Arcadia Biosciences Earnings 2020-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2020

OR

For the transition period from                      to                     

Commission File Number: 001-37383

Arcadia Biosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (530) 756-7077

Securities registered pursuant to Section 12(b) of the Act:

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.

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 August 10, 2020, the registrant had 10,699,577 shares of common stock outstanding, $0.001 par value per share.

Arcadia Biosciences, Inc.

FORM 10-Q FOR THE QUARTER ENDED June 30, 2020

INDEX

Arcadia Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

See accompanying notes to the unaudited condensed consolidated financial statements.

1

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited)

(In thousands, except share and per share data)

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)

See accompanying notes to the unaudited condensed consolidated financial statements.

3

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

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.

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 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.

The Company is closely monitoring how the spread of the novel coronavirus is affecting its business operations and employees. The Company’s targeted revenues have been adversely impacted as hemp growers have been slower to make decisions to purchase hemp seeds due to economic uncertainty and wheat consumer packaged goods companies have been heavily focused on production over R&D evaluation as demand for staples like pasta and flour have increased. At this time, there is significant uncertainty relating to the trajectory of the novel coronavirus outbreak and impact of related responses. The continued spread of the outbreak may further impact the Company’s business, results of operations, and financial condition.

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 and six months ended June 30, 2020 and 2019, respectively, and had no assets or liabilities as of June 30, 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

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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 $205,000 and $307,000 is recorded as an adjustment to net income to arrive at net income attributable to common stockholders for the three and six months ended June 30, 2020, respectively. The non-controlling partner’s equity interests are presented as non-controlling interests on the condensed consolidated balance sheets as of June 30, 2020.

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.

Restricted Cash

Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on the condensed consolidated balance sheets.

Liquidity, Capital Resources, and Going Concern

As of June 30, 2020, the Company had an accumulated deficit of $214.3 million, cash and cash equivalents of $15.0 million and short-term investments of $0.6 million. For the six months ended June 30, 2020, the Company had net losses of $7.5 million and net cash used in operations of $16.5 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 $15.0 million and short-term investments of $0.6 million as of June 30, 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 August 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. 

As previously disclosed, 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 the Company’s business, results of operations, and financial condition. Due to this uncertainty and plans outside of management’s control, the Company 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

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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 (loss) income, 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 has not entered into any lease modifications that provide concessions related to the effects of the COVID-19 pandemic, and therefore has not evaluated its option to make this accounting policy election.

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 inventories, hemp seed inventories, and prepaid production costs of $1.4 million for the three and six months ended June 30, 2020. There were no such write-downs for the three and six months ended June 30, 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 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 GoodWheat seed and grain, and GLA oil and seed.

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

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