10-Q 1 rkda-10q_20200331.htm 10-Q rkda-10q_20200331.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 March 31, 2020

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

 

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

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  

 

As of May 8, 2020, the registrant had 8,654,095 shares of common stock outstanding, $0.001 par value per share.

 

 

 


 

Arcadia Biosciences, Inc.

FORM 10-Q FOR THE QUARTER ENDED March 31, 2020

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

 

28

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

28

 

 

 

 

Part II —

 

Other Information

 

29

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

29

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

30

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

30

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

30

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

31

 

 

 

 

 

 

 

SIGNATURES

 

32

 

 

 

 


 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Arcadia Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

12,973

 

 

$

8,417

 

Short-term investments

 

 

3,045

 

 

 

16,915

 

Accounts receivable

 

 

309

 

 

 

602

 

Inventories, net — current

 

 

5,971

 

 

 

1,794

 

Prepaid expenses and other current assets

 

 

1,460

 

 

 

712

 

Total current assets

 

 

23,758

 

 

 

28,440

 

Property and equipment, net

 

 

2,540

 

 

 

1,799

 

Right of use asset

 

 

5,654

 

 

 

1,963

 

Inventories, net — noncurrent

 

 

273

 

 

 

364

 

Other noncurrent assets

 

 

23

 

 

 

8

 

Total assets

 

$

32,248

 

 

$

32,574

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

4,912

 

 

$

4,685

 

Amounts due to related parties

 

 

16

 

 

 

40

 

Notes payable — current

 

 

31

 

 

 

24

 

Unearned revenue — current

 

 

17

 

 

 

42

 

Operating lease liability — current

 

 

526

 

 

 

611

 

Other current liabilities

 

 

306

 

 

 

306

 

Total current liabilities

 

 

5,808

 

 

 

5,708

 

Notes payable — noncurrent

 

 

130

 

 

 

107

 

Operating lease liability — noncurrent

 

 

5,312

 

 

 

1,497

 

Common stock warrant liabilities

 

 

6,775

 

 

 

14,936

 

Other noncurrent liabilities

 

 

2,000

 

 

 

2,000

 

Total liabilities

 

 

20,025

 

 

 

24,248

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value—150,000,000 shares authorized as

   of March 31, 2020 and December 31, 2019; 8,654,095

   and 8,646,149 shares issued and outstanding as of March 31,

   2020 and December 31, 2019, respectively

 

 

49

 

 

 

49

 

Additional paid-in capital

 

 

215,612

 

 

 

214,826

 

Accumulated other comprehensive income

 

 

 

 

 

1

 

Accumulated deficit

 

 

(204,646

)

 

 

(207,171

)

Total Arcadia Biosciences stockholders’ equity

 

 

11,015

 

 

 

7,705

 

Non-controlling interest

 

 

1,208

 

 

 

621

 

Total stockholders' equity

 

 

12,223

 

 

 

8,326

 

Total liabilities and stockholders’ equity

 

$

32,248

 

 

$

32,574

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Product

 

$

154

 

 

$

107

 

License

 

 

100

 

 

 

 

Royalty

 

 

30

 

 

 

 

Contract research and government grants

 

 

25

 

 

 

51

 

Total revenues

 

 

309

 

 

 

158

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

132

 

 

 

59

 

Research and development

 

 

2,244

 

 

 

1,505

 

Selling, general and administrative

 

 

3,723

 

 

 

2,812

 

Total operating expenses

 

 

6,099

 

 

 

4,376

 

Loss from operations

 

 

(5,790

)

 

 

(4,218

)

Interest expense

 

 

(3

)

 

 

 

Other income, net

 

 

72

 

 

 

120

 

Change in fair value of common stock warrant liabilities

 

 

8,161

 

 

 

(8,495

)

Net income (loss) before income taxes

 

 

2,440

 

 

 

(12,593

)

Income tax provision

 

 

(17

)

 

 

(19

)

Net income (loss)

 

 

2,423

 

 

 

(12,612

)

Net loss attributable to non-controlling interest

 

 

(102

)

 

 

 

Net income (loss) attributable to common stockholders

 

$

2,525

 

 

$

(12,612

)

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.29

 

 

$

(2.64

)

Weighted-average number of shares used in per share

   calculations:

 

 

 

 

 

 

 

 

Basic

 

 

8,651,213

 

 

 

4,776,540

 

Diluted

 

 

8,674,610

 

 

 

4,776,540

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

Unrealized losses on available-for-sale

   securities

 

 

(1

)

 

 

 

Other comprehensive loss

 

 

(1

)

 

 

 

Comprehensive income (loss) attributable to common stockholders

 

$

2,524

 

 

$

(12,612

)

 

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

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Non-

Controlling

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Interest

 

 

Equity

 

Balance at December 31, 2019

 

 

8,646,149

 

 

$

49

 

 

$

214,826

 

 

$

(207,171

)

 

$

1

 

 

$

621

 

 

$

8,326

 

Issuance of shares related to employee stock

   purchase plan

 

 

7,946

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

14

 

Stock-based compensation

 

 

 

 

 

 

 

 

772

 

 

 

 

 

 

 

 

 

 

 

 

772

 

Unrealized losses on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

689

 

 

 

689

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

2,525

 

 

 

 

 

 

(102

)

 

 

2,423

 

Balance at March 31, 2020

 

 

8,654,095

 

 

$

49

 

 

$

215,612

 

 

$

(204,646

)

 

$

 

 

$

1,208

 

 

$

12,223

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

4,774,919

 

 

$

45

 

 

$

191,136

 

 

$

(178,366

)

 

$

12,815

 

Issuance of shares related to employee stock

   purchase plan

 

 

2,500

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

422

 

 

 

 

 

 

422

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(12,612

)

 

 

(12,612

)

Balance at March 31, 2019

 

 

4,777,419

 

 

$

45

 

 

$

191,566

 

 

$

(190,978

)

 

$

633

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.


3


 

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

 

2020

 

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,423

 

 

$

(12,612

)

Adjustments to reconcile net income (loss) to cash used in operating activities:

 

 

 

 

 

 

 

 

Change in fair value of common stock warrant liabilities

 

 

(8,161

)

 

 

8,495

 

Depreciation

 

 

74

 

 

 

34

 

Lease amortization

 

 

223

 

 

 

172

 

Net amortization of investment premium

 

 

(39

)

 

 

(39

)

Stock-based compensation

 

 

772

 

 

 

422

 

Write down of inventory

 

 

59

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

293

 

 

 

86

 

Inventories

 

 

(4,145

)

 

 

39

 

Prepaid expenses and other current assets

 

 

(748

)

 

 

200

 

Other noncurrent assets

 

 

(15

)

 

 

 

Accounts payable and accrued expenses

 

 

227

 

 

 

(538

)

Amounts due to related parties

 

 

(24

)

 

 

(16

)

Unearned revenue

 

 

(25

)

 

 

(40

)

Operating lease payments

 

 

(184

)

 

 

(172

)

Net cash used in operating activities

 

 

(9,270

)

 

 

(3,969

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(778

)

 

 

(88

)

Purchases of investments

 

 

(1,292

)

 

 

(6,690

)

Proceeds from sales and maturities of investments

 

 

15,200

 

 

 

9,200

 

Net cash provided by investing activities

 

 

13,130

 

 

 

2,422

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments of offering costs relating to June 2018 Offering

 

 

 

 

 

(16

)

Payments of deferred offering costs

 

 

 

 

 

(5

)

Principal payments on notes payable

 

 

(7

)

 

 

 

Proceeds from ESPP purchases

 

 

14

 

 

 

8

 

Capital contributions received from non-controlling interest

 

 

689

 

 

 

 

Net cash provided by (used in) financing activities

 

 

696

 

 

 

(13

)

Net increase (decrease) in cash and cash equivalents

 

 

4,556

 

 

 

(1,560

)

Cash and cash equivalents — beginning of period

 

 

8,417

 

 

 

11,998

 

Cash and cash equivalents — end of period

 

$

12,973

 

 

$

10,438

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

 

 

$

2

 

Cash paid for interest

 

$

3

 

 

$

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Fixed assets acquired with notes payable

 

$

37

 

 

$

 

Offering costs in accounts payable and accrued expenses at end of period

 

$

 

 

$

7

 

Deferred offering costs in accounts payable and accrued expenses at end of period

 

$

 

 

$

18

 

Right of use assets obtained in exchange for new operating lease liabilities

 

$

3,836

 

 

$

2,328

 

Purchases of fixed assets included in accounts payable and accrued expenses

 

$

 

 

$

13

 

 

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 are a leader in science-based approaches to developing high value crop productivity traits primarily in hemp, wheat, and soybean, designed to enhance farm economics by improving the performance of crops in the field, as well as their value as food ingredients, health and wellness products, and their viability for industrial applications. We use state of the art gene-editing technology and advanced breeding techniques to develop these proprietary innovations which we are beginning to monetize through a number of methods including seed and grain sales, product extract sales, trait licensing and royalty agreements.

In February 2012, the Company formed Verdeca LLC (“Verdeca,” see Note 5), 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.

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.

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, Verdeca and Archipelago. Certain prior year amounts have been reclassified to conform to the current year presentation.

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. Accordingly, the Company consolidates the entity in the condensed consolidated financial statements after eliminating intercompany transactions. The Company evaluates its relationships with its VIEs upon the occurrence of certain significant events that affect the design, structure or other factors pertinent to the primary beneficiary determination. Verdeca LLC had no operations for the three months ended March 31, 2020 and 2019, respectively, and had no assets or liabilities as of March 31, 2020 and December 31, 2019, respectively.

For all periods presented, the Company has determined that it is the primary beneficiary of Archipelago, a joint venture, as it has a controlling interest in Archipelago. 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. Net loss attributable to non-controlling interest of $102,000 is recorded as an adjustment to net income to arrive at net income attributable to common stockholders for the three months ended March 31, 2020. The non-controlling partner’s equity interests are presented as non-controlling interests on the condensed consolidated balance sheets as of March 31, 2020.

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, 2019 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 25, 2020.

Liquidity, Capital Resources, and Going Concern

As of March 31, 2020, the Company had an accumulated deficit of $204.6 million, cash and cash equivalents of $13.0 million and short-term investments of $3.0 million. For the three months ended March 31, 2020, the Company had net income of $2.4 million and net cash used in operations of $9.3 million. For the twelve months ended December 31, 2019, the Company had net losses of $28.9 million and net cash used in operations of $17.2 million.

With cash and cash equivalents of $13.0 million and short-term investments of $3.0 million as of March 31, 2020, the Company believes that its existing cash, cash equivalents and investments will be insufficient to meet its anticipated cash requirements for at least through May 2021, and thus raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company may seek to raise additional funds through debt or equity financings, if necessary and available. The Company may also consider entering into additional partner arrangements. The sale of additional equity would result in dilution to the Company’s stockholders and could have unfavorable terms. 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 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. 

 

At this time, there is significant uncertainty relating to the trajectory of the novel coronavirus outbreak (“COVID-19”) and impact of related responses. The continued spread of the outbreak could materially harm our business, results of operations, and financial condition. Due to this uncertainty and plans outside of management’s control, we may not be able to achieve and implement such plans within one year after the date that the financial statements are issued to address the substantial doubt that exists.

 

 

2. Recent Accounting Pronouncements

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. In November 2019, the FASB issued ASU No. 2019-10, which defers the effective date of ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU No. 2016-13 on 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 were effective for all entities for fiscal years beginning after December 15, 2019. The Company adopted ASU No. 2018-13 on January 1, 2020 and expanded its disclosures for significant unobservable inputs used to develop Level 3 fair value measurements. There was no impact on the condensed consolidated financial statements. See Note 4.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying other areas of existing guidance. The amendments are effective for all entities for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of the adoption of ASU No. 2019-12 on the condensed consolidated balance sheets, statements of operations and comprehensive income (loss), or statements of cash flows.

In April 2020, the FASB issued a staff question-and-answer (“Q&A”) document to respond to frequently asked questions about the accounting for lease concessions related to the effects of the COVID-19 pandemic. Under current GAAP, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications under Topic 842. The Q&A allows companies to make an accounting policy election to not evaluate lease concessions related to the effects of the COVID-19 pandemic as lease modifications. Entities that make this election then need to decide whether to apply the lease modification guidance in ASC 842 to the concession or account for the concession as if it were contemplated as part of the existing contract. The Company is currently evaluating its option to make this accounting policy election.

6


 

 

3. Inventory

Inventory costs are tracked on a lot-identified basis and are included as cost of product revenues when sold. Inventories are stated at the lower of cost or net realizable value. The Company makes adjustments to inventory when conditions indicate that the net realizable value may be less than cost due to physical deterioration, obsolescence, changes in price levels, or other factors. Additional adjustments to inventory are made for excess and slow-moving inventory on hand that is not expected to be sold within a reasonable timeframe to reduce the carrying amount to its estimated net realizable value. The write downs to inventory are based upon estimates about future demand from the Company’s customers and distributors and market conditions. The Company recorded write-downs of wheat inventory of $59,000 for the three months ended March 31, 2020. There were no such write-downs for the three months ended March 31, 2019.

The inventories—current line item on the balance sheet represents inventory forecasted to be sold or used in production in the next 12 months, as of the balance sheet date, and consists primarily of consists of the cost of GoodWheat seed, grain, and flour, GLA oil, and hemp seed. The inventories—noncurrent line item represents inventory expected to be used in production or sold beyond the next 12 months, as of the balance sheet date, and consists primarily of GLA oil and seed.

Raw materials inventories consist primarily of the cost to purchase hemp seeds and GLA seed production costs incurred by our contracted cooperators. Goods in process inventories consist of costs to process hemp seed, hemp seed production costs incurred by Archipelago, grower fees for soybeans, and GoodWheat seed and grain. Finished goods inventories consist of GoodWheat products and GLA oil that are available for sale.

Inventories, net consist of the following (in thousands):  

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Raw materials

 

$

240

 

 

$

67

 

Goods in process

 

 

2,684

 

 

 

188

 

Finished goods

 

 

3,320

 

 

 

1,903

 

Inventories

 

$

6,244

 

 

$

2,158

 

 

 

4. Investments and Fair Value of Financial Instruments

Available-for-Sale Investments

The Company classifies 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 March 31, 2020 and December 31, 2019, and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive income:

 

(Dollars in thousands)

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

11,033

 

 

$

 

 

$

 

 

$

11,033

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

3,045

 

 

 

 

 

 

 

 

 

3,045

 

Total investments

 

$

14,078

 

 

$

 

 

$

 

 

$

14,078

 

7


 

 

(Dollars in thousands)

 

Amortized Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,864

 

 

$

 

 

$

 

 

$

6,864

 

Commercial paper

 

 

900

 

 

 

 

 

 

 

 

 

900

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

 

3,300

 

 

 

 

 

 

 

 

 

3,300

 

Treasury bills

 

 

1,495

 

 

 

1

 

 

 

 

 

 

1,496

 

Commercial paper

 

 

12,119

 

 

 

 

 

 

 

 

 

12,119

 

Total investments

 

$

24,678

 

 

$

1

 

 

$

 

 

$

24,679

 

 

The Company did not have any investment categories that were in a continuous unrealized loss position for more than twelve months as of March 31, 2020.

As of March 31, 2020, the Company did not have any fixed income securities that were in unrealized loss positions, and therefore has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three ended March 31, 2020.

Fair Value Measurement

Fair value accounting is applied for all 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 fair value of the Company’s financial assets as of March 31, 2020 and December 31, 2019 were as follows:  

 

 

 

Fair Value Measurements at March 31, 2020

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

11,033

 

 

$

 

 

$

 

 

$

11,033

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

 

 

 

3,045

 

 

 

 

 

 

3,045

 

Total Assets at Fair Value

 

$

11,033

 

 

$

3,045

 

 

$

 

 

$

14,078

 

 

 

 

Fair Value Measurements at December 31, 2019

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,864

 

 

$

 

 

$

 

 

$

6,864

 

Commercial paper

 

 

 

 

 

900

 

 

 

 

 

 

900

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

 

 

 

 

 

3,300

 

 

 

 

 

 

3,300

 

Treasury bills

 

 

1,496

 

 

 

 

 

 

 

 

 

1,496

 

Commercial paper

 

 

 

 

 

12,119

 

 

 

 

 

 

12,119

 

Total Assets at Fair Value

 

$

8,360

 

 

$

16,319

 

 

$

 

 

$

24,679

 

8


 

 

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, short-term investments, accounts payable, accrued liabilities and notes payable. For accounts receivable, accounts payable, accrued liabilities, and notes payable the carrying amounts of these financial instruments as of March 31, 2020 and December 31, 2019 were considered representative of their fair values due to their short term to maturity or repayment. Cash equivalents are carried at cost, which approximates their fair value.

 

There were no changes in valuation techniques during 2020 or 2019. The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:

 

 

Money market funds and treasury bills – Investments in money market funds and treasury bills are valued using the market approach and are classified within Level 1.

 

 

Commercial paper and corporate securities – Investments in commercial paper and corporate securities are valued using the market approach and are classified within Level 2.

 

 

Contingent liability – A contingent liability resulting from the Anawah acquisition, as described in Note 12, is classified within Level 3. The contingent liability was measured and recorded on a recurring basis as of March 31, 2020 and December 31, 2019 using unobservable quantitative inputs that would impact the Company’s ability and intent to pursue certain specific products developed using technology acquired in the purchase. At March 31, 2020 and December 31, 2019, this liability was included on the condensed consolidated balance sheets as a noncurrent liability.

 

 

Purchase Agreement common stock warrant liability – The Company has outstanding warrants to purchase common stock that it issued to certain accredited investors and its placement agent on March 22, 2018 (as described in Note 8). The common stock warrants were classified as a liability within Level 3 based on the instrument’s adjustment features and a contingent cash payment feature. At March 31, 2020 and December 31, 2019, this liability was included on the condensed consolidated balance sheets as a noncurrent liability.

 

 

June 2018, June 2019, and September 2019 Offering common stock warrant liabilities – The Company has outstanding warrants to purchase common stock that it issued to certain accredited investors on June 14, 2018 (as described in Note 8). The common stock warrants are classified as a liability within Level 3 due to a contingent cash payment feature. At March 31, 2020 and December 31, 2019, these liabilities were included on the condensed consolidated balance sheets as noncurrent liabilities.

 

The estimated fair value of the common stock warrant liabilities related to the March 2018 Purchase Agreement, the June 2018 Offering, the June 2019 Offering and the September 2019 Offering (the “warrant liabilities”) were remeasured at March 31, 2020 and December 31, 2019 utilizing the Black-Scholes Model, with the changes recorded on the Company’s condensed consolidated statements of operations and comprehensive income (loss). The Black-Scholes Model utilizes the following inputs to estimate fair value of an instrument: stock price, expected term, expected volatility, risk-free interest rate, and expected dividend yield. Volatility is considered by the Company to be a significant unobservable input and is calculated using a weighted average of historical stock prices of a combination of the Company and peer companies, due to the lack of sufficient historical data of the Company’s own stock price. A change in the mix or weighting of the peer companies could have resulted in a significantly lower (higher) fair value measurement as of March 31, 2020. Volatility rates used in the measurement of the warrant liabilities ranged from 122.5% to 130.0%, and the weighted average was 126.9%.

The following table summarizes the changes in the fair value of the Company’s Level 3 liabilities (in thousands):

 

 

 

(Level 3)

 

(Dollars in thousands)

 

Common

Stock

Warrant

Liability -

March 2018

Purchase

Agreement

 

 

Common

Stock

Warrant

Liability -

June 2018

Offering

 

 

Common

Stock

Warrant

Liability -

June 2019

Offering

 

 

Common

Stock

Warrant

Liability -

September

2019

Offering

 

 

Contingent

Liability

 

 

Total

 

Balance as of December 31, 2019

 

$

4,579

 

 

$

5,444

 

 

$

1,993

 

 

$

2,920

 

 

$

2,000

 

 

$

16,936

 

Change in fair value

 

 

(2,604

)

 

 

(2,979

)

 

 

(1,032

)

 

 

(1,546

)

 

 

 

 

 

(8,161

)

Balance as of March 31, 2020

 

$

1,975

 

 

$

2,465

 

 

$

961

 

 

$

1,374

 

 

$

2,000

 

 

$

8,775

 

 

 

9


 

5. Variable Interest Entity

In February 2012, the Company formed Verdeca LLC (“Verdeca”), which is equally owned with Bioceres, Inc. (“Bioceres”), a U.S. wholly owned subsidiary of Bioceres, S.A., an Argentine corporation. Bioceres, S.A. is an agricultural investment and development cooperative owned by approximately 300 shareholders, including some of South America’s largest soybean growers. Verdeca was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies.

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

Both the Company and Bioceres incur expenses in support of specific activities, as agreed upon by joint work plans, which apply fair market value to each partner’s activities. Unequal contributions of services are equalized by the partners through cash payments. Verdeca is not the primary obligor for these activities performed by the Company or Bioceres. Under the terms of the joint development agreement, the Company has incurred direct expenses and allocated overhead in the amounts of $318,000 and $243,000, for the three months ended March 31, 2020 and 2019, respectively.

 

 

6. Consolidated Joint Venture

 

On August 9, 2019, the Company and Legacy Ventures Hawaii, LLC, a Nevada limited liability company (“Legacy”), formed Archipelago Ventures Hawaii, LLC, a Delaware limited liability company (“Archipelago”) and entered into a Limited Liability Company Operating Agreement (the “Operating Agreement”). The Company and Legacy formed Archipelago to develop, extract and commercialize hemp-derived products from industrial hemp grown in Hawaii.

 

Pursuant to the Operating Agreement, a joint operating committee consisting of two individuals appointed by the Company and two individuals appointed by Legacy will manage Archipelago. As of March 31, 2020, the Company and Legacy hold 50.75% and 49.25% percentage interests in Archipelago, respectively, and have made capital contributions to Archipelago of $1,420,000 and $1,378,000, respectively, as determined by the joint operating committee. The Operating Agreement includes indemnification rights, non-competition obligations, and certain rights and obligations in connection with the transfer of membership interests, including rights of first refusal.

The Company consolidates Archipelago in the condensed consolidated financial statements after eliminating intercompany transactions. Net loss attributable to non-controlling interest of $102,000 is recorded as an adjustment to net income to arrive at net income attributable to common stockholders on the condensed consolidated statements of income (loss) for the three months ended March 31, 2020. Legacy’s equity interests are presented as noncontrolling interests on our condensed consolidated balance sheets. Refer to Note 1 for basis of presentation.

 

 

7. Collaborative Arrangements

In August 2017, the Company entered into a collaborative arrangement for the research, development and commercialization of an improved wheat quality trait in North America. This collaborative arrangement is a contractual agreement with Corteva AgriScience (“Corteva”) and involves a joint operating activity where both the Company and Corteva are active participants in the activities of the collaboration. The Company and Corteva participate in the research and development, and the Company has the primary responsibility for the intellectual property strategy while Corteva will generally lead the marketing and commercialization efforts. Both parties are exposed to significant risks and rewards of the collaboration and the agreement includes both cost sharing and profit sharing. The activities are performed with no guarantee of either technological or commercial success.  

The Company accounts for research and development (“R&D”) costs in accordance ASC 730, Research and Development, and expenses internal R&D costs as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results are achieved.

 

 

10


 

8. Leases

 

 

Operating Leases

 

As of March 31, 2020, the Company leases office space in Davis, CA, Phoenix, AZ, and Molokai, HI, as well as additional buildings, land and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these short-term leases on a straight-line basis. The Company subleases a portion of the Davis office lease and greenhouse to third parties. During the three months ended March 31, 2020, the Company entered into a lease amendment that provides for additional office space in Davis, CA, and extends the term through April 2025, with one option to renew for an additional five-year term. The Company expects to exercise its options to renew, and in accordance with ASC 842, accounted for the amendment and expected renewal as a lease modification and remeasured the operating lease liability, resulting in an additional $3.8 million operating lease liability and right of use asset. There are no finance leases or material leases that have not yet commenced as of March 31, 2020.

Some leases (the Davis office, warehouse, greenhouse and a copy machine) include one or more options to renew, with renewal terms that can extend the lease term from one to six years. The exercise of lease renewal options is at the Company’s sole discretion.

The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or material restrictive covenants. Leases consisted of the following (in thousands):

 

Leases

 

Balance Sheet Line Item

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

 

 

Operating lease assets

 

Right of use asset

 

$

5,654

 

 

$

1,963

 

Total leased assets

 

 

 

$

5,654

 

 

$

1,963

 

Liabilities

 

 

 

 

 

 

 

 

 

 

Current - Operating

 

Operating lease liability-

   current

 

$

526

 

 

$

611

 

Noncurrent - Operating

 

Operating lease liability-

   noncurrent

 

 

5,312

 

 

 

1,497

 

Total leased liabilities

 

 

 

$

5,838

 

 

$

2,108

 

 

Lease Cost

 

Classification

 

For the Three

Months Ended

March 31, 2020

 

 

For the Three

Months Ended

March 31, 2019

 

Operating lease cost

 

SG&A and R&D Expenses

 

$

223

 

 

$

175

 

Short term lease cost (1)

 

R&D Expenses

 

 

80

 

 

 

48