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 September 30, 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 every Interactive Data File required to be submitted 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 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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☐ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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☒ |
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Emerging growth company |
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☒ |
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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 October 26, 2018, the registrant had 4,774,919 shares of common stock outstanding, $0.001 par value per share.
FORM 10-Q FOR THE QUARTER ENDED September 30, 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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18 |
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Item 3. |
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28 |
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Item 4. |
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28 |
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Part II — |
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28 |
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Item 1. |
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28 |
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Item 1A. |
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29 |
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Item 2. |
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30 |
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Item 3. |
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30 |
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Item 4. |
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30 |
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Item 5. |
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30 |
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Item 6. |
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31 |
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32 |
Arcadia Biosciences, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
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September 30, 2018 |
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December 31, 2017 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
6,669 |
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$ |
9,125 |
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Short-term investments |
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17,931 |
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3,898 |
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Accounts receivable |
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193 |
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1,231 |
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Unbilled revenue |
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168 |
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4 |
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Inventories — current |
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354 |
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229 |
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Prepaid expenses and other current assets |
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888 |
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560 |
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Total current assets |
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26,203 |
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15,047 |
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Property and equipment, net |
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265 |
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299 |
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Inventories — noncurrent |
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742 |
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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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$ |
27,217 |
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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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$ |
2,303 |
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$ |
2,496 |
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Amounts due to related parties |
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18 |
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29 |
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Unearned revenue — current |
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316 |
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1,000 |
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Total current liabilities |
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2,637 |
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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 liabilities |
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8,658 |
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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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14,295 |
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8,563 |
|
Stockholders’ equity: |
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Common stock, $0.001 par value—150,000,000 shares authorized as of September 30, 2018 and December 31, 2017; 4,774,919 and 2,134,154 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively |
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45 |
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42 |
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Additional paid-in capital |
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190,599 |
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175,223 |
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Accumulated deficit |
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(177,720 |
) |
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(167,257 |
) |
Accumulated other comprehensive loss |
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(2 |
) |
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(1 |
) |
Total stockholders’ equity |
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12,922 |
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8,007 |
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Total liabilities and stockholders’ equity |
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$ |
27,217 |
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$ |
16,570 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
Arcadia Biosciences, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
(In thousands, except share and per share data)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2018 |
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2017 |
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2018 |
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2017 |
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Revenues: |
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Product |
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$ |
144 |
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$ |
82 |
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$ |
393 |
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$ |
482 |
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License |
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10 |
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144 |
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100 |
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353 |
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Contract research and government grants |
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216 |
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363 |
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527 |
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1,763 |
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Total revenues |
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370 |
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589 |
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1,020 |
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2,598 |
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Operating expenses: |
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Cost of product revenues |
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124 |
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40 |
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431 |
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262 |
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Research and development |
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1,334 |
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1,749 |
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4,524 |
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5,241 |
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Selling, general and administrative |
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3,011 |
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2,415 |
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8,581 |
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8,410 |
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Total operating expenses |
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4,469 |
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4,204 |
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13,536 |
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13,913 |
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Loss from operations |
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(4,099 |
) |
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(3,615 |
) |
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(12,516 |
) |
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(11,315 |
) |
Interest expense |
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— |
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(43 |
) |
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— |
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(747 |
) |
Other income, net |
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134 |
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46 |
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266 |
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246 |
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Initial loss on common stock warrant and common stock adjustment feature liability |
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— |
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— |
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(4,000 |
) |
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— |
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Change in fair value of common stock warrant liabilities and common stock adjustment feature liability |
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8,421 |
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— |
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5,986 |
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— |
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Offering costs |
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(1 |
) |
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— |
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(2,544 |
) |
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— |
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Loss on extinguishing of debt |
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— |
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(900 |
) |
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— |
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|
(900 |
) |
Net income (loss) before income taxes |
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|
4,455 |
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(4,512 |
) |
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(12,808 |
) |
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(12,716 |
) |
Income tax provision |
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(5 |
) |
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(13 |
) |
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(26 |
) |
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(31 |
) |
Net income (loss) |
|
$ |
4,450 |
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$ |
(4,525 |
) |
|
$ |
(12,834 |
) |
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$ |
(12,747 |
) |
Net income (loss) per share attributable to common stockholders: |
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Basic and diluted |
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$ |
0.93 |
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$ |
(2.12 |
) |
|
$ |
(3.74 |
) |
|
$ |
(5.89 |
) |
Weighted-average number of shares used in per share calculations: |
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Basic and diluted |
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4,774,732 |
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2,133,846 |
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3,427,799 |
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2,163,604 |
|
Other comprehensive income (loss), net of tax |
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|
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Unrealized losses (gains) on available-for-sale securities |
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(2 |
) |
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8 |
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(1 |
) |
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14 |
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Other comprehensive loss (income) |
|
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(2 |
) |
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8 |
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|
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(1 |
) |
|
|
14 |
|
Comprehensive income (loss) attributable to common stockholders |
|
$ |
4,448 |
|
|
$ |
(4,517 |
) |
|
$ |
(12,835 |
) |
|
$ |
(12,733 |
) |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
Arcadia Biosciences, Inc.
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 |
|
|
2,224,384 |
|
|
$ |
44 |
|
|
$ |
173,723 |
|
|
$ |
(151,550 |
) |
|
$ |
(19 |
) |
|
$ |
22,198 |
|
Issuance of shares related to employee stock purchase plan |
|
|
1,964 |
|
|
|
— |
|
|
|
24 |
|
|
|
— |
|
|
|
— |
|
|
|
24 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,474 |
|
|
|
— |
|
|
|
— |
|
|
|
1,474 |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
18 |
|
Exchange of membership interest in unconsolidated entity for common stock |
|
|
(92,194 |
) |
|
|
(2 |
) |
|
|
2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(15,707 |
) |
|
|
— |
|
|
|
(15,707 |
) |
Balance at December 31, 2017 |
|
|
2,134,153 |
|
|
$ |
42 |
|
|
$ |
175,223 |
|
|
$ |
(167,257 |
) |
|
$ |
(1 |
) |
|
$ |
8,007 |
|
Impact of adoption of Topic 606 (Note 5) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,371 |
|
|
|
— |
|
|
|
2,371 |
|
Issuance of shares related to employee stock option exercises |
|
|
44,354 |
|
|
|
— |
|
|
|
963 |
|
|
|
— |
|
|
|
— |
|
|
|
963 |
|
Issuance of shares related to employee stock purchase plan |
|
|
1,122 |
|
|
|
— |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
6 |
|
Issuance of shares related to Purchase Agreement |
|
|
1,201,634 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of placement agent warrants related to Purchase Agreement |
|
|
— |
|
|
|
— |
|
|
|
526 |
|
|
|
— |
|
|
|
— |
|
|
|
526 |
|
Reclassification of common stock adjustment feature liability balance |
|
|
— |
|
|
|
— |
|
|
|
8,378 |
|
|
|
— |
|
|
|
— |
|
|
|
8,378 |
|
Issuance of shares related to June Offering |
|
|
1,392,345 |
|
|
|
2 |
|
|
|
4,976 |
|
|
|
— |
|
|
|
— |
|
|
|
4,978 |
|
Offering costs related to June Offering |
|
|
— |
|
|
|
— |
|
|
|
(897 |
) |
|
|
— |
|
|
|
— |
|
|
|
(897 |
) |
Issuance of placement agent warrants related to June Offering |
|
|
— |
|
|
|
— |
|
|
|
427 |
|
|
|
— |
|
|
|
— |
|
|
|
427 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
998 |
|
|
|
— |
|
|
|
— |
|
|
|
998 |
|
Issuance of shares related to reverse stock split |
|
|
1,311 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
(1 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(12,834 |
) |
|
|
— |
|
|
|
(12,834 |
) |
Balance at September 30, 2018 |
|
|
4,774,919 |
|
|
$ |
45 |
|
|
$ |
190,599 |
|
|
$ |
(177,720 |
) |
|
$ |
(2 |
) |
|
$ |
12,922 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Arcadia Biosciences, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2018 |
|
|
|
2017 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(12,834 |
) |
|
$ |
(12,747 |
) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
Initial loss on common stock warrant and common stock adjustment feature liabilities |
|
|
4,000 |
|
|
|
— |
|
Change in fair value of common stock warrant liabilities and common stock adjustment feature liability |
|
|
(5,986 |
) |
|
|
— |
|
Offering costs |
|
|
2,544 |
|
|
|
— |
|
Depreciation and amortization |
|
|
123 |
|
|
|
215 |
|
Gain on disposal of equipment |
|
|
(3 |
) |
|
|
(3 |
) |
Net amortization of investment premium |
|
|
(115 |
) |
|
|
(82 |
) |
Stock-based compensation |
|
|
998 |
|
|
|
1,177 |
|
Loss on sale of investments |
|
|
— |
|
|
|
2 |
|
Accretion of debt discount |
|
|
— |
|
|
|
98 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
900 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,038 |
|
|
|
276 |
|
Unbilled revenue |
|
|
(164 |
) |
|
|
123 |
|
Inventories |
|
|
301 |
|
|
|
164 |
|
Prepaid expenses and other current assets |
|
|
(334 |
) |
|
|
(222 |
) |
Other noncurrent assets |
|
|
— |
|
|
|
(245 |
) |
Accounts payable and accrued expenses |
|
|
(142 |
) |
|
|
(496 |
) |
Amounts due to related parties |
|
|
(11 |
) |
|
|
1 |
|
Unearned revenue |
|
|
(351 |
) |
|
|
(443 |
) |
Net cash used in operating activities |
|
|
(10,936 |
) |
|
|
(11,282 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
10 |
|
|
|
4 |
|
Purchases of property and equipment |
|
|
(89 |
) |
|
|
(77 |
) |
Purchases of investments |
|
|
(22,871 |
) |
|
|
(19,405 |
) |
Proceeds from sales and maturities of investments |
|
|
8,950 |
|
|
|
57,778 |
|
Net cash (used in) provided by investing activities |
|
|
(14,000 |
) |
|
|
38,300 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants from Purchase Agreement |
|
|
10,000 |
|
|
|
— |
|
Payments of offering costs relating to Purchase Agreement |
|
|
(1,308 |
) |
|
|
— |
|
Proceeds from issuance of common stock and warrants from June Offering |
|
|
14,000 |
|
|
|
— |
|
Payments of offering costs relating to June Offering |
|
|
(1,181 |
) |
|
|
— |
|
Payment of debt extinguishment costs |
|
|
— |
|
|
|
(1,125 |
) |
Proceeds from exercise of stock options and ESPP purchases |
|
|
969 |
|
|
|
24 |
|
Payment on notes payable |
|
|
— |
|
|
|
(25,000 |
) |
Net cash provided by (used in) financing activities |
|
|
22,480 |
|
|
|
(26,101 |
) |
Net (decrease) increase in cash and cash equivalents |
|
|
(2,456 |
) |
|
|
917 |
|
Cash and cash equivalents — beginning of period |
|
|
9,125 |
|
|
|
2,013 |
|
Cash and cash equivalents — end of period |
|
$ |
6,669 |
|
|
$ |
2,930 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
— |
|
|
$ |
746 |
|
Cash paid for income taxes |
|
$ |
24 |
|
|
$ |
2 |
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Common stock warrants issued to placement agent and included in offering costs related to Purchase Agreement |
|
$ |
526 |
|
|
$ |
— |
|
Common stock warrants issued to placement agent and included in offering costs related to June Offering |
|
$ |
239 |
|
|
$ |
— |
|
Purchases of property and equipment included in accounts payable and accrued expenses |
|
$ |
— |
|
|
$ |
2 |
|
Reclassification of common stock adjustment feature liability balance to equity |
|
$ |
8,378 |
|
|
$ |
— |
|
Exchange of membership interest in unconsolidated entity for common stock |
|
$ |
— |
|
|
$ |
2 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
4
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 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 delivering 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 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 number of 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. The reverse stock split did not change the total number of authorized shares of common stock which remained at one hundred and fifty million shares.
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 September 30, 2018, the Company had an accumulated deficit of $177.7 million, cash and cash equivalents of $6.7 million and short-term investments of $17.9 million. Since the Company’s inception, substantially all of the Company’s efforts have been devoted 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, the Company executed securities purchase agreements with institutional investors in connection with a private placement of common stock and warrants in the amount of $10.0 million, exclusive of any related transaction fees, which funding improved the Company’s liquidity position. In June 2018, the Company executed agreements with institutional investors for the purchase of common stock and warrants in the amount of $14.0 million, exclusive of related transaction fees, further improving the Company’s liquidity position.
With cash and cash equivalents of $6.7 million and short-term investments of $17.9 million as of September 30, 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.
The Company may seek to raise additional funds through debt or equity financings, if necessary. The Company 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 the company does require additional funds and are not able to secure adequate additional funding, the Company 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 and disclose qualitative and quantitative information about leasing arrangements with terms longer than 12 months. The new standard allows a modified-retrospective approach to adoption and is effective for interim and annual periods beginning on January 1, 2019. The adoption will require recording right-of-use assets and corresponding lease obligation liabilities for the current operating leases. Additionally, in July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 824) – Targeted Improvements, both of which are also being evaluated. The Company expects that the adoption of ASU No. 2016-02 will not have a material impact on our Condensed Consolidated Statements of Operations and Comprehensive Loss. The Company continues to evaluate the impact of the adoption of ASU No. 2016-02, ASU No. 2018-10, and ASU No. 2018-11 on its condensed consolidated financial statements and expects adoption to take place on January 1, 2019.
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 currently evaluating the impact of the adoption of ASU No. 2016-13 on its condensed consolidated financial statements.
6
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 in the current year with no material impact to the condensed consolidated financial statements.
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.
In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The amendments affect any entity required to make disclosures about recurring or nonrecurring fair value measurements. The amendments are effective for all entities for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of ASU No. 2018-13 on its condensed consolidated financial statements.
3. SONOVA® Gamma Linolenic Acid (“GLA”) Safflower Oil Inventory
Raw materials costs 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. The Company recorded a $46,000 write-down of inventory for the three months ended September 30, 2018 and $223,000 for the nine months ended September 30, 2018. The Company did not record an inventory write-down for the three and nine months ended September 30, 2017. Inventories consist of the following (in thousands):
|
|
September 30, 2018 |
|
|
December 31, 2017 |
|
||
Raw materials |
|
$ |
45 |
|
|
$ |
45 |
|
Finished goods |
|
|
1,051 |
|
|
|
1,352 |
|
Inventories |
|
$ |
1,096 |
|
|
$ |
1,397 |
|
4. Investments and Fair Value of Financial Instruments
Available-for-Sale Investments
The Company classified short-term investments as “available-for-sale.” These short-term 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.
7
The following tables summarize the amortized cost and fair value of the available-for-sale investment securities portfolio at September 30, 2018 and December 31, 2017, and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income:
(Dollars in thousands) |
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
6,325 |
|
|
|
— |
|
|
|
— |
|
|
|
6,325 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Bills |
|
|
11,163 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
11,161 |
|
U.S. government securities |
|
|
2,797 |
|
|
|
— |
|
|
|
— |
|
|
|
2,797 |
|
Commercial paper |
|
|
3,973 |
|
|
|
— |
|
|
|
— |
|
|
|
3,973 |
|
Total Assets at Fair Value |
|
$ |
24,258 |
|
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
24,256 |
|
|
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 September 30, 2018. The unrealized gains and losses amounts above are included in accumulated other comprehensive income or loss.
As of September 30, 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 and nine months ended September 30, 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.
8
The following table sets forth the fair value of the Company’s financial assets and liabilities as of September 30, 2018 and December 31, 2017:
|
|
Fair Value Measurements at September 30, 2018 |
|
|||||||||||||
(Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
6,325 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
6,325 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Bills |
|
|
11,161 |
|
|
|
— |
|
|
|
— |
|
|
|
11,161 |
|
U.S. government securities |
|
|
2,797 |
|
|
|
— |
|
|
|
— |
|
|
|
2,797 |
|
Commercial paper |
|
|
— |
|
|
|
3,973 |
|
|
|
— |
|
|
|
3,973 |
|
Total Assets at Fair Value |
|
$ |
20,283 |
|
|
$ |
3,973 |
|
|
$ |
— |
|
|
$ |
24,256 |
|
Liabilities at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,658 |
|
|
$ |
8,658 |
|
Total Liabilities at Fair Value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
8,658 |