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, 2019
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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Accelerated filer |
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Non-accelerated filer |
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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 ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common |
RKDA |
NASDAQ CAPITAL MARKET |
As of November 4, 2019, the registrant had 8,646,149 shares of common stock outstanding, $0.001 par value per share.
FORM 10-Q FOR THE QUARTER ENDED September 30, 2019
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 Income (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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19 |
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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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Part II — |
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31 |
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Item 1. |
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31 |
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Item 1A. |
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31 |
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Item 2. |
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31 |
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Item 3. |
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31 |
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Item 4. |
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31 |
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Item 5. |
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31 |
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Item 6. |
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32 |
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33 |
Arcadia Biosciences, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
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September 30, 2019 |
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December 31, 2018 |
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Current assets: |
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Cash and cash equivalents |
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$ |
20,541 |
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$ |
11,998 |
|
Short-term investments |
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10,355 |
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9,825 |
|
Accounts receivable |
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127 |
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165 |
|
Unbilled revenue |
|
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— |
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3 |
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Inventories — current |
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1,843 |
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181 |
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Prepaid expenses and other current assets |
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740 |
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|
704 |
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Total current assets |
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33,606 |
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|
22,876 |
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Property and equipment, net |
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1,283 |
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|
395 |
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Right of use asset |
|
|
1,911 |
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— |
|
Inventories — noncurrent |
|
|
495 |
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|
746 |
|
Other noncurrent assets |
|
|
7 |
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|
7 |
|
Total assets |
|
$ |
37,302 |
|
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$ |
24,024 |
|
Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
5,016 |
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$ |
2,645 |
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Amounts due to related parties |
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28 |
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29 |
|
Notes payable - current |
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24 |
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— |
|
Unearned revenue — current |
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|
80 |
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|
96 |
|
Operating lease liability — current |
|
|
609 |
|
|
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— |
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Other current liabilities |
|
|
266 |
|
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|
284 |
|
Total current liabilities |
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6,023 |
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|
3,054 |
|
Notes payable — noncurrent |
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113 |
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— |
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Operating lease liability — noncurrent |
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1,450 |
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— |
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Common stock warrant liabilities |
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12,483 |
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5,083 |
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Other noncurrent liabilities |
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3,000 |
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3,072 |
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Total liabilities |
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23,069 |
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|
11,209 |
|
Stockholders’ equity: |
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Common stock, $0.001 par value—150,000,000 shares authorized as of September 30, 2019 and December 31, 2018; 8,646,149 and 4,774,919 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively |
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49 |
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45 |
|
Additional paid-in capital |
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214,423 |
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191,136 |
|
Accumulated deficit |
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(200,928 |
) |
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|
(178,366 |
) |
Total Arcadia Biosciences stockholders’ equity |
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13,544 |
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|
12,815 |
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Non-controlling interest |
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|
689 |
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|
— |
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Total stockholders' equity |
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14,233 |
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|
12,815 |
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Total liabilities and stockholders’ equity |
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$ |
37,302 |
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$ |
24,024 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
1
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income
(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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2019 |
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2018 |
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2019 |
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2018 |
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Revenues: |
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Product |
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$ |
216 |
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$ |
144 |
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$ |
485 |
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$ |
393 |
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License |
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17 |
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10 |
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17 |
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100 |
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Contract research and government grants |
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159 |
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216 |
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251 |
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527 |
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Total revenues |
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392 |
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370 |
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753 |
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1,020 |
|
Operating expenses: |
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Cost of product revenues |
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177 |
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124 |
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324 |
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431 |
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Research and development |
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1,931 |
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1,334 |
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5,387 |
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4,524 |
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Selling, general and administrative |
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4,477 |
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3,011 |
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10,434 |
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|
8,581 |
|
Total operating expenses |
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6,585 |
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|
4,469 |
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|
16,145 |
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|
13,536 |
|
Loss from operations |
|
|
(6,193 |
) |
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|
(4,099 |
) |
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(15,392 |
) |
|
|
(12,516 |
) |
Interest expense |
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|
(3 |
) |
|
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— |
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(3 |
) |
|
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— |
|
Other income, net |
|
|
119 |
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|
134 |
|
|
|
339 |
|
|
|
266 |
|
Initial loss on common stock warrant and common stock adjustment feature liabilities |
|
|
— |
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|
— |
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|
|
— |
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|
|
(4,000 |
) |
Change in fair value of common stock warrant and common stock adjustment feature liabilities |
|
|
(7,777 |
) |
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|
8,421 |
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(6,790 |
) |
|
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5,986 |
|
Offering costs |
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|
(336 |
) |
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|
(1 |
) |
|
|
(702 |
) |
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|
(2,544 |
) |
Net (loss) income before income taxes |
|
|
(14,190 |
) |
|
|
4,455 |
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|
(22,548 |
) |
|
|
(12,808 |
) |
Income tax benefit (provision) |
|
|
3 |
|
|
|
(5 |
) |
|
|
(14 |
) |
|
|
(26 |
) |
Net (loss) income |
|
$ |
(14,187 |
) |
|
$ |
4,450 |
|
|
$ |
(22,562 |
) |
|
$ |
(12,834 |
) |
Net (loss) income per share: |
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Basic and diluted |
|
$ |
(2.04 |
) |
|
$ |
0.93 |
|
|
$ |
(4.03 |
) |
|
$ |
(3.74 |
) |
Weighted-average number of shares used in per share calculations: |
|
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Basic and diluted |
|
|
6,942,612 |
|
|
|
4,774,732 |
|
|
|
5,596,545 |
|
|
|
3,427,799 |
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses on available-for-sale securities |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
(1 |
) |
Other comprehensive loss |
|
|
(1 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
(1 |
) |
Comprehensive (loss) income |
|
$ |
(14,188 |
) |
|
$ |
4,448 |
|
|
$ |
(22,562 |
) |
|
$ |
(12,835 |
) |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
|
|
Common Stock |
|
|
Additional Paid-In Capital |
|
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Accumulated Deficit |
|
|
Accumulated Other Comprehensive (Loss) |
|
|
Non-Controlling Interest |
|
|
Total Stockholders’ Equity |
|
||||||||||
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|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
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|
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Balance at January 1, 2018 |
|
|
2,134,153 |
|
|
$ |
42 |
|
|
$ |
175,223 |
|
|
$ |
(167,257 |
) |
|
$ |
(1 |
) |
|
$ |
— |
|
|
$ |
8,007 |
|
Impact of adoption of Topic 606 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
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 |
|
Common stock adjustment feature |
|
|
— |
|
|
|
— |
|
|
|
8,378 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,378 |
|
Issuance of shares related to June 2018 Offering |
|
|
1,392,345 |
|
|
|
2 |
|
|
|
4,976 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,978 |
|
Offering costs related to June 2018 Offering |
|
|
— |
|
|
|
— |
|
|
|
(912 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(912 |
) |
Issuance of placement agent warrants related to June 2018 Offering |
|
|
— |
|
|
|
— |
|
|
|
427 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
427 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,550 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,550 |
|
Issuance of shares related to reverse stock split |
|
|
1,311 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,480 |
) |
|
|
— |
|
|
|
— |
|
|
|
(13,480 |
) |
Balance at December 31, 2018 |
|
|
4,774,919 |
|
|
$ |
45 |
|
|
$ |
191,136 |
|
|
$ |
(178,366 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,815 |
|
Issuance of shares related to employee stock purchase plan |
|
|
8,536 |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
Issuance of shares related to employee stock option exercises |
|
|
546 |
|
|
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3 |
|
Issuance of shares related to June 2019 Offering |
|
|
1,489,575 |
|
|
|
2 |
|
|
|
3,301 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,303 |
|
Offering costs related to June 2019 Offering |
|
|
— |
|
|
|
— |
|
|
|
(487 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(487 |
) |
Issuance of placement agent warrants related to June 2019 Offering |
|
|
— |
|
|
|
— |
|
|
|
198 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
198 |
|
Issuance of shares related to the exercise of warrants issued with the June 2019 offering |
|
|
1,053,745 |
|
|
|
1 |
|
|
|
5,268 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,269 |
|
Reclassification of common stock warrant liability balance with exercise |
|
|
— |
|
|
|
— |
|
|
|
7,016 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,016 |
|
Issuance of shares related to September 2019 Offering |
|
|
1,318,828 |
|
|
|
1 |
|
|
|
6,570 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,571 |
|
Offering costs related to September 2019 Offering |
|
|
— |
|
|
|
— |
|
|
|
(796 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(796 |
) |
Issuance of placement agent warrants related to September 2019 Offering |
|
|
— |
|
|
|
— |
|
|
|
326 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
326 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,870 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,870 |
|
Non-controlling interest contributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
689 |
|
|
|
689 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,562 |
) |
|
|
— |
|
|
|
— |
|
|
|
(22,562 |
) |
Balance at September 30, 2019 |
|
|
8,646,149 |
|
|
$ |
49 |
|
|
$ |
214,423 |
|
|
$ |
(200,928 |
) |
|
$ |
— |
|
|
$ |
689 |
|
|
$ |
14,233 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2019 |
|
|
|
2018 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(22,562 |
) |
|
$ |
(12,834 |
) |
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 and common stock adjustment feature liabilities |
|
|
6,790 |
|
|
|
(5,986 |
) |
Offering costs |
|
|
702 |
|
|
|
2,544 |
|
Depreciation and amortization |
|
|
133 |
|
|
|
123 |
|
Lease amortization |
|
|
530 |
|
|
|
— |
|
Gain (Loss) on disposal of equipment |
|
|
1 |
|
|
|
(3 |
) |
Net amortization of investment premium |
|
|
(121 |
) |
|
|
(115 |
) |
Stock-based compensation |
|
|
1,870 |
|
|
|
998 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
38 |
|
|
|
1,038 |
|
Unbilled revenue |
|
|
3 |
|
|
|
(164 |
) |
Inventories |
|
|
(1,411 |
) |
|
|
301 |
|
Prepaid expenses and other current assets |
|
|
(36 |
) |
|
|
(334 |
) |
Accounts payable and accrued expenses |
|
|
2,425 |
|
|
|
(142 |
) |
Amounts due to related parties |
|
|
(1 |
) |
|
|
(11 |
) |
Unearned revenue |
|
|
(16 |
) |
|
|
(351 |
) |
Other current liabilities |
|
|
3 |
|
|
|
— |
|
Operating lease payments |
|
|
(534 |
) |
|
|
— |
|
Net cash used in operating activities |
|
|
(12,186 |
) |
|
|
(10,936 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
|
1 |
|
|
|
10 |
|
Purchases of property and equipment |
|
|
(878 |
) |
|
|
(89 |
) |
Purchases of investments |
|
|
(18,458 |
) |
|
|
(22,871 |
) |
Proceeds from sales and maturities of investments |
|
|
18,050 |
|
|
|
8,950 |
|
Net cash used in investing activities |
|
|
(1,285 |
) |
|
|
(14,000 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants from June 2019 Offering |
|
|
7,500 |
|
|
|
— |
|
Payments of offering costs relating to June 2019 Offering |
|
|
(663 |
) |
|
|
— |
|
Proceeds from issuance of common stock and warrants from September 2019 Offering |
|
|
10,000 |
|
|
|
— |
|
Payments of offering costs relating to September 2019 Offering |
|
|
(776 |
) |
|
|
— |
|
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 2018 Offering |
|
|
— |
|
|
|
14,000 |
|
Payments of offering costs relating to June 2018 Offering |
|
|
(24 |
) |
|
|
(1,181 |
) |
Principal payments on notes payable |
|
|
(2 |
) |
|
|
— |
|
Proceeds from exercise of warrants |
|
|
5,269 |
|
|
|
— |
|
Proceeds from exercise of stock options and ESPP purchases |
|
|
21 |
|
|
|
969 |
|
Capital contributions received from non-controlling interest |
|
|
689 |
|
|
|
— |
|
Net cash provided by financing activities |
|
|
22,014 |
|
|
|
22,480 |
|
Net increase (decrease) in cash and cash equivalents |
|
|
8,543 |
|
|
|
(2,456 |
) |
Cash and cash equivalents — beginning of period |
|
|
11,998 |
|
|
|
9,125 |
|
Cash and cash equivalents — end of period |
|
$ |
20,541 |
|
|
$ |
6,669 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
2 |
|
|
$ |
24 |
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Offering costs in accounts payable and accrued expenses at end of period |
|
$ |
21 |
|
|
$ |
— |
|
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 2018 Offering |
|
$ |
— |
|
|
$ |
239 |
|
Common stock warrants issued to placement agent and included in offering costs related to June 2019 Offering |
|
$ |
86 |
|
|
$ |
— |
|
Common stock warrants issued to placement agent and included in offering costs related to September 2019 Offering |
|
$ |
95 |
|
|
$ |
— |
|
Reclassification of common stock warrant liability balance with warrant exercises |
|
$ |
7,016 |
|
|
$ |
— |
|
Reclassification of common stock adjustment feature liability balance |
|
$ |
— |
|
|
$ |
8,378 |
|
Right of use assets obtained in exchange for new operating lease liabilities |
|
$ |
2,328 |
|
|
$ |
— |
|
Fixed assets acquired with notes payable |
|
$ |
139 |
|
|
$ |
— |
|
Purchases of fixed assets included in accounts payable and accrued expenses |
|
$ |
6 |
|
|
$ |
— |
|
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, American Falls, Idaho, and Molokai, Hawaii. The Company was reincorporated in Delaware in March 2015.
We develop and market high-value food ingredients and nutritional oils that help meet consumer demand for a healthier diet. 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 and have expanded to optimize and standardize the cannabis plant’s content, quality, resiliency and yield.
In February 2012, the Company formed Verdeca LLC (“Verdeca,” see Note 5), which is jointly owned with Bioceres Crop Solutions Corp. (“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.
On August 9, 2019, the Company entered into a joint venture agreement with Legacy Ventures Hawaii, LLC (“Legacy,” see Note 6) to grow, extract, and sell hemp products. The new partnership, Archipelago Ventures Hawaii, LLC (“Archipelago”), combines the Company’s extensive genetic expertise and resources with Legacy’s experience in hemp extraction and sales.
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 statements 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 have been prepared 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 accompanying unaudited condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiary and joint venture, Archipelago, in which the Company has a controlling interest.
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.
For all periods presented, the Company has determined that it has a controlling interest in Archipelago. The Company has determined that it is the primary beneficiary of the joint venture. Accordingly, the Company consolidates the entity in the condensed consolidated financial statements after eliminating intercompany transactions. For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities and operations of the joint venture is included in non-controlling interests as equity of the Company. The non-controlling partner’s interest is generally computed as the joint venture partner’s ownership percentage of Archipelago.
5
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 condensed consolidated financial statements and notes thereto for the fiscal year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2019.
Liquidity and Capital Resources
As of September 30, 2019, the Company had an accumulated deficit of $200.9 million, cash and cash equivalents of $20.5 million and short-term investments of $10.4 million. For the nine months ended September 30, 2019 and the twelve months ended December 31, 2018, the Company had net losses of $22.6 and $13.5 million, and net cash used in operations of $12.2 million and $13.6 million, respectively.
With cash and cash equivalents of $20.5 million and short-term investments of $10.4 million as of September 30, 2019, the Company believes that it currently has sufficient cash to fund its operations for at least the look forward period of 12 months from the issuance of these condensed consolidated financial statements. The Company’s ability to continue as a going concern is dependent on its future ability to generate profitable operations and its ability to obtain additional debt or equity financing, as necessary.
The Company may seek to raise additional funds through debt or equity financings. The Company may also consider entering into additional partner arrangements. 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 could restrict operations. If the Company does require additional funds and is unable to secure adequate additional funding at terms agreeable to the Company, the Company may be forced to reduce spending, extend payment terms with suppliers, liquidate assets, or suspend or curtail planned development programs or operations. Any of these actions could materially harm the business, results of operations and financial condition.
2. Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842). Based on the new standard, lessees recognize lease assets and lease liabilities for leases classified as operating leases under previous GAAP and disclose qualitative and quantitative information about leasing arrangements with terms longer than 12 months. The adoption required recording right-of-use assets and corresponding lease obligation liabilities for the current operating leases. The Company adopted ASU No. 2016-02 on January 1, 2019. See Note 8.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Additionally, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326 in April 2019 and ASU 2019-05, Financial Instruments — Credit Losses (Topic 326) — Targeted Transition Relief in May 2019. 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 will be 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.
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 on January 1, 2019 with no material impact to the 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 will be 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.
6
Raw materials costs consist primarily of SONOVA® Gamma Linolenic Acid (“GLA”) Safflower Oil seed production costs incurred by the Company’s contracted cooperators. Goods in process costs consist of GoodWheatTM seed and grain production costs incurred primarily by the Company’s contracted cooperators. Finished goods inventories consist of GLA oil and GoodWheatTM seed and grain that is available for sale. Inventory-current is comprised of the total of Goods in process plus a portion GLA oil within Finished Goods, which the Company anticipates to sell within 12 months. The remaining is recorded in Inventory-noncurrent. Inventories consist of the following (in thousands):
|
September 30, 2019 |
|
|
December 31, 2018 |
|
|||
Raw materials |
|
$ |
41 |
|
|
$ |
41 |
|
Goods in process |
|
|
479 |
|
|
|
— |
|
Finished goods |
|
|
1,818 |
|
|
|
886 |
|
Inventories |
|
$ |
2,338 |
|
|
$ |
927 |
|
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 income, which is reflected as a separate component of stockholder’s equity in the Condensed Consolidated Balance Sheets. Gains and losses are recognized when realized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The following tables summarize the amortized cost and fair value of the available-for-sale investment securities portfolio at September 30, 2019 and December 31, 2018, and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income: