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, 2021
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
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 |
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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 ☒
As of May 10, 2021, the registrant had 21,336,249 shares of common stock outstanding, $0.001 par value per share.
Arcadia Biosciences, Inc.
FORM 10-Q FOR THE QUARTER ENDED March 31, 2021
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 |
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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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21 |
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Item 3. |
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29 |
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Item 4. |
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29 |
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Part II — |
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30 |
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Item 1. |
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30 |
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Item 1A. |
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30 |
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Item 2. |
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30 |
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Item 3. |
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30 |
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Item 4. |
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30 |
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Item 5. |
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30 |
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Item 6. |
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31 |
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32 |
Arcadia Biosciences, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
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March 31, 2021 |
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December 31, 2020 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
32,848 |
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$ |
14,042 |
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Short-term investments |
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19,088 |
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11,625 |
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Accounts receivable |
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1,113 |
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1,406 |
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Inventories, net — current |
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2,663 |
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3,812 |
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Prepaid expenses and other current assets |
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901 |
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|
811 |
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Total current assets |
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56,613 |
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31,696 |
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Restricted cash |
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— |
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2,001 |
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Property and equipment, net |
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3,480 |
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3,539 |
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Right of use asset |
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5,636 |
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5,826 |
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Inventories, net — noncurrent |
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4,290 |
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3,485 |
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Goodwill |
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408 |
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408 |
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Intangible assets, net |
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350 |
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|
370 |
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Other noncurrent assets |
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23 |
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23 |
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Total assets |
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$ |
70,800 |
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$ |
47,348 |
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Liabilities and stockholders’ equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
3,418 |
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$ |
4,105 |
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Amounts due to related parties |
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26 |
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80 |
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Debt — current |
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1,141 |
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1,141 |
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Unearned revenue — current |
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63 |
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8 |
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Operating lease liability — current |
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705 |
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717 |
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Other current liabilities |
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264 |
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263 |
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Total current liabilities |
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5,617 |
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6,314 |
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Debt — noncurrent |
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96 |
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2,105 |
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Operating lease liability — noncurrent |
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5,228 |
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5,389 |
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Common stock warrant liabilities |
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12,016 |
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2,708 |
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Other noncurrent liabilities |
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2,140 |
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2,280 |
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Total liabilities |
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25,097 |
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18,796 |
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Commitments and contingencies (Note 16) |
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Stockholders’ equity: |
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Common stock, $0.001 par value—150,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 21,336,249 and 13,450,861 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
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62 |
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54 |
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Additional paid-in capital |
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254,208 |
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239,496 |
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Accumulated deficit |
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(209,767 |
) |
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(211,825 |
) |
Total Arcadia Biosciences stockholders’ equity |
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44,503 |
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27,725 |
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Non-controlling interest |
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1,200 |
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827 |
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Total stockholders' equity |
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45,703 |
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28,552 |
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Total liabilities and stockholders’ equity |
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$ |
70,800 |
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$ |
47,348 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
Arcadia Biosciences, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(In thousands, except share and per share data)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Revenues: |
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Product |
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$ |
803 |
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$ |
154 |
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License |
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— |
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100 |
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Royalty |
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25 |
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30 |
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Contract research and government grants |
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— |
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25 |
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Total revenues |
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828 |
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309 |
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Operating expenses: |
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Cost of product revenues |
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856 |
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132 |
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Research and development |
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1,159 |
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2,244 |
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Change in fair value of contingent consideration |
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(140 |
) |
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— |
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Write-down of fixed assets |
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210 |
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— |
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Selling, general and administrative |
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4,069 |
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3,723 |
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Total operating expenses |
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6,154 |
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6,099 |
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Loss from operations |
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(5,326 |
) |
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(5,790 |
) |
Interest expense |
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(9 |
) |
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(3 |
) |
Other income, net |
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7,463 |
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72 |
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Issuance and offering costs |
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(769 |
) |
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— |
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Change in fair value of common stock warrant liabilities |
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322 |
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8,161 |
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Net income before income taxes |
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1,681 |
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2,440 |
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Income tax provision |
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— |
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(17 |
) |
Net income |
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1,681 |
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2,423 |
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Net loss attributable to non-controlling interest |
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(377 |
) |
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(102 |
) |
Net income attributable to common stockholders |
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$ |
2,058 |
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$ |
2,525 |
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Net income per share attributable to common stockholders: |
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Basic |
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$ |
0.11 |
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$ |
0.29 |
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Diluted |
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$ |
0.11 |
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$ |
0.29 |
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Weighted-average number of shares used in per share calculations: |
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Basic |
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18,970,250 |
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8,651,213 |
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Diluted |
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19,042,962 |
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8,674,610 |
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Other comprehensive loss, net of tax |
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Unrealized losses on investment securities |
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— |
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(1 |
) |
Other comprehensive loss |
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— |
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(1 |
) |
Comprehensive income attributable to common stockholders |
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$ |
2,058 |
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$ |
2,524 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
2
Arcadia Biosciences, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
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Common Stock |
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Additional Paid-In |
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Accumulated |
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Non- Controlling |
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
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Deficit |
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Interest |
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Equity |
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Balance at December 31, 2020 |
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13,450,861 |
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$ |
54 |
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$ |
239,496 |
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$ |
(211,825 |
) |
|
$ |
827 |
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$ |
28,552 |
|
Issuance of shares related to the January 2021 PIPE |
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|
7,876,784 |
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8 |
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|
15,508 |
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|
|
— |
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— |
|
|
|
15,516 |
|
Offering costs related to the January 2021 PIPE |
|
|
— |
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— |
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(2,084 |
) |
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— |
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— |
|
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(2,084 |
) |
Issuance of placement agent warrants related to issuance of January 2021 PIPE |
|
|
— |
|
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— |
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|
942 |
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|
|
— |
|
|
|
— |
|
|
|
942 |
|
Issuance of shares related to employee stock purchase plan |
|
|
8,604 |
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|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
Non-controlling interest capital contribution |
|
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— |
|
|
|
— |
|
|
|
— |
|
|
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— |
|
|
|
750 |
|
|
|
750 |
|
Stock-based compensation |
|
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— |
|
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|
— |
|
|
|
325 |
|
|
|
— |
|
|
|
— |
|
|
|
325 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,058 |
|
|
|
(377 |
) |
|
|
1,681 |
|
Balance at March 31, 2021 |
|
|
21,336,249 |
|
|
$ |
62 |
|
|
$ |
254,208 |
|
|
$ |
(209,767 |
) |
|
$ |
1,200 |
|
|
$ |
45,703 |
|
|
Common Stock |
|
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Additional Paid-In |
|
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Accumulated |
|
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Accumulated Other Comprehensive |
|
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Non- Controlling |
|
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Total Stockholders’ |
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Shares |
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Amount |
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Capital |
|
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Deficit |
|
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(Loss) Income |
|
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Interest |
|
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Equity |
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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 |
|
|
|
— |
|
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|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
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 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Arcadia Biosciences, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
|
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Three Months Ended March 31, |
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2021 |
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2020 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
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|
|
|
|
|
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Net income |
|
$ |
1,681 |
|
|
$ |
2,423 |
|
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
|
|
|
Change in fair value of common stock warrant liabilities |
|
|
(322 |
) |
|
|
(8,161 |
) |
Change in fair value of contingent consideration |
|
|
(140 |
) |
|
|
— |
|
Issuance and offering costs |
|
|
769 |
|
|
|
— |
|
Depreciation |
|
|
236 |
|
|
|
74 |
|
Amortization of intangible assets |
|
|
20 |
|
|
|
— |
|
Lease amortization |
|
|
289 |
|
|
|
223 |
|
Net amortization of investment premium |
|
|
— |
|
|
|
(39 |
) |
Stock-based compensation |
|
|
325 |
|
|
|
772 |
|
Unrealized gain on corporate securities |
|
|
(7,463 |
) |
|
|
— |
|
Write-down of fixed assets |
|
|
210 |
|
|
|
— |
|
Write-down of inventory |
|
|
160 |
|
|
|
59 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
293 |
|
|
|
293 |
|
Inventories |
|
|
184 |
|
|
|
(4,145 |
) |
Prepaid expenses and other current assets |
|
|
(90 |
) |
|
|
(748 |
) |
Other noncurrent assets |
|
|
— |
|
|
|
(15 |
) |
Accounts payable and accrued expenses |
|
|
(591 |
) |
|
|
227 |
|
Amounts due to related parties |
|
|
(54 |
) |
|
|
(24 |
) |
Unearned revenue |
|
|
55 |
|
|
|
(25 |
) |
Other current liabilities |
|
|
3 |
|
|
|
— |
|
Operating lease payments |
|
|
(272 |
) |
|
|
(184 |
) |
Net cash used in operating activities |
|
|
(4,707 |
) |
|
|
(9,270 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(485 |
) |
|
|
(778 |
) |
Purchases of investments |
|
|
— |
|
|
|
(1,292 |
) |
Proceeds from sales and maturities of investments |
|
|
— |
|
|
|
15,200 |
|
Net cash (used in) provided by investing activities |
|
|
(485 |
) |
|
|
13,130 |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrants from January 2021 PIPE securities purchase agreement |
|
|
25,147 |
|
|
|
— |
|
Payments of offering costs relating to January 2021 PIPE securities purchase agreement |
|
|
(1,912 |
) |
|
|
— |
|
Principal payments on debt |
|
|
(2,009 |
) |
|
|
(7 |
) |
Proceeds from ESPP purchases |
|
|
21 |
|
|
|
14 |
|
Capital contributions received from non-controlling interest |
|
|
750 |
|
|
|
689 |
|
Net cash provided by financing activities |
|
|
21,997 |
|
|
|
696 |
|
Net increase in cash, cash equivalents and restricted cash |
|
|
16,805 |
|
|
|
4,556 |
|
Cash, cash equivalents and restricted cash — beginning of period |
|
|
16,043 |
|
|
|
8,417 |
|
Cash, cash equivalents and restricted cash — end of period |
|
$ |
32,848 |
|
|
$ |
12,973 |
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
— |
|
|
$ |
— |
|
Cash paid for interest |
|
$ |
19 |
|
|
$ |
3 |
|
NONCASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Fixed assets acquired with notes payable |
|
$ |
— |
|
|
$ |
37 |
|
Common stock warrants issued to placement agent and included in offering costs related to January 2021 PIPE securities purchase agreement |
|
$ |
942 |
|
|
$ |
— |
|
Right of use assets obtained in exchange for new operating lease liabilities |
|
$ |
— |
|
|
$ |
3,836 |
|
Purchases of fixed assets included in accounts payable and accrued expenses |
|
$ |
25 |
|
|
$ |
— |
|
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, Molokai, Hawaii, and Albany, Oregon. The Company was reincorporated in Delaware in March 2015.
The Company is 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. The Company uses state of the art gene-editing technology and advanced breeding techniques to develop these proprietary innovations which the Company is beginning to monetize through a number of methods including seed and grain sales, product extract sales, trait licensing and royalty agreements.
On August 9, 2019, the Company entered into a joint venture agreement with Legacy Ventures Hawaii, LLC (“Legacy,” see Note 8) 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.
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 Archipelago, a joint venture, as it has a controlling interest in Archipelago. Accordingly, the Company consolidates Archipelago 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 $376,700 and $102,000 is recorded as an adjustment to net loss to arrive at net loss attributable to common stockholders for the three months ended March 31, 2021 and 2020, respectively. The non-controlling partner’s equity interests are presented as non-controlling interests on the condensed consolidated balance sheets as of March 31, 2021.
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, 2020 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2021.
Liquidity, Capital Resources, and Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. Since inception, the Company has financed its operations primarily through equity and debt financings. As of March 31, 2021, the Company had an accumulated deficit of $209.8 million, cash and cash equivalents of $32.8 million, and short-term investments of $19.1 million. For the three months ended March 31, 2021, the Company had net income of $1.7 million and net cash used in operations of $4.7 million. For the twelve months ended December 31, 2020, the Company had net losses of $6.0 million and net cash used in operations of $30.2 million.
5
With cash and cash equivalents of $32.8 million and short-term investments of $19.1 million as of March 31, 2021, the Company believes that its existing cash, cash equivalents and investments will be sufficient to meet its anticipated cash requirements for at least through May 2022.
As is disclosed in Notes 11 and 12, on January 25, 2021, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the issuance and sale in a private placement of shares of Company common stock and warrants for an aggregate of $25.1 million, exclusive of any related transaction fees.
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 would 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. Any of these actions could materially harm the business, results of operations and financial condition.
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 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 adopted ASU No. 2019-12 on January 1, 2021 with an immaterial impact on the Company’s disclosures.
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 included in cost of product revenues and are based upon estimates about future demand from the Company’s customers and distributors and market conditions. The Company recorded a write-down of hemp seed inventories of $160,000 during the three months ended March 31, 2021. The Company recorded write-downs of wheat inventory of $59,000 for the three months ended March 31, 2020. If there are significant changes in demand and market conditions, substantial future write-downs of inventory may be required, which would materially increase our expenses in the period the write down is taken and materially affect our operating results.
Inventories, net consist of the following (in thousands):
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
|
$ |
849 |
|
|
$ |
966 |
|
|
Goods in process |
|
|
636 |
|
|
|
1,921 |
|
Finished goods |
|
|
5,468 |
|
|
|
4,410 |
|
Inventories |
|
$ |
6,953 |
|
|
$ |
7,297 |
|
6
4. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
Laboratory equipment |
|
$ |
2,977 |
|
|
$ |
2,951 |
|
Software and computer equipment |
|
|
654 |
|
|
|
591 |
|
Machinery and equipment |
|
|
2,078 |
|
|
|
2,046 |
|
Furniture and fixtures |
|
|
181 |
|
|
|
181 |
|
Vehicles |
|
|
484 |
|
|
|
428 |
|
Leasehold improvements |
|
|
2,229 |
|
|
|
2,229 |
|
Property and equipment, gross |
|
|
8,603 |
|
|
|
8,426 |
|
Less accumulated depreciation and amortization |
|
|
(5,123 |
) |
|
|
(4,887 |
) |
Property and equipment, net |
|
$ |
3,480 |
|
|
$ |
3,539 |
|
Depreciation expense was $236,000 and $74,000 for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021, and December 31, 2020, respectively, there was $638,000 and $239,000 of construction in progress included in property and equipment that had not been placed into service and was not subject to depreciation.
During the quarter ended March 31, 2021, the State of Hawaii’s Senate decided not to vote on a CBD processing bill in 2021, hence the earliest vote could happen in 2022, and its effectiveness into law will most likely be pushed to 2023. As a result, we assessed Archipelago’s fixed assets related to CBD processing for impairment and recorded a write-down in the amount of $210,000 for the three months ended March 31, 2021, calculated through an asset recoverability test. Given the uncertainty in the legislative developments in Hawaii, it is reasonably possible that the entity’s estimate that it will recover the carrying amount of this equipment from future operations will change in the near term.
5. Investments and Fair Value Instruments
Investments
The Company classified its investments in corporate securities of Bioceres Crop Solutions Corp. (“BIOX”) as short-term investments. The BIOX shares of common stock have a six-months trading restriction, expiring on May 12, 2021. The investments are carried at fair value, based on quoted market prices or other readily available market information. Unrealized and realized gains and losses are recognized as other income in the consolidated statements of operations and comprehensive income.
The following tables summarize the amortized cost and fair value of the investment securities portfolio at March 31, 2021 and December 31, 2020. The Company recorded unrealized gains of $7.5 million for the three months ended March 31, 2021, associated with the corporate securities in other income, net, in the consolidated statements of operations and comprehensive income.
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
|||||
March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
28,294 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
28,294 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
|
10,969 |
|
|
|
8,119 |
|
|
|
— |
|
|
|
19,088 |
|
Total Assets at Fair Value |
|
$ |
39,263 |
|
|
$ |
8,119 |
|
|
$ |
— |
|
|
$ |
47,382 |
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Estimated Fair Value |
|
|||||
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
12,082 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,082 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
|
10,969 |
|
|
|
656 |
|
|
|
— |
|
|
|
11,625 |
|
Total Assets at Fair Value |
|
$ |
23,051 |
|
|
$ |
656 |
|
|
$ |
— |
|
|
$ |
23,707 |
|
7
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, 2021.
Fair Value Measurement
The fair value of the investment securities at March 31, 2021 were as follows:
|
Fair Value Measurements at March 31, 2021 |
|
||||||||||||||
(Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
28,294 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
28,294 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
|
19,088 |
|
|
|
— |
|
|
|
— |
|
|
|
19,088 |
|
Total Assets at Fair Value |
|
$ |
47,382 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
47,382 |
|
The fair value of the investment securities at December 31, 2020 were as follows:
|
Fair Value Measurements at December 31, 2020 |
|
||||||||||||||
(Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets at Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
12,082 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
12,082 |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities |
|
|
11,625 |
|
|
|
— |
|
|
|
— |
|
|
|
11,625 |
|
Total Assets at Fair Value |
|
$ |
23,707 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
23,707 |
|
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2021 or 2020. The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, 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, 2021 and December 31, 2020 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.
The Company’s Level 3 liabilities consist of a contingent liability resulting from the Anawah acquisition, as described in Note 16, a contingent liability resulting from the Industrial Seed Innovations acquisition, as described in Note 6, and common stock warrant liabilities related to the March 2018, the June 2019, the September 2019, and the January 2021 Offerings described in Note 12.
The contingent liability related to the Anawah acquisition was measured and recorded on a recurring basis as of March 31, 2021 and December 31, 2020, using unobservable inputs, namely the Company’s ability and intent to pursue certain specific products developed using technology acquired in the purchase. A significant deviation in the Company’s ability and/or intent to pursue the technology acquired in the purchase could result in a significantly lower (higher) fair value measurement. The contingent liability related to the ISI acquisition was measured and recorded on a recurring basis as of March 31, 2021 and December 31, 2020, using unobservable inputs, namely ISI’s forecasted revenue. A significant deviation in ISI’s forecasted revenue could result in a significantly lower (higher) fair value measurement.
The warrant liabilities were measured and recorded on a recurring basis using the Black-Scholes Model with the following assumptions at March 31, 2021 and December 31, 2020:
|
|
January 2021 Warrants |
|
|
September 2019 Warrants |
|
|
June 2019 Warrants |
|
|
March 2018 Warrants |
|
||||||||||||||||||||
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||||||||
Expected term (in years) |
|
|
5.33 |
|
|
|
— |
|
|
|
3.95 |
|
|
|
4.20 |
|
|
|
3.71 |
|
|
|
3.96 |
|
|
|
1.97 |
|
|
|
2.22 |
|
Expected volatility |
|
|
126.0 |
% |
|
|
— |
|