See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business and Basis of Presentation
Organization
Arcadia Biosciences, Inc. (the “Company”) was incorporated in Arizona in 2002 and maintains its headquarters in Davis, California, with additional facilities in Phoenix, Arizona, and American Falls, Idaho. The Company was reincorporated in Delaware in March 2015.
We are a consumer-driven, agricultural food ingredient company and proven leader in agricultural innovation to improve the quality and nutritional content of crops. We aim to create value across the agricultural production and supply chain beginning with enhanced crop productivity for farmers and ultimately delivering accelerated innovation in nutritional quality consumer foods. We use state of the art gene-editing technology and advanced breeding techniques to naturally enhance the nutritional quality of grains and oilseeds to address the rapidly evolving trends in consumer health and nutrition. In addition, we have developed high value crop productivity traits designed to enhance farm economics.
In February 2012, the Company formed Verdeca LLC (“Verdeca,” see Note 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.
Reverse Stock Split
In January 2018, the Company’s board of directors and its shareholders approved a reverse split of 1:20 on the Company’s issued and outstanding common stock which became effective on January 23, 2018. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the condensed consolidated financial statement have been retroactively adjusted to reflect the reverse stock split for all periods presented. The reverse stock split did not change the total number of authorized shares of common stock which remained at one hundred and fifty million shares.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and Verdeca in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and are in the form prescribed by the Securities and Exchange Commission (the “SEC”) in instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial position, results of operations and cash flows for the periods indicated. All material intercompany accounts and transactions have been eliminated in consolidation. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities (“VIEs”). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. For all periods presented, the Company has determined that it is the primary beneficiary of Verdeca, which is a VIE. The Company evaluates its relationships with the VIEs upon the occurrence of certain significant events that affect the design, structure or other factors pertinent to the primary beneficiary determination. Interim results are not necessarily indicative of results for any other interim period or for the full fiscal year. The information included in these condensed consolidated financial statements and notes thereto should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included herein and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2019.
Liquidity, Capital Resources, and Going Concern
As of March 31, 2019, the Company had an accumulated deficit of $191.0 million, cash and cash equivalents of $10.4 million and short-term investments of $7.4 million. For the three months ended March 31, 2019 and the twelve months ended December 31, 2018, the Company had net losses of $12.6 and $13.5 million, and net cash used in operations of $4.0 million and $13.6 million, respectively. The Company believes that its existing cash, cash equivalents and investments will be insufficient to meet its anticipated cash requirements for at least through March 2020, 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.
5
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 cou
ld 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 red
uce spending, extend payment terms with suppliers, liquidate assets, or suspend or curtail planned development programs. Any of these actions could materially harm the business, results of operations and financial condition.
2. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09,
Revenue from Contracts with Customers,
which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In August 2015, the FASB issued ASU No. 2015-14,
Revenue from Contracts with Customers (Topic 606)
: Deferral of Effective Date, which defers the effective date of ASU No. 2014-09 by one year allowing early adoption as of the original effective date January 1, 2017. The standard was adopted on January 1, 2018.
In February 2016, the 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 has adopted ASU No. 2016-02 on January 1, 2019. See Note 7.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU No. 2016-13 on its 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 consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13
Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
. The amendments affect any entity required to make disclosures about recurring or nonrecurring fair value measurements. The amendments are effective for all entities for fiscal years beginning after December 15, 2019.
The Company is currently evaluating the impact of the adoption of ASU No. 2018-13 on its consolidated financial statements.
3. SONOVA® Gamma Linolenic Acid (“GLA”) Safflower Oil Inventory
Raw materials costs consist primarily of seed production costs incurred by the Company’s contracted cooperators. Finished goods inventories consist of GLA oil that is available for sale. Inventories consist of the following (in thousands):
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
Raw materials
|
|
$
|
41
|
|
|
$
|
41
|
|
Finished goods
|
|
|
847
|
|
|
|
886
|
|
Inventories
|
|
$
|
888
|
|
|
$
|
927
|
|
6
4. Investments and Fair Value of Financial Instruments
Available-for-Sale Investments
The Company classified short-term investments as “available-for-sale.” These short-term investments are free of trading restrictions. The investments are carried at fair value, based on quoted market prices or other readily available market information. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive loss, which is reflected as a separate component of stockholder’s equity in the Consolidated Balance Sheets. Gains and losses are recognized when realized in the Consolidated Statements of Operations and Comprehensive Loss.
The following tables summarize the amortized cost and fair value of the available-for-sale investment securities portfolio at March 31, 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
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
6,283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,283
|
|
Corporate securities
|
|
|
599
|
|
|
|
—
|
|
|
|
—
|
|
|
|
599
|
|
Commercial paper
|
|
|
3,044
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,044
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
1,248
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,248
|
|
Treasury Bills
|
|
|
997
|
|
|
|
—
|
|
|
|
—
|
|
|
|
997
|
|
Commercial paper
|
|
|
5,110
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,110
|
|
Total Assets at Fair Value
|
|
$
|
17,281
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,281
|
|
(Dollars in thousands)
|
|
Amortized Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Estimated Fair
Value
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
9,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,902
|
|
Commercial paper
|
|
|
1,345
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,345
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Securities
|
|
|
656
|
|
|
|
—
|
|
|
|
—
|
|
|
|
656
|
|
Treasury Bills
|
|
|
1,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,195
|
|
Commercial paper
|
|
|
6,776
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,776
|
|
U.S. government securities
|
|
|
1,198
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,198
|
|
Total Assets at Fair Value
|
|
$
|
21,072
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21,072
|
|
The Company did not have any investment categories that were in a continuous unrealized loss position for more than three months as of March 31, 2019. Unrealized gains and losses amounts would be included in accumulated other comprehensive income or loss; however, none were reported during the periods presented.
As of March 31, 2019, for fixed income securities that were in unrealized loss positions, the Company has determined that (i) it does not have the intent to sell any of these investments, and (ii) it is not more likely than not that it will be required to sell any of these investments before recovery of the entire amortized cost basis. The Company anticipates that it will recover the entire amortized cost basis of such fixed income securities and has determined that no other-than-temporary impairments associated with credit losses were required to be recognized during the three months ended March 31, 2019.
7
F
air Value Measurement
Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis. Assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows:
|
•
|
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.
|
|
•
|
Level 2 inputs are observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
•
|
Level 3 inputs are unobservable inputs for the asset or liability.
|
The following table sets forth the fair value of the Company’s financial assets as of March 31, 2019 and December 31, 2018:
|
|
Fair Value Measurements at March 31, 2019
|
|
(Dollars in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
6,283
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,283
|
|
Corporate securities
|
|
|
—
|
|
|
|
599
|
|
|
|
—
|
|
|
|
599
|
|
Commercial paper
|
|
|
—
|
|
|
|
3,044
|
|
|
|
—
|
|
|
|
3,044
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate securities
|
|
|
—
|
|
|
|
1,248
|
|
|
|
—
|
|
|
|
1,248
|
|
Treasury Bills
|
|
|
997
|
|
|
|
—
|
|
|
|
—
|
|
|
|
997
|
|
Commercial paper
|
|
|
—
|
|
|
|
5,110
|
|
|
|
—
|
|
|
|
5,110
|
|
Total Assets at Fair Value
|
|
$
|
7,280
|
|
|
$
|
10,001
|
|
|
$
|
—
|
|
|
$
|
17,281
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
(Dollars in thousands)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
9,902
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,902
|
|
Commercial paper
|
|
|
—
|
|
|
|
1,345
|
|
|
|
—
|
|
|
|
1,345
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Securities
|
|
|
—
|
|
|
|
656
|
|
|
|
—
|
|
|
|
656
|
|
Treasury Bills
|
|
|
1,195
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,195
|
|
Commercial paper
|
|
|
—
|
|
|
|
6,776
|
|
|
|
—
|
|
|
|
6,776
|
|
U.S. government securities
|
|
|
1,198
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,198
|
|
Total Assets at Fair Value
|
|
$
|
12,295
|
|
|
$
|
8,777
|
|
|
$
|
—
|
|
|
$
|
21,072
|
|
The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2019 or 2018. The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, short-term investments and accounts payable and accrued liabilities. For accounts receivable, accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of March 31, 2019 and December 31, 2018 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.
8
The Company’s Level 3 liabilities, which were measured and recorded on a recurring basis, consist of liabilities related to the March 2018 Purchase Agreement and the June 2018 Offering described in Note 8. The following table sets forth the establishment o
f these liabilities, as well as a summary of the changes in the fair value (in thousands):
|
|
(Level 3)
|
|
(Dollars in thousands)
|
|
Common Stock
Warrant
Liability - Purchase
Agreement
|
|
|
Common Stock
Warrant
Liability - June
Offering
|
|
|
Total
|
|
Balance as of December 31, 2018
|
|
$
|
2,354
|
|
|
$
|
2,729
|
|
|
$
|
5,083
|
|
Change in fair value
|
|
|
3,970
|
|
|
|
4,525
|
|
|
|
8,495
|
|
Balance as of March 31, 2019
|
|
$
|
6,324
|
|
|
$
|
7,254
|
|
|
$
|
13,578
|
|
In determining the fair value, the Company uses various valuation approaches within the fair value measurement framework. 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, treasury bills, and U.S. government securities
– Investments in money market funds, treasury bills, and U.S. government securities are classified within Level 1. At March 31, 2019 and December 31, 2018 these investments were included on the consolidated balance sheets in cash and cash equivalents and short-term investments.
|
|
•
|
Commercial paper, corporate securities –
Investments in commercial paper and corporate securities are classified within Level 2. At March 31, 2019 these investments were included on the consolidated balance sheets in cash and cash equivalents and short-term investments. At December 31, 2018, commercial paper was included on the consolidated balance sheets in short-term investments.
|
|
•
|
Purchase Agreement common stock warrant liability –
The Company has outstanding warrants to purchase 1,282,832 shares of 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
. The estimated fair value of the common stock warrant liability was remeasured at March 31, 2019 utilizing a Black Scholes Merton Model with the changes recorded on the Company’s condensed consolidated statements of operations and comprehensive loss.
|
|
•
|
June 2018 Offering common stock warrant liability –
The Company has outstanding warrants to purchase 1,461,962 shares of 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
. The estimated fair value of the common stock warrant liability was remeasured at March 31, 2019 utilizing a Black Scholes Merton Model with the changes recorded on the Company’s condensed consolidated statements of operations and comprehensive loss.
|
5. Variable Interest Entity
In February 2012, the Company formed Verdeca LLC (“Verdeca”), which is equally 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 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 $243,000 and $
286,000
, for the three months ended March 31, 2019 and 2018, respectively.
9
6. 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 Dow AgroSciences, LLC (“Dow”) and involves a joint operating activity where both Arcadia and Dow are active participants in the activities of the collaboration. Arcadia and Dow participate in the research and development, and Arcadia has the primary responsibility for the intellectual property strategy while Dow 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
, which states R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results are achieved.
7. Leases
As of March 31, 2019, the Company leases office space in Davis, CA and Phoenix, AZ, 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 leases on a straight-line basis. The Company subleases a portion of the Davis office lease and Greenhouse to third parties. The Company does not currently have any finance leases or material leases that have not yet commenced but that create significant rights and obligations for the Company.
Some leases (the warehouse, greenhouse and the Phoenix copier) 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
|
|
Classification
|
|
March 31, 2019
|
|
Assets
|
|
|
|
|
|
|
Operating lease assets
|
|
Right of use asset
|
|
$
|
2,193
|
|
Total leased assets
|
|
|
|
$
|
2,193
|
|
Liabilities
|
|
|
|
|
|
|
Current - Operating
|
|
Operating lease liability-current
|
|
$
|
574
|
|
Noncurrent - Operating
|
|
Operating lease liability-noncurrent
|
|
|
1,771
|
|
Total leased liabilities
|
|
|
|
$
|
2,345
|
|
Lease Cost
|
|
Classification
|
|
For the Three
Months Ended
March 31, 2019
|
|
Operating lease cost
|
|
SG&A and R&D Expenses
|
|
$
|
175
|
|
Short term lease cost(1)
|
|
R&D Expenses
|
|
|
48
|
|
Sublease income(2)
|
|
SG&A and R&D Expenses
|
|
|
(15
|
)
|
Net lease cost
|
|
|
|
$
|
208
|
|
|
(1)
|
Short term lease cost consists of field trial lease agreements with a lease term of 12 months or less.
|
|
(2)
|
Sublease income is recorded as a credit to lease expense.
|
Lease Term and Discount Rate
|
|
For the Three
Months Ended
March 31, 2019
|
|
Weighted-average remaining lease
term (years)
|
|
|
2.6
|
|
Weighted-average discount rate
|
|
7%
|
|
10
8. Private Placement and Registered Direct Offering
Private Placement
On March 22, 2018, the Company issued 300,752 shares of its common stock (“Common Stock”) and warrants to purchase up to 300,752 shares of Common Stock with an initial exercise price equal to $45.75 (the “March 2018 Warrants”), in a private placement (the “March 2018 Private Placement”) in accordance with a securities purchase agreement (the “the March 2018 Purchase Agreement”) entered into with certain institutional and accredited investors (collectively, the “Purchasers”) on March 19, 2018. The number of shares of Common Stock, the number and exercise price of the March 2018 Warrants issued to the Purchasers were subject to adjustments as provided in the March 2018 Purchase Agreement. The March 2018 Warrants are immediately exercisable, subject to certain ownership limitations, and expire five years after the date of issuance.
Following the adjustments as provided in the March 2018 Purchase Agreement, the number of shares issued to the Purchasers was 1,201,636, the total number of shares issuable upon exercise of the March 2018 Warrants was 1,282,832 and the per share exercise price of the March 2018 Warrants was $10.7258. These condensed consolidated financial statements reflect these additional issuances.
The aggregate net proceeds received by the Company from the March 2018 Private Placement was $8.7 million, consisting of gross proceeds of $10.0 million less offering costs of $1.3 million. The Company entered into the March 2018 Private Placement to secure additional capital to strengthen its cash resources required to launch its new health and nutrition ingredient product commercialization and production scale-up plans, as well as to continue the deregulation and commercialization of its stress tolerant HB4 soybean trait. More specifically, net proceeds have been and will continue to be used for working capital to fund the continued introgression of quality ingredient traits into elite germ plasm, additional seed bulk-up, increased planting acreage, consumer brand development and a number of other pre-commercialization and commercialization activities.
The adjustment feature for the Common Stock and the March 2018 Warrants were determined to be liabilities based on each instrument’s adjustment features and the contingent cash payment feature of the common stock warrants. The liabilities were accounted for at their respective fair values at inception using a Monte Carlo simulation model with the following assumptions: volatility of 100 percent, stock price of $32.52 and risk-free rate of 2.63%. At inception, the fair values of the Common Stock adjustment feature and the March 2018 Warrant liabilities were $3.8 million and $10.2 million, respectively. As the combined value of the liabilities exceeded the $10.0 million of proceeds, no value was assigned to the Common Stock issued and an initial loss of $4.0 million was recognized. The liabilities are marked-to-market and were valued at $15.9 million at March 31, 2018, resulting in an additional loss of $1.9 million in the first quarter of 2018.
In May 2018, following the March 2018 Private Placement’s final adjustment, the terms of the March 2018 Warrants and the number of Common Stock shares issuable in the March 2018 Private Placement became known and fixed. As a result, the common stock adjustment feature liability was marked-to-market and valued at $8.4 million at May 7, 2018, resulting in an additional loss of $2.4 million recognized in the second quarter of 2018. The Company subsequently reclassified the Common Stock adjustment feature liability’s balance of $8.4 million to stockholders’ equity. The March 2018 Warrant liability was marked-to-market and valued at $6.3 million at March 31, 2019, resulting in expense of $4.0 million recognized in the first quarter of 2019 as the contingent cash payment feature was still in effect.
Offering Costs
In connection with the March 2018 Private Placement, the Company paid to a placement agent an aggregate fee equal to $850,000. The Company also granted warrants to purchase a total of 15,038 shares of common stock (the “March 2018 Placement Agent Warrants”) that have an exercise price per share equal to $41.5625 and a term of five years. The March 2018 Placement Agent Warrants were issued for services performed by the placement agent as part of the March 2018 Private Placement and were treated as offering costs. The value of the March 2018 Placement Agent Warrants was determined to be $526,000 using the Black-Scholes Merton Model (the “Black-Scholes Model”) with input assumptions including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and the volatility of a peer group, and the risk-free interest rate for the term of the warrants. The Company incurred additional offering costs totaling $458,000 that consist of direct incremental legal, advisory, accounting and filing fees relating to the March 2018 Private Placement. The offering costs, inclusive of the March 2018 Placement Agent Warrants, totaled $1.8 million, all of which was expensed in 2018.
11
Registered Direct Offering
On May 11, 2018, the Company filed a shelf Registration Statement on Form S-3 with the SEC which was declared effective on June 8, 2018. This registration statement allows the Company to sell any combination of Common Stock, preferred stock, warrants and units consisting of such securities in one or more offerings from time to time having an aggregate initial offering price of $50 million.
On June 11, 2018, the Company entered into agreements with several institutional and accredited investors (the “June 2018 Purchase Agreement”) for the purchase of 1,392,345 shares of its common stock at a purchase price of $9.93 per share for gross proceeds of $13.8 million (the “June 2018 Offering”).
The 1,392,345 shares of Common Stock sold in the June 2018 Offering were issued pursuant to a prospectus, dated June 8, 2018, and a prospectus supplement dated June 11, 2018, in connection with a takedown from the Company’s shelf Registration Statement on Form S-3. The June 2018 Offering closed on June 14, 2018.
Additionally, in a concurrent private placement (the “June 2018 Private Placement”), the Company issued to the investors unregistered warrants to purchase up to 1,392,345 shares of Common Stock at a purchase price per warrant of $0.125, for gross proceeds of $174,000 (the “June 2018 Warrants”). The June 2018 Warrants, and the shares of Common Stock underlying the June 2018 warrants, have not been registered with the SEC and have an exercise price of $9.94 per share. Subject to certain ownership limitations, the June 2018 Warrants are exercisable upon issuance and expire five and one-half years after the date of issuance.
The aggregate net proceeds received by the Company for the June 2018 Offering were $12.8 million, consisting of gross proceeds of $14.0 million less offering costs of $1.2 million. The Company has used and intends to continue to use the net proceeds from this offering for general corporate purposes, including, but not limited to, scale-up of its GoodWheat
TM
Resistant Starch wheat production, early commercialization activities, continued research and development activities and for general and administrative expenses.
The
June 2018 Warrants
were determined to be a liability as they have a contingent cash payment feature. The
June 2018 Warrants
were accounted for at their fair value at inception using the Black Scholes Model with the following assumptions: volatility of 108 percent, stock price of $8.20 and risk-free rate of 2.83%. At inception, the fair value of the June 2018 Warrants was $9.0 million and the remaining $5.0 million of the $14.0 million of proceeds was allocated to the Common Stock using the residual method and accounted for as stockholders’ equity. The
June 2018 Warrants
were marked-to-market and valued at $7.3 million at March 31, 2019, resulting in expense of $4.5 million recognized in the first quarter of 2019.
Offering Costs
In connection with the June 2018 Offering, the Company paid to a placement agent an aggregate fee equal to $980,000. The Company also granted warrants to purchase a total of 69,617 shares of common stock (“June 2018 Placement Agent Warrants”) that have an exercise price per share equal to $12.568 and a term of five years. The June 2018 Placement Agent Warrants were issued for services performed by the placement agent as part of the June 2018 Offering and were treated as offering costs. The value of the June 2018 Placement Agent Warrants was determined to be $427,000 using the Black-Scholes Model with input assumptions including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and the volatility of a peer group, and the risk-free interest rate for the term of the warrants. The Company incurred additional offering costs totaling $226,000 that consist of direct incremental legal, advisory, accounting and filing fees relating to the June 2018 Offering. The offering costs, inclusive of the June 2018 Placement Agent Warrants, totaled $1.6 million and allocated to the June 2018 Warrants and the Common Stock using their relative fair values. A total of $721,000 was allocated to the June 2018 Warrants which was expensed in 2018. The remaining $912,000 was allocated to the common stock and offset to additional paid in capital.
9. Stock-Based Compensation and Warrants
Stock Incentive Plans
The Company has two equity incentive plans: the 2006 Stock Plan (“2006 Plan”) and the 2015 Omnibus Equity Incentive Plan (“2015 Plan”).
In 2006, the Company adopted the 2006 Plan, which provided for the granting of stock options to executives, employees, and other service providers under terms and provisions established by the Board of Directors. The Company granted non-statutory stock options (“NSOs”) under the 2006 Plan until May 2015, when the 2006 Plan was terminated as to future awards. The 2006 Plan continues to govern the terms of options that remain outstanding and were issued under the 2006 Plan. The 2015 Plan became effective in May 2015 and all shares that were reserved, but not issued, under the 2006 Plan were assumed by the 2015 Plan. Upon effectiveness, the 2015 Plan had 154,387 shares of common stock reserved for future issuance, which included 10,637 shares under the 2006 Plan that were transferred to and assumed by the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares
12
available for grant. In addition, shares subject to awards under the 2006 Plan that are forfeited or canceled will be added to the 2015
Plan. The 2015 Plan provides for the grant of incentive stock options (“ISOs”), NSOs, restricted stock awards, stock units, stock appreciation rights, and other forms of equity compensation, all of which may be granted to employees, officers, non-employee
directors, and consultants. The ISOs and NSOs will be granted at a price per share not less than the fair value at the date of grant. Options granted generally vest over a four-year period, with 25% vesting at the end of one year and the remaining vesting
monthly thereafter; however, the options granted in the third quarter of 2018 vest over a two-year period, vesting monthly on a pro-rated basis. Options granted, once vested, are generally exercisable for up to 10 years after grant.
As of March 31, 2019, a total of 538,953 shares of common stock were reserved for issuance under the 2015 Plan, of which 65,872 shares of common stock are available for future grant. As of March 31, 2019, a total of 62,162 and 473,081 options are outstanding under the 2006 and 2015 Plans, respectively.
A summary of activity under the stock incentive plans is as follows (in thousands, except share data and price per share):
|
|
Shares
Subject to
Outstanding
Options
|
|
|
Weighted-
Average
Exercise
Price Per
Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding — Balance at December 31, 2018
|
|
|
530,044
|
|
|
$
|
35.53
|
|
|
$
|
—
|
|
Options granted
|
|
|
7,500
|
|
|
|
3.57
|
|
|
|
|
|
Options exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
Options forfeited
|
|
|
(1,287
|
)
|
|
|
4.33
|
|
|
|
|
|
Options expired
|
|
|
(1,014
|
)
|
|
$
|
24.78
|
|
|
|
|
|
Outstanding — Balance at March 31, 2019
|
|
|
535,243
|
|
|
$
|
35.13
|
|
|
$
|
637
|
|
Vested and expected to vest — March 31, 2019
|
|
|
526,131
|
|
|
$
|
35.47
|
|
|
$
|
623
|
|
Exercisable —March 31, 2019
|
|
|
231,086
|
|
|
$
|
60.40
|
|
|
$
|
182
|
|
As of March 31, 2019, there was $0.9 million of unrecognized compensation cost related to unvested stock-based compensation grants that will be recognized over the weighted-average remaining recognition period of 1.9 years.
The fair value of stock option awards to executives and other service providers was estimated at the date of grant using the Black-Scholes Model with the following weighted-average assumption. There were 7,500 and 10,000 options granted during the three months ended March 31, 2019 and 2018, respectively.
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
|
2018
|
|
Expected term (years)
|
|
|
2.58
|
|
|
|
6.25
|
|
Expected volatility
|
|
|
133
|
%
|
|
|
100
|
%
|
Risk-free interest rate
|
|
|
2.55
|
%
|
|
|
2.73
|
%
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
Employee Stock Purchase Plan
The Company’s 2015 Employee Stock Purchase Plan (“ESPP”) became effective on May 14, 2015. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15% of their eligible compensation through payroll deductions, subject to any plan limitations. The ESPP provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. As of March 31, 2019, the number of shares of common stock reserved for future issuance under the ESPP is 108,864. The ESPP provides for automatic annual increases in the shares available for purchase beginning on January 1, 2016. As of March 31, 2019, 9,353 shares had been issued under the ESPP. The Company recorded $4,300 and $
1,200
of compensation expense for the three months ended March 31, 2019 and 2018, respectively.
Warrants
As of March 2019, the Company has 2,821,144 common stock warrants outstanding with a weighted average exercise price of $18.15. The expiration of the warrants ranges from April 2019 to June 2023.
13
On December 2013, the Company issued warrants to Mahyco International to purchase 3,784 shares of common stock, exercisable as of the issuance date, at an exercise price of $330.40 per share. These warrants expired on December 11, 2018.
In connection with the Series D preferred stock financing in the first half of 2014, the Company issued warrants, exercisable as of the issuance date, to the Series D preferred stock investors to purchase an aggregate of 61,397 shares of common stock at an exercise price of $363.20 per share and to the placement agents to purchase 1,674 shares of common stock at $268.80. Of the 61,397 warrants issued to the investors, 1,759 expired on March 28, 2019 and the remaining 59,638 expire in the second quarter of 2019, along with those issued to the placement agents.
As of March 2019
, 1,297,870 common stock warrants are outstanding that were issued in the March 2018 Private Placement. The final exercise price for these warrants is $10.7258 as adjusted in accordance with the March 2018 Purchase Agreement’s adjustment provisions. See Note 8.
As of March 2019, 1,461,962 common stock warrants are outstanding in accordance with the June 2018 Offering. Of the total, 1,392,345 shares have a purchase price of $9.94 and the remaining 69,617 common stock warrants have an exercise price of $12.568. See Note 8.
10. Income Taxes
Income tax expense during interim periods is based on applying an estimated annual effective income tax rate to year-to-date income, plus any significant unusual or infrequently occurring items that are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is obtained, additional information becomes known, or as the tax environment changes.
The interim financial statement provision for income taxes expense is different from the amounts computed by applying the United States federal statutory income tax rate of 21%. The Company’s effective tax rate was -0.1% and -0.2% for the three months ended March 31, 2019 and 2018, respectively. The difference between the effective tax rate and the federal statutory rate of 21% was primarily due to the full valuation allowance recorded on the Company’s net deferred tax assets and foreign withholding taxes.
The Company may have experienced an ownership change under IRC Section 382 as a result of the common shares issued in connection with the March 2018 Purchase Agreement or in the June 2018 Offering. Such an ownership change may limit the Company’s ability to utilize its net operating loss carryforwards prior to expiration. Given the full valuation allowance, such a limitation would not impact the deferred tax asset balance as currently recorded.
As of March 31, 2019, there have been no material changes to the Company’s uncertain tax positions.
11. Contingent Liability Related to the Anawah Acquisition
On June 15, 2005, the Company completed its agreement and plan of merger and reorganization with Anawah, Inc. (“Anawah”), to purchase the food and agricultural research company through a non-cash stock purchase. Pursuant to the merger with Anawah, and in accordance with the ASC 805 - Business Combinations, the Company incurred a contingent liability not to exceed $5.0 million. This liability represents amounts to be paid to Anawah’s previous stockholders for cash collected on revenue recognized by the Company upon commercial sale of certain specific products developed using technology acquired in the purchase. As of December 31, 2010, the Company ceased activities relating to three of the six Anawah product programs, thus, the contingent liability was reduced to $3.0 million. During the third quarter of 2016, one of the programs previously accrued for was abandoned and another program previously abandoned was reactivated. As of March 31, 2019, the Company continues to pursue three development programs using this technology and believes that the contingent liability is probable. As a result, $3.0 million remains on the Condensed Consolidated Balance Sheet as an other noncurrent liability.
12. Net Loss per Share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period and excludes any dilutive effects of stock-based awards and warrants. Diluted net loss per share is computed giving effect to all potentially dilutive common shares, including common stock issuable upon exercise of stock options and warrants. As of March 31, 2019, all potentially dilutive common shares were determined to be anti-dilutive after evaluation.
14
Securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows
(in shares):
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
|
2018
|
|
Options to purchase common stock
|
|
|
535,243
|
|
|
|
252,554
|
|
Warrants to purchase common stock
|
|
|
2,821,144
|
|
|
|
382,645
|
|
Total
|
|
|
3,356,387
|
|
|
|
635,199
|
|
13. Related-Party Transactions
The Company’s related parties include Moral Compass Corporation (“MCC”) and the John Sperling Foundation (“JSF”). The rights to the intellectual property owned by Blue Horse Labs, Inc. (“BHL”) were assigned to its sole shareholder, the John Sperling Revocable Trust (“JSRT”) due to BHL’s dissolution and then subsequently to the JSF. The JSF is deemed a related party of the Company because MCC, the Company’s largest stockholder, and the JSF share common officers and directors.
JSF receives a single digit royalty from the Company when revenue has been collected on product sales or for license payments from third parties that involve certain intellectual property developed under research funding originally from BHL. Royalty fees due to JSF were $12,000 and $29,000 as of March 31, 2019 and December 31, 2018, respectively, and are included in the Condensed Consolidated Balance Sheets as amounts due to related parties.
14. Subsequent Events
The Company has reviewed and evaluated subsequent events through May 8, 2019, the date the condensed consolidated financial statements were available to be issued.
15