materially and adversely affect our business and our operating results and financial condition. For example, during 2017 and 2018, we decreased our pricespricing in the U.S. to defend market share against increased competition, andcompetition. We believe the situation stabilized during the 2019 season. We may be requiredelect to take similar actionsaction in other regions such as Europe in the future.future, depending on competitive pressures.

 

In addition, if the prices at which our customers sell their products increase or decrease, the demand for our products or services may change. If the demand for our products or services decreases, there could be a significant impact on our business in the applicable location or region resulting inand a material adverse effect on our revenues and results of operations.

Our business involves complex operations and demands a management team and workforce that is knowledgeable and expert in many areas necessary for our operations. As a company focused on both research and development and customer service in the highly-specialized horticultural pre- and post-harvest fields, we rely on our ability to attract and retain skilled employees, consultants and contractors, including our specialized research and development and sales and service personnel. As of December 31, 2017,2019, we employed approximately 284292 full-time employees, of which approximately 199148 were members of our research and development and sales and service teams. The departure of a significant number of our highly skilled employees, consultants or contractors or one or more employees who hold key regional management positions could have an adverse impact on our operations, including as a result of customers choosing to follow a regional manager to one of our competitors.

 

In addition, to execute our growth plan we must attract and retain highly qualified personnel. Competition for these employees exists; new members of management must have significant industry expertise when they join us or engage in significant training which, in many cases, requires significant time before they achieve full productivity. If we fail to attract, train, retain, and motivate our key personnel, our business and growth prospects could be severely harmed.

 

In addition, certain of our key full-time employees are employed outside the United States. In certain jurisdictions where we operate, labor and employment laws may grant significant job protection to employees, including rights on termination of employment. In addition, in certain countries where we operate (including Brazil, France, Germany, Italy, Netherlands and Spain), our employees are members of unions or are represented by works councils as required by law. We are often required to consult and seek the consent or advice of these unions and/or works councils. These laws, coupled with any requirement to consult with the relevant unions or works councils, could adversely affect our flexibility in managing costs and responding to market changes and could limit our ability to access the skilled employees on which our business depends.

 

In addition, certain activities of our business have been performed historically by seasonal and part-time third-party contingent staff. Changes in market and other conditions (including changes in applicable law) affecting employees and/or contingent staff could adversely impact the cost to our business of maintaining our employees and third-party staffing.

Our business is highly dependent on a small number of products, primarily SmartFresh, based on one active ingredient, 1-MCP, applied to a limited number of horticultural products. In 2017,2019, we derived over 85%approximately 76% of our revenue working with customers using SmartFresh to protect the value of apples, pears and other produce during storage. We expect these applications, products and active ingredients to continue to account for a large percentage of our profits in the near term. Our ability to continue to market and sell products containing this active ingredient in existing and new crop segments is important to our future success.

Our net sales and gross profit vary among our products and services, customer groups and geographic markets. This variation will increase as we attempt to increase sales into new geographies and applications, and as we diversify into other crops and introduce new product and service platforms. Net sales and gross profit, therefore, may differ in future periods from historic or current periods. Overall gross profit margins in any given period are dependent in large part on the product, service, customer and geographic mix reflected in that period’s net sales. Market conditions, competitive pressures, increased material or application costs, regulatory conditions and other factors may result in reductions in revenue or create pressure on the gross profit margins of our business in a given period. Given the nature of our business and expansion plans, the impact of these factors on our business and results of operations will likely vary from period to period and across products, services, applications and geographies. As a result, we may be challenged in our ability to accurately forecast our future operating results.

In December 2017, we completed the acquisition of a controlling interest in Tecnidex Fruit Protection, S.A.U., a

If Tecnidex FFT or any technologies we have invested in, or any other acquisitions or investments we have completed or may complete do not meet our expectations for any reason, we may not achieve our forecasted results. There can be no assurance that the pre-acquisition analyses and the diligence we conducted in connection with any acquisition or investment will uncover all material issues that may be present in a particular target business or investment, or that factors outside of the target business or investment and outside of our control will not later arise. In such event, we may be required to subsequently realize restructuring, impairment or other charges that could have a significant adverse effect on our business, financial condition and results of operations.

Furthermore, we might not be able to identify additional suitable acquisition or investment opportunities or obtain necessary

adverse effect on our business, financial condition and results of operations.

Our growth depends on our ability to achieve further penetration into existing markets and expand into new geographic markets where there may be little or no knowledge of our brands or service offerings. There are significant differences in fresh produce handling practices from geographic region to region. If we cannot generate further penetration in existing markets or create brand awareness and successfully adapt our sales and distribution practices to new markets, this could have an impact on our

ability to generate greater revenue. Expansion into new geographic markets will require us to establish our value proposition for local fresh produce industries and to comply with new regulatory and licensing regimes. Longer registration lead times and a relatively fragmented post-harvest infrastructure in certain jurisdictions could have a material adverse effect on our results of operations and prospects in those markets.

 

Our growth also depends on our ability to apply current and future technologies to an expanded range of agricultural products. If the adoption of our products and services by growers, packers, and retailers of these agricultural products is slower than anticipated, or if the prices that these customers are willing to pay for our products and services are lower than anticipated, this could negatively impact our ability to increase revenue from current levels.

Our existing management systems, financial and management controls and information systems may be inadequate to support our planned expansion. Managing any such growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain management and employees and to engage new material suppliers and service providers. We may not respond quickly enough to the changing demands that our expansion will impose on our management and existing infrastructure, which could harm our business, financial condition and results of operations. Failure to appropriately manage safety, human health, product liability and environmental risks could adversely impact employees, communities, stakeholders, the environment, our reputation and our business, financial condition and results of operations.

Our future business success will depend upon our ability to maintain and enhance our technological capabilities and develop and market products, services and applications that meet changing customer needs and market conditions in a cost-effective and timely manner. Maintaining and enhancing technological capabilities and developing new products may also require significant investments in research and development. We may not be successful in developing new products, services and technology that successfully compete or be able to anticipate changing customer needs and preferences, and our customers may not accept one or more of our new products or services. If we fail to keep pace with evolving technological innovations or fail to modify our products and services in response to customers’ needs or preferences, then our business, financial condition and results of operations could be adversely affected.

We rely on unaffiliated contract manufacturers to produce certain key components of our products. There is limited available manufacturing capacity that meets our quality standards and regulatory requirements, especially for the manufacturing of the active ingredient, 1-MCP. Our 1-MCP needs are currently sourced from a single qualified supplier, although we currently have sufficient safety stock to allow us to withstand a disruption in supply from that supplier. In addition, we have qualified a second supplier to provide our active ingredient in the event of a disruption from our current supplier. However, if we are unable to arrange for sufficient production capacity among our contract manufacturers or our contract manufacturers encounter production, quality, financial, or other difficulties, including labor or geopolitical disturbances, we may encounter difficulty in meeting customer demands as we seek alternative sources of supply, or we may have to make financial accommodations to such contract manufacturermanufacturers or otherwise take steps to avoid or minimize supply disruption. We may be unable to locate an additional or alternate contract manufacturer that meets our quality controls and standards and regulatory requirements in a

We rely in some jurisdictions on independent distributors to distribute our products and to assist us with the marketing, sale and servicing of certain of our products. For example, we have entered into long-term distribution relationships for our products in China, Russia, Israel, Greece, South Korea, Japan and Mexico. As a result, delivery of services and products in these jurisdictions relies on the performance of a small number of contractual counterparties, and in most of these countries we are not directly involved in sales and service provider relationships. We cannot be certain that our distributors will focus adequate resources on selling our products and services or be successful in selling them. Some of our distributors also represent or manufacture other, potentially competing, agrochemical products. If we are unable to establish or maintain successful relationships with our distributors, we will need to further develop our own sales and distribution capabilities, which would be expensive, time-consuming and possibly not as successful in achieving market penetration, which could have a material adverse effect on our results of operations, cash flows or financial condition. In addition, the distribution of our products could be disrupted by a number of factors, including labor issues, failure to meet customer standards, bankruptcy or other financial issues affecting our

third-party providers, or other issues affecting any such third party’s ability to meet our distribution requirements. The failure to properly perform by, switch to the competition or loss of, one or more of our distributors could have a material adverse effect on our business, financial condition and results of operations.

Our success depends to a significant degree upon our ability to protect and preserve our intellectual property rights, including our patent and trademark portfolio and trade secrets related to our proprietary processes, methods, formulations and other technology. Failure to protect our intellectual property rights may result in the loss of valuable technologies or impair our competitive advantage. We rely on confidentiality agreements and patent, trade secret and trademark, as well as judicial enforcement of all of the foregoing to protect such technologies and intellectual property rights. In addition, some of our technologies are not or will not be covered by any patent or patent application. With respect to our pending patent applications, we may not be successful in securing patents for these claims, which could limit our ability to protect inventions that these applications were intended to cover. In addition, the expiration of a patent can result in increased competition with consequent erosion of profit margins.

 

As key SmartFresh patents have expired or will expire, over the next few years, if we are not able to achieve further differentiation of our products and services through patented mixtures, new formulations, new delivery systems, new application methods or other means of obtaining extended patent protection, our inability to prevent competitors from developing and registering similar products could have an adverse effect on our sales of such product. Our patents also may not provide us with any competitive advantage and may be challenged by third parties. Further, our competitors may attempt to design around our patents.

 

In some cases, we rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally will enter into confidentiality agreements with our employees and third parties to protect our intellectual property, our confidentiality agreements could be breached and may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise. In addition, adequate remedies may not be available in the event of unauthorized use or disclosure of our trade secrets or manufacturing expertise. Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition.

 

In addition, we rely on both registered and unregistered trademarks to protect our name and brands. Our failure to adequately maintain the quality of our products and services associated with our trademarks or any loss to the distinctiveness of our trademarks may cause us to lose certain trademark protection, which could result in the loss of goodwill and brand recognition. In addition, successful third-party challenges to the use of any of our trademarks may require us to rebrand our business or certain products or services associated therewith.

 

We may be unable to prevent third parties from using our intellectual property and other proprietary information without our authorization or from independently developing intellectual property and other proprietary information that is similar to ours, or that has been designed around our patents, particularly in countries other than the United States. The unauthorized use of our intellectual property and other proprietary information by others could reduce or eliminate any competitive advantages we have developed, cause us to lose sales or otherwise harm our business. If it becomes necessary for us to litigate to protect these

We continually seek to improve our business processes and develop new products and applications in a crowded patent space that we must continually monitor to avoid infringement. We cannot guarantee that we will not experience claims that our processes and products infringe issued patents (whether present or future) or other intellectual property rights belonging to others.

 

From time to time, we oppose patent applications that we consider overbroad or otherwise invalid in order to maintain the ability to operate freely in our various business lines without the risk of being sued for patent infringement. If, however, patents are subsequently issued on any such applications by other parties, or if patents belonging to others already exist that cover our products, processes or technologies, we could experience claims for infringement or have to take other remedial or curative actions to continue our manufacturing and sales activities with respect to one or more products. Likewise, our competitors may also already hold or have applied for patents in the United States or abroad that, if enforced or issued, could prevail over our patent rights or otherwise limit our ability to manufacture or sell one or more of our products in the United States or abroad. Any actions asserted against us could include payment of damages for infringement, stopping the use, require that we obtain licenses from these parties or substantially re-engineer our products or processes in order to avoid infringement. We may not be

able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer our products successfully. Further, intellectual property litigation is expensive and time-consuming, regardless of the merits of any claim, and could divert our management’s attention from operating our business.

We are a party to license agreements that give us rights to third-party intellectual property that may be necessary or useful for our business, and we may enter into additional licenses in the future. If we are unable to enter into licensing arrangements on favorable terms in the future, our business may be adversely affected. In addition, if the owners of the patents we license do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects could be harmed. Without protection for the intellectual property we license, other companies might be able to offer substantially similar or identical products and/or services for sale, which could adversely affect our competitive business position and harm our business prospects.

 

If we fail to comply with our obligations under license agreements, our counterparties may have the right to terminate these agreements, in which event we may not be able to develop, manufacture, register, or market, or may be forced to cease developing, manufacturing, registering, or marketing, any product or service that is covered by these agreements or may face other penalties under such agreements. Such an occurrence could materially adversely affect the value of the applicable ingredient or formulated products and/or services provided by us and have an adverse effect on our business, financial condition and results of operations.

Historically, our operations have been seasonal, with a greater portion of total net revenue and operating income occurring in the third and fourth calendar quarters. Our customers’ crops are vulnerable to adverse weather conditions and natural disasters such as storms, tsunamis, hail, tornadoes, freezing conditions, extreme heat, drought, and floods, which can reduce acreage planted, lead to modified crop selection by growers and affect the timing and overall yield of harvest, each of which may reduce or otherwise alter demand for our products and services and adversely affect our business and results of operations.

Our pre- and post-harvest products are subject to technical review and approval by government authorities in each country where we wish to sell our products. While there is a general international consensus on the data needed in order to evaluate the safety of agrochemical products before they can be placed on the market (as evidenced, for example, by the standards and guidelines issued by the Organization for Economic Co-operation and Development), each country has its own legislative process and specific requirements in order to determine if identified risks are acceptable and can be managed in the local context and may be subject to frequent changes as new data requirements arise in response to scientific developments.

 

The regulatory requirements to which we are subject are complex and vary from country to country. To obtain new registrations, it is necessary to have a local registrant, and to understand the country’s regulatory requirements, both at the time an application for registration is submitted and when the registration decision is made, which may be several years later. A significant investment in registration data is required (covering all aspects from manufacturing specifications through storage and transport, use, and, finally, disposal of unwanted product and used containers) to ensure that product performance (e.g., bio efficacy), intrinsic hazards and use patterns are fully characterized. Risk assessments are conducted by government regulatory authorities, who make the final decision on whether the documented risk associated with a product and active ingredient is acceptable prior to granting approval for sale. This process may be prolonged due to requirements for additional data or internal administrative processes. There is a risk that registration of a new product may not be obtained or that a product label may be severely reduced, restricting the use of the product. If these circumstances arise, there is a risk that the substantial investments

made in product development will not lead to the projected sales that justified the investment, and our business, financial condition and results of operations may be adversely affected by failure to obtain new registrations.

 

Products that are already approved are subject to periodic review by regulatory authorities in many countries. Such reviews frequently require the provision of new data and more complex risk assessments. The outcome of reviews of existing registrations cannot be guaranteed; registrations may be modified or canceled. Since all government regulatory authorities have the right to review existing registrations at any time, the sustainability of the existing portfolio cannot be guaranteed. Existing registrations may be lost at any time, resulting in an immediate impact on sales. Furthermore, prior to expiration, it is necessary to renew registrations. The renewal period and processes vary by country and may require additional studies to support the renewal process. Failure to comply could result in cancellation of the registration, resulting in an impact on sales.

 

In addition, new laws and regulations may be introduced, or existing laws and regulations may be changed or may become subject to new interpretations, which could result in additional compliance costs, seizures, confiscations, recalls, monetary fines or delays that could affect us or our customers. For example, in accordance with a regulation of the European Parliament and of the Council of the European Union, in May 2014 the EU Commission proposed a List of Candidates for Substitution (“CFS”), which included 1-MCP. In a subsequent press release published on January 27, 2015, the Commission clarified that the list is neither a list of banned substances nor as a ranking of CFS, and that all active substances on the list will still be available on the market and are deemed acceptable, but could be substituted in time if a viable alternative becomes available. We have conducted studies, which have been submitted to the authorities, to support our position that 1-MCP should be removed from the CFS list.

 

Compliance with the prevailing regulations in countries in which we conduct business is essential. If we fail to comply with government requirements, we could have registrations withdrawn immediately (loss of sales), suffer financial penalties (fines) and suffer reputational damage that could materially and adversely affect our business and our regulatory success in the future.

In many countries, toxicity studies, data and other information relied upon by registration authorities in support of a product registration are granted “data protection” for a period of up to 15 years after the date upon which the data was originally submitted. In addition to the period of data compensability, there is in many geographies an exclusive use period of ten years

 

Our success depends both on our customers’ perception of our products’ effectiveness and on end-consumers’ perception of the safety of our products. We may, from time to time, be faced with negative publicity relating to public health concerns, customer complaints or litigation alleging illness or injury, negative employee, staffing and supplier relationships or other matters, regardless of whether the allegations are valid or whether we are found to be responsible. Given the global nature of the business, the negative impact of adverse publicity relating to one product or in one geographic region may extend far beyond the product or the country involved to affect other parts of our business. The risk of negative publicity is particularly great with respect to the performance of service providers because we are limited in the manner in which we can control them, especially on a real-time basis. The considerable expansion in the use of social media over recent years can further amplify any negative publicity that could be generated by such incidents.

Customer demand for our products and our brand’s value could diminish significantly if we receive negative publicity or if customer confidence in us or our products is otherwise eroded, which would likely result in lower sales and could have a material adverse effect on our business, financial condition and results of operations.

Public awareness of, and concern about, the use of chemicals in food production has been increasing. Concerns about issues such as chemical residues in foods, agricultural worker safety and environmental impacts of agrochemicals (such as impacts on groundwater or non-target species, such as fish, birds and bees) could result in additional scrutiny of, or adversely affect the market for, our products, even when these products have been approved by governmental authorities. For example, such concerns could result in continued pressure for more stringent regulatory intervention and potential liability relating to health concerns arising from the use of our products in food preparation or the impact our products may have on the environment. These concerns could also influence public and customer perceptions, including purchasing preferences, the viability of our

products, our reputation and the cost to comply with regulations, all of which could have a material adverse impact on our business. Some types of products that we manufacture have been subject to such scrutiny in the past, and some categories of products that we produce are currently under scrutiny and others may be in the future. We may not be able to effectively respond to changes in consumer health perceptions or to modify our product offerings to reflect trends in eating habits, which could have a material adverse effect on our business, financial condition and results of operations.

 

Use of our current products is not compatible with “organic” labeling standards in all jurisdictions. As such, an increase in consumer preference for organic produce could negatively affect the demand for our products or services. Similarly, a shift in consumer preferences away from fresh produce in favor of frozen or processed food products, or towards “seasonal” or locally grown produce, could negatively affect the demand for our products or services.

We may become involved in lawsuits concerning crop damage and product inefficacy claims, in addition to intellectual property infringement disputes, claims by employees, former employees or contingent staff, and general commercial disputes. Our insurance may not apply to or fully cover any liabilities we may incur as a result of these lawsuits.

 

We may face potential product liability claims for or relating to products we have sold and products that we may sell in the future. Since our products are used in the food chain on a global basis, any such product liability claim could subject us to litigation in multiple jurisdictions. Product liability claims, regardless of their merits or their ultimate outcomes, are costly, divert management’s attention, and may adversely affect our reputation and demand for our products and may result in significant damages. We cannot predict with certainty the eventual outcome of pending or future product liability claims. Any of these negative effects resulting from product liability claims could adversely affect our results of operations, cash flows, or

 

We conduct our business in many different currencies, primarily the U.S. dollar and the Euro. Accordingly, currency exchange rates affect our operating results. The effects of exchange rate fluctuations on our future operating results are unpredictable because of the number of currencies in which we conduct business and the potential volatility of exchange rates. We are also subject to the risks of currency controls and devaluations. Currency controls may limit our ability to convert currencies into U.S. dollars or other currencies, as needed, or to pay dividends or make other payments from funds held by subsidiaries in the countries imposing such controls, which could adversely affect our liquidity. Currency devaluations could also negatively affect our operating margins and cash flows. For example, if the U.S. dollar were to strengthen against a local currency, our operating margin would be adversely impacted in the country to the extent significant costs are denominated in U.S. dollars while our revenues are denominated in such local currency. We operate in countries that have experienced hyperinflation in recent years, which amplifies currency risk.

Currently, we operate, or others operate on our behalf, in more than 4550 countries, in addition to our operations in the United States. We expect sales from international markets to represent an increasing portion of our net sales, and our acquisition of a

controlling interest in Tecnidex increased our operations outside of the United States. Accordingly, our business is subject to risks related to the different legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent in our international operations include, in addition to other risks discussed in this section, the following:

 

Many of our relationships with our customers are based primarily upon one-year agreements or individual sales orders. As such, our customers could cease buying products or services from us at any time, for any reason, with little or no recourse. If multiple customers or a material customer elected not to purchase products or services from us, our business prospects, financial condition and results of operations could be adversely affected.

 

Our traditional service model relies on short-term and long-term contracts with a large number of service providers who apply our products in most jurisdictions for our customers. Service providers’ investment in the equipment necessary to provide services to customers is also minimal. As a result, service providers with short-term contracts could cease providing services for us or provide services for a competitor upon relatively short notice. If multiple service providers or a material service provider elected not to provide services on our behalf, our business, financial condition and results of operations could be adversely affected.

Our operations depend upon our or our contract manufacturers' obtaining adequate supplies of raw materials on a timely basis. We typically purchase our major raw materials on a contract or as-needed basis from outside sources. The availability and prices of raw materials may be subject to curtailment or change due to, among other things, the financial stability of our suppliers, suppliers’ allocations to other purchasers, interruptions in production by suppliers, new laws or regulations, changes in exchange rates and worldwide price levels. Additionally, we cannot guarantee that, as our supply contracts expire, we will be able to renew them, or if they are terminated, that we will be able to obtain replacement supply agreements on terms favorable to us. Our results of operations could be adversely affected if the costs of raw materials used in our manufacturing process increase significantly.

We have a limited number of joint development and distribution agreements, and may enter into new ones in the future. Investments through joint research, development, registration, manufacturing, distribution, or other joint entities (collectively “collaborations”) may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that collaboration partners might be sold, become bankrupt, fail to fund their share of required investments, fail to meet collaboration milestones, elect to change strategy, make poor business decisions or block or delay necessary decisions. Collaboration partners may develop economic or other business interests or goals which could conflict and become incompatible with our business interests, and may be in a position to take actions opposed to our strategy and objectives. Disputes between us and our collaboration partners may result in arbitration or litigation that would increase our expenses and distract our management team from focusing their time and effort on the business, or subject the projects, investments or facilities owned by the partnership or collaboration to additional risk. In addition, we may in certain circumstances be liable for

the actions of our collaboration partners, which could materially and adversely affect our business, financial condition and results of operations.

We intend to continue to make investments to support our business growth and might require additional funds to finance our planned growth, including strategic acquisitions. Accordingly, we might need to engage in equity or debt financings to secure additional funds. If we raise additional funds through issuance of equity securities, our existing stockholders could suffer significant dilution, and any new equity securities that we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which might make it more difficult for us to obtain additional capital and to pursue business opportunities. Moreover, if we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets. In addition, we might not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when required, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.

The failure to collect outstanding receivables could have an adverse impact on our business, financial condition and results of operations. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, then we might be required to make additional allowances, which would adversely affect our results of operations in the period in which the determination or allowance was made. Bad debt write offs were less than 0.5% of revenues in each of 2017, 2016,2019, 2018 and 2015.2017.

 

While we occasionally obtain letters of credit or other security for payment from customers or distributors, enforcing that security is a lengthy and expensive process, and the eventual sale of the security may not ultimately cover the underlying trade receivable balance. Accordingly, we are not protected against accounts receivable default or bankruptcy by these entities. The current economic climate and volatility in the price of the underlying agricultural commodities could increase the likelihood of such defaults and bankruptcies. If a material portion of our customers or distributors were to become insolvent or otherwise were not able to satisfy their obligations to us, we would be materially harmed.

 

No single customer accounted for more than 10% of our consolidated net sales in 2017, 2016,2019, 2018 or 2015.2017. At December 31, 2017,2019, December 31, 2016,2018 and December 31, 2015,2017, no individual customer accounted for greater than 10% of our consolidated accounts receivable balance.

We are subject to the FCPA, which generally prohibits U.S. companies and their intermediaries from making corrupt payments to foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and requires companies to maintain certain policies and procedures, including maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Certain of the jurisdictions in which we conduct business are at a heightened risk for corruption, extortion, bribery, pay-offs, theft and other fraudulent practices. Under the FCPA, U.S. companies may be held liable for actions taken by their strategic or local partners or representatives. Other jurisdictions in which we operate have adopted similar anti-corruption, anti-bribery, and anti-kickback laws to which we are subject. Our employees, distributors, dealers and agents may not always take actions that are consistent with our policies designed to ensure compliance, particularly when they are confronted by pressures from competitors and others to act in a manner that is inconsistent with such policies. If we, or our intermediaries, fail to comply with the requirements of the FCPA, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition and results of operations.

Our operations rely heavily on information systems for management of our supply chain, payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our StorEdge and AdvanStoreFreshCloud product offerings rely particularly heavily on information systems for monitoring, data collection and analysis. Our operations depend upon our ability to protect

our computer equipment andinformation systems, many of which in the caseare located outside of StorEdge and AdvanStore, are not located within our physical control, against damage from physical theft, fire, power loss, telecommunications failure, or other catastrophic events, as well as from internal and external security breaches viruses and other disruptive problems.data loss, including cyber-attacks. The disruption or failure of these systems to operate effectively maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result in delays in customer service and reduce efficiency in our operations. RemediationBreaches of such problemsour security measures or the accidental loss, inadvertent disclosure, or unapproved dissemination of proprietary information or sensitive or confidential information about us, our employees, former employees, customers or suppliers could result in legal claims or proceedings, damage to or inaccessibility of critical systems, operational disruptions and other significant unplanned capital investments.costs, which could adversely affect our reputation, financial condition and results of operations.

Our business is subject to a wide range of stringent laws and regulations that relate to the raw material supply chain, environmental compliance, and disposal of any hazardous wastes.waste, and the manufacture, development, production, marketing and use of our products. As with any chemical manufacturing enterprise, there are inherent hazards associated with chemical manufacturing, and the related storage and transportation of raw materials and the potential thatour products. Exposure to hazardous materials, accidents or noncompliance with laws and regulations by us, the users of our products or our contract manufacturers, could disrupt our operations or expose us to significant losses or liabilities. We cannot predict the adverse impact that new environmental regulations, or new interpretations of existing regulations, might have on the research, development, production, and marketing of our products.

A failure to comply with the environmental, health and safety laws and regulations to which we are subject, including any permits issued thereunder, may result in environmental remediation costs, loss of permits, fines, penalties or other adverse governmental or private actions, including regulatory or judicial orders enjoining or curtailing operations or requiring corrective measures, installation of pollution control equipment or remedial measures. We could also be held liable for any and all consequences arising out of human exposure to hazardous materials or environmental damage. In the event of a lawsuit or investigation, we could be subject to claims for liability for any injury caused to persons or property by exposure to, or release of such hazardous materials or wastes.wastes related to our products. We may also be subject to claims associated with failure to warn users of our products of risks associated with our products. Further, we may be required to indemnify our suppliers, contract manufacturers, or waste disposal contractors against damages and other liabilities arising out of the production, handling, or storage of our products or raw materials or the disposal of related wastes. Such indemnification obligations could have an adverse effect on our business, financial condition and results of operations.

We have recognized substantial balances of goodwill and identified intangible assets as a result of the Business Combination,business combinations, and we may record additional goodwill and other intangible assets as a result of any acquisitions we may complete in the future. We are required to test goodwill and any other intangible asset with an indefinite life for possible impairment on the same date each year and on an interim basis if there are indicators of a possible impairment. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment. As of December 31, 2016, we had fully impaired our recorded goodwill of $62.4 million, recorded an impairment of $9.5 million on trade names and have recorded an impairment of $1.3 million on certain fixed assets. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or impairment in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge would be determined based on the estimated fair value of the assets and any such impairment charge could have a material adverse effect on our financial condition and results of operations.

As of December 31, 2017,2019, Dow and the Sponsor (and its affiliates) owned approximately 36% and 7%, respectively,41% of our outstanding common stock. In addition, each of Dow and the Sponsor currently beneficially owns a significant percentage3,000,000 of our outstanding warrants. Because of the degree of concentration of voting power (and the potential for such power to increase upon the purchase of additional stock or the exercise of warrants), your ability to elect members of our board of directors and influence our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common

stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends, may be diminished.

 

In recent years the stock market in general has been highly volatile. As a result, the market price and trading volume of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease in the value of their stock, which could be substantial, including decreases unrelated to our results of operations or prospects, and could lose part or all of their investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this report and others such as:

 

 

In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

Our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock.

As of December 31, 2017,2019, there were 50,340,85351,178,146 shares of our common stock outstanding. OfSubstantially all of our issued and outstanding shares that were issued prior to the Business Combination, all are freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Future sales of our common stock may cause the market price of our securities to drop significantly, even if our business is doing well.

 

 

Upon effectiveness of any registration statement we file pursuant to the Investor Rights Agreement, and following the expiration of the lockup period applicable to the parties to the Investor Rights Agreement, these parties may sell large amounts of our stock in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in our stock price or putting significant downward pressure on the price of our stock.

 

Sales of substantial amounts of our common stock in the public market, or the perception that such sales will occur, could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future.

As of December 31, 2017,2019, outstanding warrants to purchase an aggregate of 15,983,072 shares of our common stock were exercisable in accordance with the terms of the warrant agreement governing those securities. All of these warrants will expire at 5:00 p.m., New York time, on July 31, 2020, or earlier upon redemption or liquidation. The exercise price of these warrants is $11.50 per share. To the extent such warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to the holders of our common stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price of our common stock.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If securities or industry analysts do not provide coverage of us, our stock price and trading volume would likely be negatively impacted. If any of the analysts who cover or who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who covers or who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

These provisions, alone or together, could delay hostile takeovers and changes in control of us or changes in our management. Any provision of our second amended and restated certificate of incorporation or bylaws that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur, including our Credit Facility.credit facility. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it.

We qualify asWhile we have ceased being an “emerging growth company” as defined in Section 2(a)(19)of December 31, 2019, many of the Securities Act, as modified by the JOBS Act. As such, we are eligibleexemptions available for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long asare also available to smaller reporting companies like us that have less than $250 million of worldwide common equity held by non-affiliates. The disclosures we continuewill be required to provide in our SEC filings will increase, but will still be anless than it would be if we were not considered a smaller reporting company. Specifically, similar to emerging growth company, including (i) the exemptioncompanies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the auditorprovisions of Section 404 requiring that independent registered public accounting firms provide an attestation requirements with respect toreport on the effectiveness of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequencyreporting; and say-on-golden parachute voting requirements and (iii) reducedhave certain other decreased disclosure obligations regarding executive compensationin their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Decreased disclosures in our periodic reports and proxy statements. We will remain an emerging growthSEC filings due to our status as a smaller reporting company until the earliest of (i) the last day of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, (ii) the last day of the fiscal year in which we had total annual gross revenue of $1.17 billion or more during such fiscal year (as indexed for inflation), (iii) the date on which we have issued more than $1 billion in non-convertible debt in the prior three-year period or (iv) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock in our initial public offering.

In December 2017, AgroFresh acquired a controlling interest in Tecnidex. With this acquisition, AgroFresh expanded its industry-leading post-harvest presence into additional crops, and increased its penetration of the produce market in southern Europe, Latin America and Africa. For over 35 years, Tecnidex has been helping fruit and vegetable producers offer clean, safe and high-quality products to its regional customers in 18 countries. Through its portfolio of post-harvest products, technology,fungicides, coatings, waxes and sanitizers, and associated consulting and after-sale services, Tecnidex improves the quality and value of its clients’ fruit and vegetables while respecting the environment. Tecnidex is based in Valencia, Spain. Tecnidex further diversifiesdiversified AgroFresh’s revenue by expanding ourthe Company's ability to provide solutions and service to the citrus industry.

Freshness is the most important driver of consumer satisfaction when it comes to produce and, at the same time, food waste is a major issue in the industry. About one third of the total food produced worldwide is lost or wasted each year. Nearly 45 percent45% of all fresh fruits and vegetables, 40 percent40% of apples and 20 percent20% of bananas, are lost to spoilage. AgroFresh plays a key role in the value chain by offering products and services that maintain produce freshness and reduce waste.

AgroFresh’s business is highly seasonal, driven by the timing of harvests in the northern and southern hemispheres. The first half of the year is when the southern hemisphere harvest occurs, and the second half of the year is when the northern hemisphere harvest occurs. Since the northern hemisphere harvest of our two core crops of apples and pears is typically larger,

a significant portion of our sales and profits are historically generated in the second half of the year. In addition to this seasonality, factors such as weather patterns may impact the timing of the harvest within the two halves of the year.

 

On July 31, 2015 (the “Closing Date”), we consummated a business combination (the “Business Combination”) pursuant to a Stock Purchase Agreement, dated April 30, 2015 (the “Purchase Agreement”), with Dow, providing for the acquisition by us of the AgroFresh is a former blank check company that completed its initial public offering on February 19, 2014. Uponbusiness from Dow. In connection with the closing of the Business Combination, with Dow on July 31, 2015, the Company changed its name to AgroFresh Solutions, Inc. The Company paid Dow cash consideration of $635 million and issued Dow 17.5 million shares of common stock at a deemed value of $12 per share. The transaction included a liability to Dow to deliver a variable number of warrants between the closing and April 2016, which obligation was terminated pursuant to a letter agreementwe entered into on April 4, 2017. The cash consideration was funded through our initial public offering, a term loan, and a private placement of 4.9 million shares of common stock that yielded $50 million of proceeds. The transaction also had an earn-out feature whereby Dow was entitled to receive a deferred payment of $50 million in March 2018 if AgroFresh achieved a specified average level of Business EBITDA (as defined in the Stock Purchase Agreement related to the Business Combination) over 2016 and 2017. The specified level of Business EBITDA was not achieved and, accordingly, the earn-out feature is no longer payable. In addition, pursuant to a tax receivables agreement entered into in connection with the Business Combination,(the "TRA"), as amended in April 2017, pursuant to which Dow iswas entitled to receive 50% of the tax savings, if any, that the Company realizesrealized as a result of the increase in the tax basis of assets acquired pursuant to the Business Combination.

The AgroFresh Whole Product offering is aAgroFresh's direct service model foroffers the Company’s commercially available products, including SmartFresh and Harvista. Sales and sales support personnel maintain direct face-to-face relationships with customers year round. Technical sales and support personnel work directly with customers to provide value-added advisory services regarding the application of SmartFresh. The actual application of SmartFresh is performed by service providers that are typically third-party contractors. The Harvista application service, through both aerial and ground application, is also administered by third-party service providers or made by our customers directly.

 

The Company is shifting the terms of its contracts with service providers from annual renewal periods to two or three year durations in order to have greater certainty that experienced applicators will be available for the next harvest season. Most of the Company’s service providers are operating under multi-year contracts. Management believes the quality and experience of its service providers deliver clear commercial benefits.

The Company’s operations are subject to seasonal variation due to the timing of the growing seasons around the world. Northern HemisphereFor our core crops of apples and pears, northern hemisphere growers harvest from August through November, and Southern Hemispheresouthern hemisphere growers harvest from late January to early May. As we diversify into other crops, such as citrus, we also anticipate seasonal

variations in this business due to the northern hemisphere citrus harvest, which spans from October to March. Since the majority of the Company’s sales are in Northern Hemispherenorthern hemisphere countries, a proportionately greater share of its revenue is realized during the second half of the year. There are also variations in the seasonal demands from year to year depending on weather patterns and crop size. This seasonality and variations in seasonal demand could impact the ability to compare results between periods.

Based on the results of our annual impairment review conducted in December 2016,reviews, management recorded an impairment charge of $9.5$2.6 million on its AgroFresh and SmartFresh trade names.name for the year ended December 31, 2018. The Company recorded an impairment charge of $1.0 million for the year ended December 31, 2019 associated with Verigo software. In determining the fair value of the trade names, at December 31, 2016, the Company applied the relief from royalty methodology, which is based on the assumption that without ownership of the assets, the user of the trade name would have to make a stream of payments to the owner of the trade names in return for the rights to use the trade names. By acquiring the trade name, the user avoids those payments. The annual assessment forCompany has three indefinite-lived trade names which passed the year endedimpairment test as of December 31, 2017 resulted2019 by 34%, 29%, and 8%. A 1% increase in no indicatorsthe discount rate would cause an impairment of impairment.one of the trade names by approximately $0.2 million.

Definite-lived intangible assets, such as technology, customer relationships and software are amortized over their estimated useful lives, generally for periods ranging from 4 to 24 years. TheWe assess the reasonableness of the useful lives of these assets regularly. Our assessment is regularly evaluated.based on a number of factors including competitive environment, product history, underlying product life cycles, operating strategy and the macroeconomic environment of the countries in which the products are sold. The impairment of definite-lived intangible assets is tested annually or more frequently when factors or changes in circumstances indicate that the fair value has declined below its carrying value. If any factors that could result in future impairment charge have occurred, a recoverability test is performed in which the undiscounted cash flows of the asset or asset group are compared to the carrying value. If the cash flows are not sufficient to recover the carrying value, then a fair value estimate is made of the asset or asset group to determine the amount of impairment, if any. Once these assets are fully amortized, they are removed from the balance sheet.

The majority of our revenues are generated from the application of our products to fruits and vegetables either before or after harvesting. Revenue is recognized at the time the product is applied to the fruits or vegetables as this represents the point at which our performance obligation to the customer has been completed.

In periods prior to be paid under customer loyaltythe adoption of Topic 606, revenue was recognized when (1) persuasive evidence of an arrangement existed, (2) delivery had occurred or services had been rendered, (3) the sales price was fixed or determinable, and other rebate programs. We initially record(4) collectability was reasonably assured.

See Note 2 to the estimated liabilityaudited consolidated financial statements for payments under these programs based on our historical experience and management’s assessment of the probability that the payments will be made. Each period, we evaluate the liability to determine whether any adjustments are required.further information.

We account for business combinations under the acquisition method of accounting. This method requires the recording of acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition date fair values. The excess of the purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, royalty rates and asset lives, among other items.

The fair values of intangible assets were estimated using an income approach, either the excess earnings method (customer relationships) or the relief from royalty method (technology and trademarks). Under the excess earnings method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows attributable solely to the intangible asset over its remaining useful life. Under the relief from royalty method, fair value is measured by estimating future revenue associated with the intangible asset over its useful life and applying a royalty rate to the revenue estimate. These intangible assets enable us to secure markets for our products, develop new products to meet evolving business needs and competitively produce our existing products.

 

The fair values of property, plant, and equipment, other than real properties, were based on the consideration that unless otherwise identified, they will continue to be used “as is” and as part of the ongoing business. The determination of the fair value of assets acquired and liabilities assumed involves assessing factors such as the expected future cash flows associated with individual assets and liabilities and appropriate discount rates at the date of the acquisition.

 

The fair values of the various contingent consideration components were measured using the following valuation models. The fair value of the tax amortization benefit contingency was measured using an income approach based on the Company’s best estimate of the undiscounted cash payments to be made, tax effected and discounted to present value utilizing an appropriate market discount rate. The fair value of the deferred acquisitionearnout payment was measured using a Black-Scholes optionMonte Carlo pricing model and based on the Company’s best projection of the Company’s average adjusted EBITDA levelrevenues over the two-yearthree-year period from January 1, 20162018 to December 31, 2017. The warrant consideration was measured using directly observable quoted prices for identical assets in an inactive market. The working capital settlement was measured pursuant to the terms of the Purchase Agreement based upon the working capital of the AgroFresh Business as of the Closing Date being greater or less than a target level of working capital determined in accordance with the Purchase Agreement.2020.

See Note 3 to the audited consolidated and combined financial statements for further information.

We recognize stock-based compensation expense for all share-based payment awards on a straight-line basis over the requisite service period of the award. Determining the fair value of share-based payment awards requires the input of highly subjective assumptions, including the expected life of the share-based payment awards and stock price volatility. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different

The provision for income taxes was determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the period. Deferred taxes result from differences between the financial and tax basis of our assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates applicable in the years in which they are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law is recognized in income in the period that includes the enactment date.

Income tax related penalties are included in the provision for income taxes. In evaluating the ability to realize deferred tax assets, the Company relies on taxable income in prior carryback years, the future reversals of existing taxable temporary differences, future taxable income, and tax planning strategies.

The breadth of our operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating taxes we will ultimately pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, state and

international tax audits in the normal course of business. A liability for unrecognized tax benefits is recorded when management concludes that the likelihood of sustaining such positions upon examination by taxing authorities is less than "more likely than not."

See Note 2 to the accompanying audited consolidated and combined financial statements for a full description of recent accounting pronouncements and our expectations of their impact, if any, on our results of operations and financial condition.

Net sales were $164.0$170.1 million for the twelve monthsyear ended December 31, 2017,2019, as compared to net sales of $159.7$178.8 million for the twelve monthsyear ended December 31, 2016.2018. The overall increaseimpact of the change in net sales in fiscal year 2017 from fiscal year 2016 was primarily relatedforeign currency exchange rates compared to the addition of Tecnidex and double-digit growth in Harvista.2018 reduced revenue by $3.3 million. Excluding this impact, revenue decreased approximately 3.0%.

Net sales in North America decreased to $53.6 million for 2017, down 4.7% from $56.2 million in 2016. The remaining decrease in net sales is primarilywas due to lowerincreased competition and decreased pear crop size in Europe. Tecnidex sales decreased 4.7% on an absolute basis and decreased 0.1% on a constant currency basis versus the prior year period. Offsetting these decreases was growth in SmartFresh in Latin America, sales of SmartFreshHarvista in North America driven by competitive pressures, somewhat offset by an 18% increase in Harvista sales. Net sales in EMEA increased by $5.5 million to $70.2 million in 2017. Excluding currency impact of $2.9 million, EMEA net sales increased by $2.6 million, primarily due to the addition of Tecnidex along with increased penetration in persimmon and pears. Net sales in Latin America increased 9.6% mainly due to a larger apple crop in Brazil compared to 2016 alongand new revenue associated with growth in Harvista sales in Argentina. Net sales in the Asia Pacific region decreased by $0.9 million driven by declines in China compared to 2016.FreshCloud.

Cost of sales was $32.7$45.0 million for the twelve monthsyear ended December 31, 2017,2019, as compared to $60.0$46.3 million for the twelve monthsyear ended December 31, 2016. Included in the 2016 amounts was $30.4 million of amortization of inventory step up.2018. Gross profit margin was 80.1 percent73.5% in 2017 and would have been 81.5 percent2019 versus 74.1% in 2016 if the amortization of inventory step-up had been excluded.2018. The decrease in margin was primarily driven by an unfavorable productrelatively stable and geographic mix.in line with our expectations.