UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-37383
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 |
202 Cousteau Place, Suite 105 Davis, CA |
95618 |
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (530) 756-7077
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻
Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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☐ (Do not check if a small reporting company) |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 4, 2018, the registrant had 2,979,139 shares of common stock, $0.001 par value per share, outstanding.
FORM 10-Q FOR THE QUARTER ENDED March 31, 2018
INDEX
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Page |
Part I — |
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1 |
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Item 1. |
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1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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2 |
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3 |
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4 |
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5 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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16 |
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Item 3. |
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24 |
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Item 4. |
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24 |
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Part II — |
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24 |
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Item 1. |
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24 |
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Item 1A. |
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24 |
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Item 2. |
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24 |
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Item 3. |
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24 |
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Item 4. |
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24 |
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Item 5. |
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25 |
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Item 6. |
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25 |
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26 |
Arcadia Biosciences, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
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March 31, 2018 |
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December 31, 2017 |
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Current assets: |
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Cash and cash equivalents |
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$ |
20,418 |
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$ |
9,125 |
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Short-term investments |
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— |
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3,898 |
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Accounts receivable |
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52 |
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1,231 |
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Unbilled revenue |
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49 |
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4 |
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Inventories — current |
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309 |
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229 |
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Prepaid expenses and other current assets |
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417 |
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560 |
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Total current assets |
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21,245 |
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15,047 |
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Property and equipment, net |
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280 |
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299 |
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Inventories — noncurrent |
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1,067 |
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1,168 |
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Other noncurrent assets |
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7 |
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56 |
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Total assets |
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$ |
22,599 |
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$ |
16,570 |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
2,457 |
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$ |
2,496 |
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Amounts due to related parties |
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4 |
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29 |
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Unearned revenue — current |
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571 |
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1,000 |
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Total current liabilities |
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3,032 |
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3,525 |
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Unearned revenue — noncurrent |
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— |
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2,038 |
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Common stock warrant liability |
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9,900 |
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— |
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Common stock adjustment feature liability |
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6,000 |
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— |
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Other noncurrent liabilities |
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3,000 |
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3,000 |
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Total liabilities |
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21,932 |
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8,563 |
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Stockholders’ equity: |
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Common stock, $0.001 par value—150,000,000 shares authorized as of March 31, 2018 and December 31, 2017; 2,481,137 and 2,134,154 shares issued and outstanding as of March 31, 2018 and December 31, 2017 |
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43 |
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42 |
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Additional paid-in capital |
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176,125 |
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175,223 |
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Accumulated deficit |
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(175,501 |
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(167,257 |
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Accumulated other comprehensive loss |
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— |
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(1 |
) |
Total stockholders’ equity |
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667 |
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8,007 |
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Total liabilities and stockholders’ equity |
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$ |
22,599 |
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$ |
16,570 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands, except share and per share data)
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Three Months Ended March 31, |
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2018 |
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2017 |
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Revenues: |
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Product |
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$ |
61 |
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$ |
205 |
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License |
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— |
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106 |
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Contract research and government grants |
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153 |
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707 |
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Total revenues |
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214 |
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1,018 |
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Operating expenses: |
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Cost of product revenues |
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36 |
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106 |
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Research and development |
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1,396 |
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1,823 |
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Selling, general and administrative |
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2,621 |
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3,052 |
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Total operating expenses |
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4,053 |
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4,981 |
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Loss from operations |
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(3,839 |
) |
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(3,963 |
) |
Interest expense |
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— |
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(339 |
) |
Other income, net |
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38 |
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96 |
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Initial loss on common stock warrant and common stock adjustment feature liabilities |
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(4,000 |
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— |
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Change in fair value of common stock warrant and common stock adjustment feature liabilities |
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(1,900 |
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— |
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Offering costs related to securities purchase agreement |
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(904 |
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— |
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Net loss before income taxes |
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(10,605 |
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(4,206 |
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Income tax provision |
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(10 |
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(10 |
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Net loss |
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$ |
(10,615 |
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$ |
(4,216 |
) |
Net loss per share attributable to common stockholders: |
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Basic and diluted |
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$ |
(4.86 |
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$ |
(1.90 |
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Weighted-average number of shares used in per share calculations: |
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Basic and diluted |
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2,186,196 |
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2,218,010 |
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Other comprehensive income (loss), net of tax |
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Unrealized gains (loss) on available-for-sale securities |
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1 |
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(1 |
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Other comprehensive income (loss) |
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1 |
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(1 |
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Comprehensive loss attributable to common stockholders |
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$ |
(10,614 |
) |
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$ |
(4,217 |
) |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
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Common Stock |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Accumulated Other Comprehensive (Loss) |
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Total Stockholders’ Equity |
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Shares |
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Amount |
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Balance at January 1, 2017 |
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2,224,384 |
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$ |
44 |
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$ |
173,723 |
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$ |
(151,550 |
) |
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$ |
(19 |
) |
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$ |
22,198 |
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Issuance of shares related to employee stock purchase plan |
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1,964 |
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— |
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24 |
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— |
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— |
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24 |
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Stock-based compensation |
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— |
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— |
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1,474 |
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— |
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— |
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1,474 |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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18 |
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18 |
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Exchange of membership interest in unconsolidated entity for common stock |
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(92,194 |
) |
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(2 |
) |
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2 |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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(15,707 |
) |
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— |
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(15,707 |
) |
Balance at December 31, 2017 |
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2,134,153 |
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$ |
42 |
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$ |
175,223 |
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$ |
(167,257 |
) |
|
$ |
(1 |
) |
|
$ |
8,007 |
|
Impact of adoption of Topic 606 (Note 5) |
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— |
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— |
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— |
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2,371 |
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— |
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2,371 |
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Issuance of shares related to employee stock option exercises |
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44,354 |
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— |
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|
963 |
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— |
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— |
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|
963 |
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Issuance of shares related to employee stock purchase plan |
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567 |
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— |
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3 |
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— |
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— |
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3 |
|
Issuance of shares related to securities purchase agreement |
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300,752 |
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1 |
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— |
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— |
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— |
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1 |
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Offering costs related to securities purchase agreement |
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— |
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— |
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(888 |
) |
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— |
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— |
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(888 |
) |
Issuance of placement agent warrants |
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— |
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— |
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526 |
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— |
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— |
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|
526 |
|
Stock-based compensation |
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|
— |
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— |
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|
298 |
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|
|
— |
|
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|
— |
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|
298 |
|
Issuance of shares related to reverse stock split |
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1,311 |
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— |
|
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
1 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,615 |
) |
|
|
— |
|
|
|
(10,615 |
) |
Balance at March 31, 2018 |
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2,481,137 |
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|
$ |
43 |
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|
$ |
176,125 |
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|
$ |
(175,501 |
) |
|
$ |
— |
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|
$ |
667 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Three Months Ended March 31, |
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2018 |
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2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(10,615 |
) |
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$ |
(4,216 |
) |
Adjustments to reconcile net loss to cash used in operating activities: |
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Initial loss on common stock warrant and common stock adjustment feature liabilities |
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4,000 |
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— |
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Change in fair value of common stock warrant and common stock adjustment feature liabilities |
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1,900 |
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|
|
— |
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Offering costs related to securities purchase agreement |
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904 |
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|
|
— |
|
Depreciation and amortization |
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52 |
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|
81 |
|
Gain on disposal of equipment |
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(3 |
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(3 |
) |
Net amortization of investment premium |
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(2 |
) |
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(36 |
) |
Stock-based compensation |
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|
298 |
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|
|
371 |
|
Accretion of debt discount |
|
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— |
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|
49 |
|
Changes in operating assets and liabilities: |
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Accounts receivable |
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1,179 |
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|
65 |
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Unbilled revenue |
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(45 |
) |
|
|
72 |
|
Inventories |
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21 |
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|
62 |
|
Prepaid expenses and other current assets |
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|
137 |
|
|
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(404 |
) |
Other noncurrent assets |
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— |
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(423 |
) |
Accounts payable and accrued expenses |
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(322 |
) |
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(176 |
) |
Amounts due to related parties |
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(25 |
) |
|
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(10 |
) |
Unearned revenue |
|
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(96 |
) |
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|
38 |
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Net cash used in operating activities |
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(2,617 |
) |
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(4,530 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from sale of property and equipment |
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9 |
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4 |
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Purchases of property and equipment |
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(33 |
) |
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(57 |
) |
Purchases of investments |
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— |
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(4,582 |
) |
Proceeds from sales and maturities of investments |
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3,900 |
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|
14,695 |
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Net cash provided by investing activities |
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3,876 |
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|
10,060 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of common stock and warrants from securities purchase agreement |
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10,000 |
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|
— |
|
Payments of offering costs related to securities purchase agreement |
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(932 |
) |
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|
— |
|
Proceeds from exercise of stock options and ESPP purchases |
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|
966 |
|
|
|
16 |
|
Net cash provided by financing activities |
|
|
10,034 |
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|
|
16 |
|
Net increase in cash and cash equivalents |
|
|
11,293 |
|
|
|
5,546 |
|
Cash and cash equivalents — beginning of period |
|
|
9,125 |
|
|
|
2,013 |
|
Cash and cash equivalents — end of period |
|
$ |
20,418 |
|
|
$ |
7,559 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid for interest |
|
$ |
— |
|
|
$ |
288 |
|
Cash paid for income taxes |
|
$ |
24 |
|
|
$ |
— |
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
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|
|
|
|
|
|
|
Proceeds from sale of fixed assets included in prepaid expenses and other current assets at end of period |
|
$ |
1 |
|
|
$ |
— |
|
Offering costs in accounts payable and accrued expenses at end of period |
|
$ |
334 |
|
|
$ |
— |
|
Common stock warrants issued to placement agent and included in offering costs |
|
$ |
526 |
|
|
$ |
— |
|
Purchases of property and equipment included in accounts payable and accrued expenses |
|
$ |
— |
|
|
$ |
2 |
|
Exchange of membership interest in unconsolidated entity for common stock |
|
$ |
— |
|
|
$ |
2 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business and Basis of Presentation
Organization
Arcadia Biosciences, Inc. (the “Company”) was incorporated in Arizona in 2002 and maintains its headquarters in Davis, California, with additional facilities in Phoenix, Arizona, and American Falls, Idaho. The Company was reincorporated in Delaware in March 2015.
We are a consumer-driven, agricultural food ingredient company. We aim to create value across the agricultural production and supply chain beginning with enhanced crop productivity for farmers and ultimately to deliver accelerated innovation in nutritional quality consumer foods. We use state of the art gene-editing technology and advanced breeding techniques to naturally enhance the nutritional quality of grains and oilseeds to address the rapidly evolving trends in consumer health and nutrition. In addition, we have developed a broad pipeline of high value crop productivity traits designed to enhance farm economics.
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, which is consolidated by the Company, was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies.
Common Stock Authorized
In June 2017, the shareholders approved an Amendment to the Company’s Amended and Restated Certificate of Incorporation to reduce the authorized common stock from four hundred million to one hundred and fifty million shares.
Reverse Stock Split
In January 2018, the Company’s board of directors and its shareholders approved a reverse split of 1:20 on the Company’s issued and outstanding common stock which became effective on January 23, 2018. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the condensed consolidated financial statement have been retroactively adjusted to reflect the reverse stock split for all periods presented.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and Verdeca 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 condensed 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 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 the full fiscal year. The information included in these condensed 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, 2017 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 20, 2018.
5
Liquidity and Capital Resources
As of March 31, 2018, the Company had an accumulated deficit of $175.5 million and cash on hand of $20.4 million. Since the Company’s inception, we have devoted substantially all efforts to research and development activities, including the discovery, advancement, and testing of the Company’s traits and products incorporating the Company’s traits. To date, we have not generated revenues from sales of commercial products, other than limited revenues from the Company’s SONOVA products.
In March 2018 and subsequent to the issuance of the Company’s 2017 consolidated financial statements, the Company executed definitive securities purchase agreements with institutional investors in connection with a private placement of common stock and warrants in the amount of $10 million, exclusive of any related transaction fees, which funding improved the Company’s liquidity position.
With cash on hand of $20.4 million as of March 31, 2018, the Company believes that it currently has sufficient cash to fund its operations beyond the look forward period of 12 months from the issuance of these condensed consolidated financial statements.
We may seek to raise additional funds through debt or equity financings, if necessary. We may also consider entering into additional partner arrangements or pursuing additional government grants. The sale of additional equity would result in dilution to the Company’s stockholders. The incurrence of debt would result in debt service obligations, and the instruments governing such debt could provide for additional operating and financing covenants that would restrict operations. If we are not able to secure adequate additional funding, we may be forced to reduce spending, extend payment terms with suppliers, liquidate assets, or suspend or curtail planned development programs. Any of these actions could materially harm the business, results of operations and financial condition.
2. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date, which defers the effective date of ASU No. 2014-09 by one year allowing early adoption as of the original effective date January 1, 2017. The deferral results in the new revenue standard being effective for the Company as of January 1, 2018. See Note 5.
In January 2016, the FASB issued ASU No. 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 adopted ASU No. 2016-01 with no material impact to the condensed consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Based on the new standard, lessees 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 evaluating the impact of the adoption of ASU No. 2016-02 on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 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 No. 2016-13 on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments address cash flow issues such as debt prepayment or debt extinguishment costs and zero-coupon debt instruments. The amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. The amendments are to be applied using a retrospective transition method to each period presented. If it is impractical to retrospectively apply, it can be applied prospectively as of the earliest date practicable. The Company adopted ASU No. 2016-15 with no material impact to the condensed consolidated financial statements.
6
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting. The amendments affect any entity that changes the terms or conditions of a share-based payment award. The amendments in this update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted ASU No. 2017-09 with no material impact to the condensed consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which retained the current framework for accounting for financial instruments in generally accepted accounting principles (GAAP) but made targeted improvements to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. The Company is currently evaluating the impact of the adoption of ASU No. 2018-03 on its condensed consolidated financial statements.
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):
|
March 31, 2018 |
|
|
December 31, 2017 |
|
|||
|
$ |
45 |
|
|
$ |
45 |
|
|
Finished goods |
|
|
1,331 |
|
|
|
1,352 |
|
Inventories |
|
$ |
1,376 |
|
|
$ |
1,397 |
|
4. Investments and Fair Value of Financial Instruments
Available-for-Sale Investments
The Company classified short-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 in the Consolidated Balance Sheets. Gains and losses are recognized when realized in the Consolidated Statements of Operations and Comprehensive Loss.
The following tables summarize the amortized cost and fair value of the available-for-sale investment securities portfolio at March 31, 2018 and December 31, 2017, 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 |
|
||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
9,993 |
|
|
|
— |
|
|
|
— |
|
|
|
9,993 |
|
Treasury Bills |
|
|
9,991 |
|
|
|
— |
|
|
|
— |
|
|
|
9,991 |
|
Total Assets at Fair Value |
|
$ |
19,984 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,984 |
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
|||||
December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
8,943 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,943 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
1,399 |
|
|
|
— |
|
|
|
— |
|
|
|
1,399 |
|
U.S. government securities |
|
|
2,500 |
|
|
|
— |
|
|
|
(1 |
) |
|
|
2,499 |
|
Total Assets at Fair Value |
|
$ |
12,842 |
|
|
$ |
— |
|
|
$ |
(1 |
) |
|
$ |
12,841 |
|
The Company did not have any investment categories that were in a continuous unrealized loss position for more than three months as of March 31, 2018. The unrealized gains and losses amounts above are included in accumulated other comprehensive income or loss.
7
As of March 31, 2018, 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 months ended March 31, 2018.
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 condensed consolidated financial statements on a recurring basis. Assets and liabilities recorded at fair value in the condensed 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 following table sets forth the fair value of the Company’s financial assets and liabilities as of March 31, 2018 and December 31, 2017:
|
Fair Value Measurements at March 31, 2018 |
|
||||||||||||||
(Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
9,993 |
|
|
|
— |
|
|
|
— |
|
|
|
9,993 |
|
Treasury Bills |
|
|
9,991 |
|
|
|
— |
|
|
|
— |
|
|
|
9,991 |
|
Total Assets at Fair Value |
|
$ |
19,984 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
19,984 |
|
Liabilities at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability |
|
|
— |
|
|
|
— |
|
|
|
9,900 |
|
|
|
9,900 |
|
Common stock adjustment feature liability |
|
|
— |
|
|
|
— |
|
|
|
6,000 |
|
|
|
6,000 |
|
Total Liabilities at Fair Value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
15,900 |
|
|
$ |
15,900 |
|
|
Fair Value Measurements at December 31, 2017 |
|
||||||||||||||
(Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
8,943 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,943 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
— |
|
|
|
1,399 |
|
|
|
— |
|
|
|
1,399 |
|
U.S. government securities |
|
|
2,499 |
|
|
|
— |
|
|
|
— |
|
|
|
2,499 |
|
Total Assets at Fair Value |
|
$ |
11,442 |
|
|
$ |
1,399 |
|
|
$ |
— |
|
|
$ |
12,841 |
|
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2018 or 2017. The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities. For accounts receivable, accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of March 31, 2018 and December 31, 2017 were considered representative of their fair values due to their short term to maturity or repayment. Cash equivalents are carried at cost, which approximates their fair value.
8
The Company’s Level 3 liabilities, which were measured and recorded on a recurring basis, consist of derivative liabilities related to the securities purchase agreement described in Note 9. The following table sets forth the establishment of these derivative liabilities, as well as a summary of the changes in the fair value and other adjustments (in thousands):
|
|
(Level 3) |
|
||||||||||
|
Common Stock Warrant Liability |
|
|
Common Stock Adjustment Feature Liability |
|
|
|
Total |
|
||||
Balance as of December 31, 2017 |
|
$ |
— |
|
|
$ |
— |
|
|
|
$ |
— |
|
Common stock and warrants issued in conjunction with securities purchase agreement |
|
|
10,200 |
|
|
|
3,800 |
|
|
|
|
14,000 |
|
Change in fair value and other adjustments |
|
|
(300 |
) |
|
|
2,200 |
|
|
|
|
1,900 |
|
Balance as of March 31, 2018 |
|
$ |
9,900 |
|
|
$ |
6,000 |
|
|
|
$ |
15,900 |
|
In determining the fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:
|
• |
Money market funds and treasury bills - Investments in money market funds are classified within Level 1. At March 31, 2018 and December 31, 2017, money market funds and treasury bills were included on the balance sheets in cash and cash equivalents. |
|
• |
Common stock warrant liability - As of March 31, 2018, the Company had warrants to purchase 300,752 shares of common stock outstanding that it issued to certain accredited investors and its placement agent following the closing of the Private Placement on March 22, 2018 (as described in Note 9). The common stock warrants are classified as a liability within Level 3. The Company utilizes a binomial-lattice pricing model (the Monte Carlo simulation model) that involves a market condition to estimate the fair value of the common stock warrants. The application of the Monte Carlo simulation model requires the use of several assumptions including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and the volatility of a peer group, and the risk-free interest rate for the term of the warrant. The estimated fair value of the common stock warrant liability was subsequently remeasured at March 31, 2018, and the change was recorded on the Company’s condensed consolidated statements of operations and comprehensive loss. |
|
• |
Common stock adjustment feature liability - As of March 31, 2018, the Company had issued 300,752 shares of common stock to certain accredited investors following the closing of the Private Placement on March 22, 2018 (as described in Note 9). The number of common stock shares issued, along with the number and exercise price of the common stock warrants issued, is subject to price adjustments. This common stock adjustment feature is classified as a liability within Level 3. The Company utilizes a binomial-lattice pricing model (the Monte Carlo simulation model) that involves a market condition to estimate the fair value of this feature. The application of the Monte Carlo simulation model requires the use of several assumptions including the Company’s stock price, expected life of the feature, stock price volatility determined from the Company’s historical stock prices and the volatility of a peer group, and risk-free interest rate for the expected life of the common stock adjustment feature. The estimated fair value of the common stock adjustment feature was subsequently remeasured at March 31, 2018, and the change was recorded on the Company’s condensed consolidated statements of operations and comprehensive loss. |
9
5. Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers." Topic 606 supersedes the revenue recognition requirements in Topic 605 “Revenue Recognition” (Topic 605) and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 605. With the adoption of Topic 606, tax recognition will now follow book recognition for up-front license and commercial value sharing fees. Annual license fees and milestone fees may continue to be recognized differently for book and tax to the extent that revenue recognized for book is prior to cash receipts.
We recorded a net reduction to opening accumulated deficit of $2.4 million on January 1, 2018, with a corresponding reduction to unearned revenue, due to the cumulative impact of adopting Topic 606. The adjustment pertained to up-front license fees which were previously deferred for which the performance obligation was determined to be complete as of the date of adoption. The impact to revenues with the adoption of Topic 606 for the quarter ended March 31, 2018 was a decrease of $82,000, relating to the above mentioned up-front license fee revenues.
Revenues represent amounts earned from product sales, grants and contract research and license agreements. As it pertains to product sales and grants and contract research, there are no changes from Topic 605 compared to the adoption of Topic 606. There is a change in methodology from Topic 605 to Topic 606 that impacts the recognition of revenues from license agreements. The Company’s license agreements have one performance obligation and various payment terms over a long commercial development timeline ranging from approximately 10 to 20 years. These payment terms may contain, but are not limited to:
|
1. |
Up-front non-refundable license fees |
|
2. |
Annual license fees |
|
3. |
Milestone fees |
|
4. |
Commercial value share fees |
Under Topic 605, up-front license fees were deferred and amortized over the estimated commercial development timeline. Under Topic 606, such fees will be recognized upon execution of the agreement. The deferred balance remaining from the existing portfolio of license agreements that were executed prior to January 1, 2018 were recorded as a reduction to accumulated deficit upon the adoption of ASC 606 on January 1, 2018. Up-front license fees for newly executed agreements will be recognized upon execution.
Under Topic 605, annual license fees were recognized on the annual due date as such fees were not due if a milestone was met or if termination of the agreement occurred. Under Topic 606, annual license fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed. The evaluation and analysis of such fees is performed and once an annual license fee is deemed probable to have been earned, it is recognized in full in that period.
Under Topic 605, milestone fees were recognized when the Company and partner licensee mutually agreed the milestone had been achieved. Under Topic 606, milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed. The Company assesses when achievement of milestones are probable in order to determine the timing of revenue recognition for milestone fees. Once a milestone is deemed probable to be achieved, it is recognized in full in that period.
There is no change from Topic 605 to Topic 606 pertaining to future commercial value revenue recognition. Commercial value share fees will be recognized based on subsequent sales by the licensee. The Company has not recognized any of these fees to date and does not expect to do so for several years.
6. Variable Interest Entity
In February 2012, the Company formed Verdeca LLC (“Verdeca”), which is equally 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 300 shareholders, including some of South America’s largest soybean growers. Verdeca was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies.
10
The Company determined that a de facto agency relationship between the Company and Bioceres exists. 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.
Both the Company and Bioceres incur expenses in support of specific activities, as agreed upon 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. Under the terms of the joint development agreement, the Company has incurred direct expenses and allocated overhead in the amounts of $286,000 and $92,000 for the three months ended March 31, 2018 and 2017, respectively.
7. Collaborative Arrangements
In August 2017, the Company entered into a collaborative arrangement for the research, development and commercialization of an improved wheat quality trait in North America. This collaborative arrangement is a contractual agreement with a third party and involves a joint operating activity where both Arcadia and the third party are active participants in the activities of the collaboration. Arcadia and the third party participate in the research and development, and Arcadia has the primary responsibility for the intellectual property strategy while the third party will generally lead the marketing and commercialization efforts. Both parties are exposed to significant risks and rewards of the collaboration and the agreement includes both cost sharing and profit sharing. The activities are performed with no guarantee of either technological or commercial success.
The Company accounts for research and development (“R&D”) costs in accordance ASC 730, Research and Development, which states R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results are achieved.
8. Debt
Long-term Debt
There was no long-term debt as of March 31, 2018 and December 31, 2017.
Term Loan
In December 2015, the Company entered into a loan and security agreement (“Term Loan”) with Silicon Valley Bank (the “Bank”) providing for a senior secured term loan facility in the amount of $25.0 million, which proceeds were used to repay all existing debt. In July 2017, the Company repaid the Term Loan with Silicon Valley Bank, along with the $625,000 end-of-term fee and $500,000 prepayment fee. The prepayment and end of term fees of $1.1 million were recorded as a loss on extinguishment of debt, along with $41,000 of deferred loan issuance fees, partially offset by $267,000 of end of term fees previously amortized, netting to a loss of $900,000. As of the payoff date, the Company was in compliance with all covenants.
The Company recognized interest expense of $339,000 for the three months ended March 31, 2017, of which $49,000 was related to the debt discount. There was no interest expense recognized for the three months ended March 31, 2018.
9. Private Placement and Securities Purchase Agreement
On March 22, 2018, the Company issued 300,752 shares of its common stock (“Common Stock”) and warrants to purchase up to 300,752 shares of Common Stock with an initial exercise price equal to $45.75 (the “Warrants”), in a private placement (the “Private Placement”) in accordance with a securities purchase agreement (the “Purchase Agreement”) entered into with certain institutional and accredited investors (collectively, the “Purchasers”) on March 19, 2018. The Warrants are immediately exercisable, subject to certain ownership limitations, and expire five years after the date of issuance.
The Purchase Agreement requires that the Company hold a special meeting of its shareholders no later than May 3, 2018 in order to obtain shareholder approve the issuance of Common Stock in the Private Placement. If the shareholders do not approve the Private Placement at that meeting, the Company is required to seek shareholder approval every four months thereafter until the issuance of Common Stock is approved or until the Warrants have terminated. The shareholders approved the Company’s issuance of shares of common stock at the special meeting of shareholders held on May 2, 2018.
The per share purchase price of the Common Stock and per share exercise price for the Warrants are subject to adjustment based on the volume weighted average price for the three trading days (the “VWAP Calculation”) after each of the following: (i) the date that a registration statement covering the resale of the securities being issued in the Private Placement (“Resale Registration Statement”) has been declared effective by the SEC, (ii) if a registration statement covering all securities issued in the Private
11
Placement is not declared effective, then the date that the securities can be sold under Rule 144 under the Securities Act of 1933, as amended, and (iii) if later than the dates set forth in item (i) and (ii), then the date that the Company’s shareholders approve the Private Placement. After each adjustment, the per share purchase price for Common Stock shall automatically be reduced, if applicable, to 80% of the VWAP Calculation, and the per share exercise price for the Warrant shall automatically be reduced, if applicable, to 110% of the VWAP Calculation; provided, that in no event, will the per share purchase price for the Common Stock or the exercise price for the Warrants be less than $8.322. In the event, the per share exercise price for the Warrants is adjusted, then the number of shares exercisable under the Warrants shall be increased so that the aggregate exercise price payable after adjustment is equal to the aggregate exercise price payable prior to such adjustment.
The Company filed the Resale Registration Statement with the SEC on March 30, 2018, and it was declared effective on April 23, 2018. As described above and based upon the applicable VWAP Calculations relating to these events, each of these events caused an adjustment to the number of shares issued in the Private Placement and the terms of the Warrants. Following the effectiveness of the Resale Registration Statement, on April 23, 2018 the number of shares issued pursuant to the Purchase Agreement increased from 300,752 to 798,754, the total number of shares issuable upon exercise of the Warrants increased from 300,752 to 799,300 and the per share exercise price of the Warrants reduced from $45.75 to $17.2143. Following shareholder approval of the issuance of shares in the Private Placement, on May 8, 2018 the number of shares issued pursuant to the Purchase Agreement increased from 798,754 to 1,201,636, the total number of shares issuable upon exercise of the Warrants increased from 799,300 to 1,282,832 and the per share exercise price of the Warrants reduced from $17.2143 to $10,7258. These condensed consolidated financial statements do not reflect these additional issuances as such events occurred after March 31, 2018. The Company has not yet completed its valuation of the common stock adjustment feature and common stock warrants for any events that occurred after March 31, 2018.
The aggregate net proceeds received by the Company for the Private Placement was $8.7 million, consisting of gross proceeds of $10.0 million less offering costs of $1.3 million. The Company entered into the Private Placement to secure additional capital to strengthen its cash resources required to launch its new health and nutrition ingredient product commercialization and production scale-up plans, as well as to continue the deregulation and commercialization of its stress tolerant HB4 soybean trait. More specifically, net proceeds will be used for working capital to fund the continued introgression of quality ingredient traits into elite germ plasm, additional seed bulk-up, increased planting acreage, consumer brand development and a number of other pre-commercialization and commercialization activities.
The common stock adjustment feature and common stock warrants were determined to be liabilities based on each instrument’s adjustment features and were accounted for at their respected fair value at inception using a Monte Carlo simulation model with the following assumptions: volatility of 100 percent, stock price of $32.52 and risk-free rate of 2.63%. At inception, the fair value of the common stock adjustment feature and the common stock warrant liabilities were $3.8 million and $10.2 million, respectively. As the combined values of the liabilities exceeded the $10.0 million of proceeds, no value was assigned to the common stock issued and an initial loss of $4.0 million was recognized. The liabilities are marked-to-market and were valued at $15.9 million at March 31, 2018, resulting in an additional loss of $1.9 million in the accompanying condensed consolidated statement of operations and comprehensive loss for the quarter ended March 31, 2018. The liabilities will be marked to market and the balances subsequently reclassified to equity as of the date the final adjustments to the number of common stock shares and common stock warrant shares to be issued are determined.
Registration Rights Agreement
In connection with the Private Placement, the Company entered into a registration rights agreement (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, the Company filed the Resale Registration Statement with the SEC on March 30, 2018 for purposes of registering the resale of the shares of Common Stock issued pursuant to the Purchase Agreement and the shares of Common Stock issuable upon exercise of the Warrants. The SEC declared the registration statement effective on April 23, 2018.
Offering Costs
In connection with the Private Placement, the Company paid to a placement agent an aggregate fee equal to $850,000. The Company also granted warrants to purchase a total of 15,038 shares of common stock (“Placement Agent Warrants”) that have an exercise price per share equal to $41.5625 and a term of five years. The Placement Agent Warrants were issued for services performed by the placement agent as part of the Private Placement and were treated as offering costs. The value of the Placement Agent Warrants was determined to be $526,000 using the Black-Scholes Model with input assumptions including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and the volatility of a peer group, and the risk-free interest rate for the term of the warrants. The Company incurred additional offering costs totaling $1.3 million that consist of direct incremental legal, advisory, accounting and filing fees relating to the Private Placement. The offering costs,
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inclusive of the Placement Agent Warrants, totaled $1.8 million. The allocation of the offering costs to the common stock, common stock liability and common stock adjustment feature liability was based on the relative fair value of each. The portion attributable to the liabilities was $904,000 and expensed, while the portion attributable to the common stock was $888,000 and offset to additional paid in capital.
10. Stock-Based Compensation and Warrants
Stock Incentive Plans
The Company has two equity incentive plans: the 2006 Stock Plan (“2006 Plan”) and the 2015 Omnibus Equity Incentive Plan (“2015 Plan”).
In 2006, the Company adopted the 2006 Plan, which provided for the granting of stock options to executives, employees, and other service providers under terms and provisions established by the Board of Directors. The Company granted non-statutory stock options (“NSOs”) under the 2006 Plan until May 2015, when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding and were issued under the 2006 Plan. The 2015 Plan became effective in May 2015 and all shares that were reserved, but not issued, under the 2006 Plan were assumed by the 2015 Plan. Upon effectiveness, the 2015 Plan had 154,387 shares of common stock reserved for future issuance, which included 10,637 shares under the 2006 Plan that were transferred to and assumed by the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares available for grant. In addition, shares subject to awards under the 2006 Plan that are forfeited or canceled will be added to the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options (“ISOs”), NSOs, restricted stock awards, stock units, stock appreciation rights, and other forms of equity compensation, all of which may be granted to employees, officers, non-employee directors, and consultants. The ISOs and NSOs will be granted at a price per share not less than the fair value at the date of grant. Options granted generally vest over a four-year period, with 25% vesting at the end of one year and the remaining vesting monthly thereafter. Options granted, once vested, are generally exercisable for up to 10 years after grant.
As of March 31, 2018, a total of 479,603 shares of common stock were reserved for issuance under the 2015 Plan, of which 298,778 shares of common stock are available for future grant. As of March 31, 2018, a total of 71,730 and 180,825 options are outstanding under the 2006 and 2015 Plans, respectively.
A summary of activity under the stock incentive plans is as follows (in thousands, except share data and price per share):
|
Shares Subject to Outstanding Options |
|
|
Weighted- Average Exercise Price Per Share |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding — Balance at December 31, 2017 |
|
|
288,129 |
|
|
$ |
63.62 |
|
|
$ |
— |
|
Options granted |
|
|
10,000 |
|
|
|
45.69 |
|
|
|
|
|
Options exercised |
|
|
(44,354 |
) |
|
|
21.73 |
|
|
|
|
|
Options cancelled and forfeited |
|
|
(1,221 |
) |
|
|
67.44 |
|
|
|
|
|
Outstanding — Balance at March 31, 2018 |
|
|
252,554 |
|
|
$ |
70.35 |
|
|
$ |
— |
|
Vested and expected to vest — March 31, 2018 |
|
|
246,625 |
|
|
$ |
70.96 |
|
|
$ |
— |
|
Exercisable —March 31, 2018 |
|
|
104,210 |
|
|
$ |
106.20 |
|
|
$ |
— |
|
As of March 31, 2018, there was $1.2 million of unrecognized compensation cost related to unvested stock-based compensation grants that will be recognized over the weighted-average remaining recognition period of 2.98 years.
The fair value of stock option awards to executives, employees, and other service providers was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumption. There were 10,000 options granted during the three months ended March 31, 2018 and no options granted during the three months ended March 31, 2017.
|
|
Three Months Ended March 31, |
|