0001564590-16-023753.txt : 20160809 0001564590-16-023753.hdr.sgml : 20160809 20160809171409 ACCESSION NUMBER: 0001564590-16-023753 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 63 CONFORMED PERIOD OF REPORT: 20160630 FILED AS OF DATE: 20160809 DATE AS OF CHANGE: 20160809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Arcadia Biosciences, Inc. CENTRAL INDEX KEY: 0001469443 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE CHEMICALS [2870] IRS NUMBER: 810571538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37383 FILM NUMBER: 161819183 BUSINESS ADDRESS: STREET 1: 202 COUSTEAU PLACE STREET 2: SUITE 200 CITY: DAVIS STATE: X1 ZIP: 95618 BUSINESS PHONE: 602-429-0476 MAIL ADDRESS: STREET 1: 4222 E. THOMAS RD STREET 2: SUITE 320 CITY: PHOENIX STATE: X1 ZIP: 85018 10-Q 1 rkda-10q_20160630.htm 10-Q rkda-10q_20160630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-37383

 

Arcadia Biosciences, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

81-0571538

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

202 Cousteau Place, Suite 105

Davis, CA

 

95618

(Address of Principal Executive Offices)

 

(Zip Code)

(530) 756-7077

(Registrant’s Telephone Number, Including Area Code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

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

 

Large accelerated filer

 

o

  

Accelerated filer

 

o

 

 

 

 

Non-accelerated filer

 

o (Do not check if a smaller reporting company)

  

Smaller reporting company

 

x

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

As of July 29, 2016, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 44,422,057.

 

 

 


Arcadia Biosciences, Inc.

FORM 10-Q FOR THE QUARTER ENDED June 30, 2016

INDEX

 

 

 

 

 

 

 

Page

Part I —

 

Financial Information

 

1

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements:

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

2

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

3

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

4

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

24

 

 

 

 

Part II —

 

Other Information

 

25

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

25

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

43

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

43

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

43

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

43

 

 

 

 


ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

Arcadia Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,360

 

 

$

23,973

 

Short-term investments

 

 

26,872

 

 

 

26,270

 

Accounts receivable

 

 

177

 

 

 

706

 

Unbilled revenue

 

 

92

 

 

 

82

 

Inventories — current

 

 

306

 

 

 

294

 

Prepaid expenses and other current assets

 

 

1,390

 

 

 

692

 

Total current assets

 

 

56,197

 

 

 

52,017

 

Property and equipment, net

 

 

636

 

 

 

585

 

Inventories — noncurrent

 

 

1,874

 

 

 

1,867

 

Long-term investments

 

 

6,910

 

 

 

19,748

 

Other noncurrent assets

 

 

92

 

 

 

25

 

Total assets

 

$

65,709

 

 

$

74,242

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,570

 

 

$

2,423

 

Amounts due to related parties

 

 

15

 

 

 

19

 

Unearned revenue — current

 

 

1,494

 

 

 

1,008

 

Total current liabilities

 

 

4,079

 

 

 

3,450

 

Notes payable

 

 

25,027

 

 

 

24,930

 

Unearned revenue — noncurrent

 

 

2,315

 

 

 

2,637

 

Other noncurrent liabilities

 

 

3,000

 

 

 

3,000

 

Total liabilities

 

 

34,421

 

 

 

34,017

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value—400,000,000 and 140,000,000 shares authorized

   as of June 30, 2016 and December 31, 2015; 44,395,008 and 44,184,195 shares

   issued and outstanding as of June 30, 2016 and December 31, 2015

 

 

44

 

 

 

44

 

Additional paid-in capital

 

 

172,917

 

 

 

172,222

 

Accumulated deficit

 

 

(141,667

)

 

 

(131,926

)

Accumulated other comprehensive loss

 

 

(6

)

 

 

(115

)

Total stockholders’ equity

 

 

31,288

 

 

 

40,225

 

Total liabilities and stockholders’ equity

 

$

65,709

 

 

$

74,242

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

1


Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

65

 

 

$

179

 

 

$

320

 

 

$

260

 

License

 

 

140

 

 

 

401

 

 

 

292

 

 

 

559

 

Contract research and government grants

 

 

516

 

 

 

850

 

 

 

961

 

 

 

1,426

 

Total revenues (which includes $23, $23, $46, $46

   from related parties — Note 12)

 

 

721

 

 

 

1,430

 

 

 

1,573

 

 

 

2,245

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

35

 

 

 

106

 

 

 

182

 

 

 

162

 

Research and development

 

 

2,216

 

 

 

2,086

 

 

 

4,418

 

 

 

3,918

 

Selling, general and administrative

 

 

2,759

 

 

 

2,785

 

 

 

6,195

 

 

 

5,423

 

Total operating expenses

 

 

5,010

 

 

 

4,977

 

 

 

10,795

 

 

 

9,503

 

Loss from operations

 

 

(4,289

)

 

 

(3,547

)

 

 

(9,222

)

 

 

(7,258

)

Interest expense

 

 

(327

)

 

 

(775

)

 

 

(654

)

 

 

(1,242

)

Other income (expense), net

 

 

76

 

 

 

735

 

 

 

152

 

 

 

(661

)

Net loss before income taxes

 

 

(4,540

)

 

 

(3,587

)

 

 

(9,724

)

 

 

(9,161

)

Income tax provision

 

 

(11

)

 

 

(90

)

 

 

(17

)

 

 

(319

)

Net loss

 

 

(4,551

)

 

 

(3,677

)

 

 

(9,741

)

 

 

(9,480

)

Accretion of redeemable convertible preferred stock to

   redemption value

 

 

 

 

 

(879

)

 

 

 

 

 

(2,574

)

Deemed dividends to warrant holder

 

 

 

 

 

 

 

 

 

 

 

(197

)

Net loss attributable to common stockholders

 

$

(4,551

)

 

$

(4,556

)

 

$

(9,741

)

 

$

(12,251

)

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.10

)

 

$

(0.19

)

 

$

(0.22

)

 

$

(0.94

)

Weighted-average number of shares used in per share

   calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

44,308,245

 

 

 

23,775,368

 

 

 

44,274,508

 

 

 

12,985,332

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains on available-for-sale securities

 

 

25

 

 

 

 

 

 

109

 

 

 

 

Other comprehensive income

 

 

25

 

 

 

 

 

 

109

 

 

 

 

Comprehensive loss attributable to common stockholders

 

$

(4,526

)

 

$

(4,556

)

 

$

(9,632

)

 

$

(12,251

)

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2


Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,741

)

 

$

(9,480

)

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

147

 

 

 

141

 

Net amortization of investment premium

 

 

139

 

 

 

 

Stock-based compensation

 

 

393

 

 

 

924

 

Change in fair value of derivative liabilities related to convertible promissory notes

 

 

 

 

 

1,108

 

Gain on expiration of warrant and derivative liability related to notes payable upon IPO

 

 

 

 

 

(437

)

Accretion of debt discount

 

 

98

 

 

 

343

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

529

 

 

 

897

 

Unbilled revenue

 

 

(10

)

 

 

168

 

Inventories

 

 

(19

)

 

 

(100

)

Prepaid expenses and other current assets

 

 

(670

)

 

 

(426

)

Other noncurrent assets

 

 

(67

)

 

 

(59

)

Accounts payable and accrued expenses

 

 

195

 

 

 

969

 

Amounts due to related parties

 

 

(4

)

 

 

(46

)

Unearned revenue

 

 

163

 

 

 

(584

)

Net cash used in operating activities

 

 

(8,847

)

 

 

(6,582

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(198

)

 

 

(23

)

Proceeds from sales and maturities of investments

 

 

12,205

 

 

 

 

Net cash provided by (used in) investing activities

 

 

12,007

 

 

 

(23

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon IPO

 

 

 

 

 

68,226

 

Payments of IPO issuance costs

 

 

 

 

 

(6,805

)

Proceeds from issuance of notes payable

 

 

 

 

 

20,000

 

Payments of debt issuance costs

 

 

(46

)

 

 

(290

)

Proceeds from exercise of stock options and ESPP purchases

 

 

273

 

 

 

28

 

Payments on notes payable to related party

 

 

 

 

 

(8,000

)

Payments on notes payable and convertible promissory notes

 

 

 

 

 

(3,122

)

Net cash provided by financing activities

 

 

227

 

 

 

70,037

 

Net increase in cash and cash equivalents

 

 

3,387

 

 

 

63,432

 

Cash and cash equivalents — beginning of period

 

 

23,973

 

 

 

16,571

 

Cash and cash equivalents — end of period

 

$

27,360

 

 

$

80,003

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

474

 

 

$

945

 

Cash paid for income taxes

 

$

2

 

 

$

149

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Accretion of redeemable convertible preferred stock

 

$

 

 

$

2,574

 

Deferred offering costs included in accounts payable and accrued expenses

 

$

 

 

$

1,488

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

 

 

$

24

 

Reclassification of deferred IPO costs to equity

 

$

 

 

$

5,111

 

Deemed dividend to common stock warrant holder

 

$

 

 

$

197

 

Issuance of warrants and derivatives in connection with notes payable issuance

 

$

 

 

$

437

 

Stock option exercise cost included in accounts receivable

 

$

30

 

 

$

 

Conversion of preferred stock to common stock upon IPO

 

$

 

 

$

85,454

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

3


Arcadia Biosciences, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Description of Business and Basis of Presentation

Organization

Arcadia Biosciences, Inc. (the “Company”), was incorporated in the state of Arizona in 2002 and maintains its headquarters in Davis, California, with additional facilities in Seattle, Washington; Phoenix, Arizona; and American Falls, Idaho. The Company was reincorporated in Delaware in March 2015.

The Company pursues agriculture-based biotechnology business opportunities that improve the environment and human health. The Company is an agricultural biotechnology trait company with an extensive and diversified portfolio of late-stage crop productivity and product quality traits addressing multiple crops that supply the global food and feed markets. Its traits are focused on high-value enhancements that increase crop yields by enabling plants to more efficiently manage environmental and nutrient stresses, and that enhance the quality and value of agricultural products.

In February 2012, the Company formed Verdeca LLC (“Verdeca,” see Note 6), which is jointly owned with Bioceres, Inc. (“Bioceres”), a U.S. wholly owned subsidiary of Bioceres, S.A., an Argentine corporation. Bioceres, S.A. is an agricultural investment and development cooperative. Verdeca was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies.

Reverse Stock Split

In April 2015, the Company’s board of directors approved an amended and restated certificate of incorporation to effect a reverse split on the Company’s issued and outstanding common stock at a one-for-four ratio. In May 2015, the Company’s stockholders approved the certificate of amendment, which the Company filed on May 8, 2015 with the Secretary of State of Delaware to effect the reverse split. The par value and authorized shares of common stock and convertible preferred stock were not adjusted as a result of the reverse split. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the consolidated financial statement have been retroactively adjusted to reflect the reverse stock split for all periods presented. The consolidated financial statements have also been retroactively adjusted to reflect a proportional adjustment for the conversion ratio for each series of redeemable convertible preferred stock and convertible preferred stock.

Initial Public Offering

In May 2015, the Company completed an initial public offering (the “IPO”) and subsequently in June 2015, the Company completed the sale of additional shares upon exercise of the underwriters’ over-allotment option. In connection with the IPO, the Company issued 8,528,306 shares of common stock at $8.00 per share, which raised $58.4 million in proceeds, net of underwriting discounts and commissions of $4.8 million and offering expenses of $5.0 million. At the closing of the IPO, all of the outstanding shares of convertible preferred stock and redeemable convertible preferred stock were automatically converted into 32,972,793 shares of common stock. Following the IPO, there were no shares of preferred stock outstanding.

In connection with the IPO, the Company filed an Amended and Restated Certificate of Incorporation to change the authorized capital stock to 400,000,000 shares designated as common stock and 20,000,000 shares designated as preferred stock, all with a par value of $0.001 per share.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and Verdeca LLC in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission (the “SEC”) in instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities (“VIEs”). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. For all periods presented, the Company has determined that it is the primary beneficiary of

4


Verdeca, which is a VIE. The Company evaluates its relationships with the VIEs upon the occurrence of certain significant events that affect the design, structure or other factors pertinent to the primary beneficiary determination. Interim results are not necessarily indicative of results for any other interim period or for a full fiscal year. The information included in these consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, filed on March 8, 2016.

 

 

2. Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update impacts classification, additional fair value measurement, impairment assessment of equity investments and current required disclosures. This standard is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted if the entity meets certain early application guidance. The Company is evaluating the impact of the adoption of ASU 2016-01 on its operating results and financial position.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Based on the new standard, leases would recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its Consolidated Balance Sheets.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) and ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The revenue-related update does not change the core principle of the guidance but provides clarification on the implementation guidance on principal versus agent considerations. The standard’s effective date is the same as the effective date of ASU 2014-09, which is January 1, 2018. The Company does not anticipate that the adoption of ASU 2016-08 will materially change the presentation of its consolidated financial statements. The compensation-related standard involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU 2016-09 on its consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in this update do not change the core principle of the guidance in Topic 606 but rather clarify aspects pertaining to identifying performance obligations and the licensing implementation. The standard’s effective date is the same as the effective date of ASU 2014-09, which is January 1, 2018. The Company is evaluating the impact of the adoption of ASU 2016-10 on its operating results and financial position.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this update do not change the core principle of the guidance in Topic 606 but rather affect the narrow aspects of the topic pertaining to collectability criterion, presentation of taxes collected from customers, noncash consideration, contract modification at transition, completed contracts at transition and technical correction. The standard’s effective date is the same as the effective date of ASU 2014-09, which is January 1, 2018. The Company is evaluating the impact of the adoption of ASU 2016-12 on its operating results and financial position.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact of the adoption of ASU 2016-13 on its operating results and financial position.

 

 

5


3. SONOVA® Gamma Linolenic Acid (“GLA”) Safflower Oil Inventory

Raw materials inventories consist primarily of seed production costs incurred by the Company’s contracted cooperators. Finished goods inventories consist of GLA oil that is available for sale. Inventories consist of the following (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

Raw materials

 

$

759

 

 

$

665

 

Finished goods

 

 

1,421

 

 

 

1,496

 

Inventories

 

$

2,180

 

 

$

2,161

 

 

The Company had inventory reserves for excess and slow-moving inventory of $2.3 million as of June 30, 2016 and December 31, 2015.

 

 

4. Investments and Fair Value of Financial Instruments

Available-for-Sale Investments

The Company classified cash equivalents, short-term and long-term investments as “available-for-sale.” Investments are free of trading restrictions. The investments are carried at fair value, based on quoted market prices or other readily available market information. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive loss, which is reflected as a separate component of stockholder’s equity (deficit) in the Consolidated Balance Sheets. Gains and losses are recognized when realized in the Consolidated Statements of Operations and Comprehensive Loss. The Company did not have available-for-sale securities prior to third quarter of 2015.

The following tables summarize the amortized cost and fair value of the available-for-sale investment securities portfolio at June 30, 2016 and December 31, 2015, and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income (“AOCI”):

 

(Dollars in thousands)

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

26,622

 

 

$

 

 

$

 

 

$

26,622

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

3,046

 

 

 

 

 

 

(4

)

 

 

3,042

 

U.S. government securities

 

 

22,824

 

 

 

5

 

 

 

(1

)

 

 

22,828

 

U.S. government agency securities

 

 

1,002

 

 

 

 

 

 

 

 

 

1,002

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

1,916

 

 

 

1

 

 

 

(3

)

 

 

1,914

 

U.S. government agency securities

 

 

5,000

 

 

 

 

 

 

(4

)

 

 

4,996

 

Totals

 

$

60,410

 

 

$

6

 

 

$

(12

)

 

$

60,404

 

 

(Dollars in thousands)

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Estimated Fair Value

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,799

 

 

$

 

 

$

 

 

$

12,799

 

Commercial paper

 

 

5,949

 

 

 

 

 

 

 

 

 

5,949

 

U.S. government agency securities

 

 

3,049

 

 

 

 

 

 

 

 

 

3,049

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

3,374

 

 

 

 

 

 

 

 

 

3,374

 

Commercial paper

 

 

3,598

 

 

 

 

 

 

 

 

 

3,598

 

U.S. government securities

 

 

13,678

 

 

 

 

 

 

(30

)

 

 

13,648

 

U.S. government agency securities

 

 

5,653

 

 

 

1

 

 

 

(4

)

 

 

5,650

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

3,049

 

 

 

 

 

 

 

 

 

3,049

 

U.S. government securities

 

 

11,780

 

 

 

 

 

 

(52

)

 

 

11,728

 

U.S. government agency securities

 

 

5,001

 

 

 

 

 

 

(30

)

 

 

4,971

 

Totals

 

$

67,930

 

 

$

1

 

 

$

(116

)

 

$

67,815

 

6


 

The Company did not have any investment categories that were in a continuous unrealized loss position for more than twelve months as of June 30, 2016. The unrealized gains and losses amounts above are included in AOCI. All long-term investments will mature in 2017.

As of June 30, 2016, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. The Company anticipates that it will recover the entire amortized cost basis of such fixed income securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three and six months ended June 30, 2016.

Fair Value Measurement

Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows:

 

·

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.

 

·

Level 2 inputs are observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·

Level 3 inputs are unobservable inputs for the asset or liability.

The carrying values of the Company’s financial instruments, including cash equivalents, accounts receivable, and accounts payable, approximated their fair values due to the short period of time to maturity or repayment.

The fair value of the available-for-sale investments at June 30, 2016 and December 31, 2015 were as follows:

 

 

 

Fair Value Measurements at June 30, 2016

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

26,622

 

 

$

 

 

$

 

 

$

26,622

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

 

 

 

3,042

 

 

 

 

 

 

3,042

 

U.S. government securities

 

 

22,828

 

 

 

 

 

 

 

 

 

22,828

 

U.S. government agency securities

 

 

 

 

 

1,002

 

 

 

 

 

 

1,002

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

 

 

 

1,914

 

 

 

 

 

 

1,914

 

U.S. government agency securities

 

 

 

 

 

4,996

 

 

 

 

 

 

4,996

 

Total Assets at Fair Value

 

$

49,450

 

 

$

10,954

 

 

$

 

 

$

60,404

 

 

 

7


 

 

Fair Value Measurements at December 31, 2015

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,799

 

 

$

 

 

$

 

 

$

12,799

 

Commercial paper

 

 

 

 

 

5,949

 

 

 

 

 

 

5,949

 

U.S. government agency securities

 

 

 

 

 

3,049

 

 

 

 

 

 

3,049

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

 

 

 

3,374

 

 

 

 

 

 

3,374

 

Commercial paper

 

 

 

 

 

3,598

 

 

 

 

 

 

3,598

 

U.S. government securities

 

 

13,648

 

 

 

 

 

 

 

 

 

13,648

 

U.S. government agency securities

 

 

 

 

 

5,650

 

 

 

 

 

 

5,650

 

Long-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of Deposit

 

 

 

 

 

3,049

 

 

 

 

 

 

3,049

 

U.S. government securities

 

 

11,728

 

 

 

 

 

 

 

 

 

11,728

 

U.S. government agency securities

 

 

 

 

 

4,971

 

 

 

 

 

 

4,971

 

Total Assets at Fair Value

 

$

38,175

 

 

$

29,640

 

 

$

 

 

$

67,815

 

 

The carrying value of the notes payable approximate their fair values at June 30, 2016 and December 31, 2015, as the market rates currently available to the Company and other assumptions have not changed significantly. These were classified as Level 2.

The Company’s Level 3 liabilities measured and recorded on a recurring basis consist of derivative liabilities related to the convertible promissory notes. The following table sets forth a summary of the changes in the fair value and other adjustments of these derivative liabilities (in thousands):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Beginning balance

 

$

 

 

$

2,979

 

 

$

 

 

$

1,580

 

Change in fair value and other adjustments

 

 

 

 

 

(291

)

 

 

 

 

 

1,108

 

Ending balance

 

$

 

 

$

2,688

 

 

$

 

 

$

2,688

 

 

 

5. Investment in Unconsolidated Entity

The Company owns a 35% ownership position in Limagrain Cereal Seeds LLC (“LCS”). The remaining 65% of LCS is owned by Vilmorin & Cie (“Limagrain”), a major global producer and marketer of field crop and vegetable seeds and affiliate of Groupe Limagrain, through its wholly owned subsidiary, Vilmorin USA (“VUSA”). LCS improves and develops new wheat and barley varieties utilizing genetic and breeding resources, as well as advanced technologies, from Groupe Limagrain and the Company. Funding for LCS comes from an initial pro rata equity investment from each partner and with subsequent financing in the form of debt from VUSA. As of June 30, 2016, the debt balance was $21.0 million with a maturity date of October 15, 2016. It is the Company’s expectation that VUSA will provide LCS with additional debt financing and extend maturity for repayment as needed. Should the debt be converted into equity or additional capital in the form of equity be necessary to support the operations of LCS, the Company has the option to fund its pro rata share of such cash or elect to have its ownership percentage diluted subject to an agreed valuation. As of June 30, 2016 and December 31, 2015, the Company’s investment in LCS has been reduced to $0 as a result of its equity method loss recognition.

 

 

6. Variable Interest Entity

In February 2012, the Company formed Verdeca LLC (“Verdeca”), which is jointly owned with Bioceres, Inc. (“Bioceres”), a U.S. wholly owned subsidiary of Bioceres, S.A., an Argentine corporation. Bioceres, S.A. is an agricultural investment and development cooperative owned by approximately 250 shareholders, including some of South America’s largest soybean growers. Verdeca was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies.

Both the Company and Bioceres incur expenses in support of specific agreed activities, as defined by joint work plans, which apply fair market value to each partner’s activities. Unequal contributions of services are equalized by the partners through cash payments. Verdeca is not the primary obligor for these activities performed by the Company or Bioceres. An agreement executed in conjunction with the formation of Verdeca specified that if Bioceres determines it requires cash to fund its contributed services (subject to certain annual limits), Bioceres, S.A. may elect to sell shares of its common stock to the Company for an amount not exceeding $5.0 million in the aggregate over a four-year period. The Company determined that its commitment to purchase common

8


stock in Bioceres, S.A. as a means to provide capital to Verdeca resulted in a de facto agency relationship between the Company and Bioceres. The Company considers qualitative factors in assessing the primary beneficiary which include understanding the purpose and design of the VIE, associated risks that the VIE creates, activities that could be directed by the Company, and the expected relative impact of those activities on the economic performance of the VIE. Based on an evaluation of these factors, the Company concluded that it is the primary beneficiary of Verdeca.

As a result of the agreement to fund future contributions by Bioceres, Inc., the Company purchased common stock of Bioceres, S.A. in the aggregate amount of $2.0 million between January 2013 and August 2014. The Company’s maximum commitment to purchase stock in Bioceres, S.A. under the original funding agreement amounted to $2.0 million for 2014 and $1.2 million for 2015. In September 2014, the Company and Bioceres, S.A. entered into an agreement to reduce the annual commitment for 2014 to $500,000 and to eliminate the 2015 commitment. In consideration for these amendments, the Company surrendered 1,832 shares of Bioceres, S.A. held by the Company. The Company recorded an expense of $1.5 million related to this agreement during the year ended December 31, 2014.

In addition, the Company had a right to require Bioceres, S.A. to repurchase any shares of common stock then owned by the Company upon the occurrence of certain events specified in the agreement, and similarly, Bioceres, S.A. had the right to require the Company to sell back any shares of common stock owned by the Company under certain circumstances. The Company entered into a subcontracted research agreement in 2015 with Bioceres S.A. and Bioceres Semillas, S.A., a subsidiary of Bioceres S.A. Per the agreement, the Company could pay for these services with a combination of cash and Bioceres S.A. shares. As of December 31, 2015, the liability for the aforementioned agreement was settled with $205,000 of cash and the remaining 632 Bioceres S.A. shares, with a fair value of $500,000, held by the Company, thus reducing the cost investment on the Company’s Condensed Consolidated Balance Sheet to $0.

Under the terms of the joint development agreement, the Company has incurred direct expenses and allocated overhead in the amounts of $83,000, $123,000, $123,000, and $286,000 for the three and six months ended June 30, 2016 and 2015, respectively.  

 

 

7. Debt

Long-term Debt

Long-term debt consisted of the following (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

Notes payable

 

$

25,027

 

 

$

24,930

 

Total

 

 

25,027

 

 

 

24,930

 

Less current portion

 

 

 

 

 

 

Long-term portion

 

$

25,027

 

 

$

24,930

 

 

In July 2012, a 36­month $8.0 million term note was executed with Moral Compass Corporation (“MCC”), the Company’s largest stockholder, and was subordinate to existing promissory notes and convertible promissory notes. The interest rate on the loan was prime plus 2%, with interest only paid monthly in arrears. The principal was due in full at maturity in July 2015. On November 10, 2014, the Company and MCC entered into an amendment to the term loan under which the maturity date was extended to the first to occur of the following dates: (i) April 1, 2016, (ii) the date of an Event of Default, or (iii) a date designated by MCC, by notice to the Company, no earlier than the 20th day following consummation by the Company of an equity financing with gross proceeds to the Company of at least $50 million. In addition, the interest rate remained at prime plus 2% through December 31, 2014, and was amended to increase to 11% per annum thereafter until maturity. The balance of the note, inclusive of accrued interest, was approximately $8.0 million as of December 31, 2014. This term note, including the principal balance of $8.0 million and accrued interest and prepayment fee of $148,000 was paid in full in April 2015. A prepayment fee of $80,000 was recorded as a loss on extinguishment of debt.

Promissory notes were executed with an unrelated party in August 2013 and November 2013 in the amounts of $2.0 million and $1.1 million, respectively. The interest rate on the notes was 10% with principal and interest due in 36 equal monthly installments over the course of their respective three-year terms. These notes, including the aggregate outstanding principal balance of $1.6 million and accrued interest and prepayment fee of $44,000, were paid in full in April 2015. A prepayment fee of $37,000 was recorded as a loss on extinguishment of debt.

In April 2015, the Company entered into a loan and security agreement with an unrelated party, under which the Company incurred an aggregate principal amount of $20.0 million in term loan borrowings (the “Term Loans”), proceeds of which were used to repay existing debt with MCC and an unrelated party as described above. Under this loan agreement, interest on the Term Loans

9


accrued at a rate per annum equal to the greater of (i) 9.0% and (ii) a fluctuating rate of interest equal to three-month LIBOR as in effect from time to time plus 8.74%. The Company was required to make interest­only payments under this agreement from the drawdown dates through April 30, 2016, subject to certain conditions for extension to October 31, 2016. This agreement provided for a right of prepayment with associated prepayment fees and an additional end-of-term payment of $600,000 due upon maturity or when the Term Loans are prepaid in whole or in part to the lenders.

As part of the Term Loans, the Company also issued the lenders warrants to purchase 1,503,760 shares of its common stock at an exercise price of $5.32 per share, which were only exercisable in the event that an IPO was not completed prior to September 30, 2015 and would have remained exercisable until November 1, 2018. The Company initially recorded $356,000 for the fair value of the warrants as a liability in the Consolidated Balance Sheets, which was subject to subsequent remeasurement for changes in fair value until exercise or expiration. In addition, the Company concluded that the interest rate adjustment upon non­occurrence of an IPO was an embedded derivative and recorded $81,000 for the fair value of the embedded derivative as a liability, which was subject to subsequent remeasurement for changes in fair value until exercise or expiration. The proceeds received under the Term Loans, less fees paid to the lender of $290,000, were allocated to the warrant liability and the embedded derivative liability based on their initial fair values with the residual amount recorded as notes payable. The resulting debt discount was to be amortized as interest expense over the term of the Term Loans using the effective interest method. The interest expense related to the debt discount was $76,000 for the three and six months ended June 30, 2015.

In May 2015, upon the completion of the IPO, the warrants were terminated and the right to adjust the interest rate upon non­occurrence of an IPO was relinquished. As such, the Company released the initial fair value of the warrants and the embedded derivative of $437,000 to other income. The Company recognized interest expense inclusive of the debt discount related to the combined Term Loans of $396,000 for the three and six months ended June 30, 2015.

Two convertible promissory notes (“Convertible Promissory Notes”) and a warrant purchase agreement were executed in September 2013 and December 2013 with Mahyco International, an affiliate of Maharashtra Hybrid Seeds Company Ltd. (“Mahyco”), which is a licensee of the Company’s technologies. The Convertible Promissory Notes were issued in the amounts of $500,000 in September 2013 and $4.5 million in December 2013. The interest rate on the Convertible Promissory Notes was prime plus 2%, compounded monthly over the course of the five­year terms ending September and December 2018, and was payable in full on the maturity dates. At any time during the term, the lender could convert all or part of the outstanding balance of the Convertible Promissory Notes (including principal and accrued but unpaid interest) into common stock of the Company at $16.52 per share through December 2016 and at 90% of the most recent offering thereafter.

At its option, Mahyco International could offset future fee payments due from Mahyco to the Company against the outstanding balance of the Convertible Promissory Notes (including principal and accrued but unpaid interest). Mahyco International had the right to demand immediate settlement of a portion of the outstanding balance of the Convertible Promissory Notes, subject to mutual agreement by the Company. The Company recorded a derivative liability for the initial fair value of the settlement obligation. In addition, Mahyco International had the right, at its option, to place another $5.0 million of convertible debt with the Company during the five­year term. The Company recorded an additional derivative liability for the initial fair value of the Company’s obligation to issue the additional $5.0 million of convertible promissory notes. Changes in the fair value of the derivative liabilities were recorded to other income (expense), net in the Consolidated Statement of Operations and Comprehensive Loss.

In conjunction with the Convertible Promissory Notes, the Company issued to Mahyco International a warrant (the “Mahyco Warrant”) to purchase 75,666 shares of common stock at an exercise price of $16.52. The Mahyco Warrant was issued in December 2013, vested immediately and remains exercisable throughout the original five­year term. The Company allocated the gross proceeds from the Convertible Promissory Notes to the derivative liabilities based on their initial fair values and the remainder of the proceeds to the Convertible Promissory Notes and Mahyco Warrant on a relative fair value basis. The amount allocated to the Mahyco Warrant was recorded as a debt discount to be amortized as interest expense over the estimated term of the note and warrant purchase agreement using the effective interest rate method. The Company recognized interest expense related to the Convertible Promissory Notes of $175,000 and $379,000 for the three and six months ended June 30, 2015, respectively. Of the total interest expense recognized, $127,000 and $267,000 was related to the debt discount for the three and six months ended June 30, 2015, respectively. In March 2015, the parties amended the Mahyco Warrant to clarify certain terms relating to expiration. The Company accounted for the amendment as a modification with the incremental increase in fair value of $197,000 as of the amendment date, which was accounted for as a deemed dividend to the warrant holder.

In December 2015, the Company entered into a new loan and security agreement with Silicon Valley Bank (the “Bank”) providing for a senior secured term loan facility in the amount of $25.0 million. Proceeds were used by the Company to repay all existing debt including the Term Loans’ principal balance of $20.0 million and related accrued interest, prepayment and other fees in the amount of $1.3 million and the Convertible Promissory Notes’ principal balance of $3.7 million and associated accrued interest of $154,000. The Term Loans’ prepayment and end of term fees of $1.2 million were recorded as a loss on extinguishment of debt, along with the $427,000 unamortized debt discount and $58,000 of deferred loan issuance fees. In addition, Mahyco International’s option to

10


place another $5.0 million of convertible debt was surrendered with the repayment and the related derivative liabilities totaling $1.6 million were released and recorded as a gain on extinguishment of debt.  

Under this new loan and security agreement, interest accrues at a floating rate per annual rate equal to nine tenths of on