10-Q 1 rkda-10q_20190930.htm 10-Q rkda-10q_20190930.htm

 

 

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
Identification No.)

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

 

 

  

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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.

 

 

 

 


 

Arcadia Biosciences, Inc.

FORM 10-Q FOR THE QUARTER ENDED September 30, 2019

INDEX

 

 

 

 

 

 

 

Page

Part I —

 

Financial Information

 

1

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements:

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

3

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

 

 

Item 2.

 

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

 

19

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

30

 

 

 

 

Part II —

 

Other Information

 

31

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

31

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

31

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

31

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

31

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

31

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

32

 

 

 

 

 

 

 

SIGNATURES

 

33

 

 

 

 


 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Arcadia Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,541

 

 

$

11,998

 

Short-term investments

 

 

10,355

 

 

 

9,825

 

Accounts receivable

 

 

127

 

 

 

165

 

Unbilled revenue

 

 

 

 

 

3

 

Inventories — current

 

 

1,843

 

 

 

181

 

Prepaid expenses and other current assets

 

 

740

 

 

 

704

 

Total current assets

 

 

33,606

 

 

 

22,876

 

Property and equipment, net

 

 

1,283

 

 

 

395

 

Right of use asset

 

 

1,911

 

 

 

 

Inventories — noncurrent

 

 

495

 

 

 

746

 

Other noncurrent assets

 

 

7

 

 

 

7

 

Total assets

 

$

37,302

 

 

$

24,024

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

5,016

 

 

$

2,645

 

Amounts due to related parties

 

 

28

 

 

 

29

 

Notes payable - current

 

 

24

 

 

 

 

Unearned revenue — current

 

 

80

 

 

 

96

 

Operating lease liability — current

 

 

609

 

 

 

 

Other current liabilities

 

 

266

 

 

 

284

 

Total current liabilities

 

 

6,023

 

 

 

3,054

 

Notes payable — noncurrent

 

 

113

 

 

 

 

Operating lease liability — noncurrent

 

 

1,450

 

 

 

 

Common stock warrant liabilities

 

 

12,483

 

 

 

5,083

 

Other noncurrent liabilities

 

 

3,000

 

 

 

3,072

 

Total liabilities

 

 

23,069

 

 

 

11,209

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

49

 

 

 

45

 

Additional paid-in capital

 

 

214,423

 

 

 

191,136

 

Accumulated deficit

 

 

(200,928

)

 

 

(178,366

)

Total Arcadia Biosciences stockholders’ equity

 

 

13,544

 

 

 

12,815

 

Non-controlling interest

 

 

689

 

 

 

 

Total stockholders' equity

 

 

14,233

 

 

 

12,815

 

Total liabilities and stockholders’ equity

 

$

37,302

 

 

$

24,024

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

1


 

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product

 

$

216

 

 

$

144

 

 

$

485

 

 

$

393

 

License

 

 

17

 

 

 

10

 

 

 

17

 

 

 

100

 

Contract research and government grants

 

 

159

 

 

 

216

 

 

 

251

 

 

 

527

 

Total revenues

 

 

392

 

 

 

370

 

 

 

753

 

 

 

1,020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

177

 

 

 

124

 

 

 

324

 

 

 

431

 

Research and development

 

 

1,931

 

 

 

1,334

 

 

 

5,387

 

 

 

4,524

 

Selling, general and administrative

 

 

4,477

 

 

 

3,011

 

 

 

10,434

 

 

 

8,581

 

Total operating expenses

 

 

6,585

 

 

 

4,469

 

 

 

16,145

 

 

 

13,536

 

Loss from operations

 

 

(6,193

)

 

 

(4,099

)

 

 

(15,392

)

 

 

(12,516

)

Interest expense

 

 

(3

)

 

 

 

 

 

(3

)

 

 

 

Other income, net

 

 

119

 

 

 

134

 

 

 

339

 

 

 

266

 

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

 

 

(7,777

)

 

 

8,421

 

 

 

(6,790

)

 

 

5,986

 

Offering costs

 

 

(336

)

 

 

(1

)

 

 

(702

)

 

 

(2,544

)

Net (loss) income before income taxes

 

 

(14,190

)

 

 

4,455

 

 

 

(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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(2.04

)

 

$

0.93

 

 

$

(4.03

)

 

$

(3.74

)

Weighted-average number of shares used in per share

   calculations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


 

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

(Loss)

 

 

Non-Controlling Interest

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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


 

Arcadia Biosciences, Inc.

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


 

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, 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.

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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.

 

 

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3. Inventory

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:

 

(Dollars in thousands)

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Estimated Fair

Value

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

16,188

 

 

$

 

 

$