rkda-10q_20210331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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
Identification No.)

202 Cousteau Place, Suite 105

Davis, CA

95618

(Address of Principal Executive Offices)

(Zip Code)

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common

RKDA

NASDAQ CAPITAL MARKET

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

  

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

 

As of May 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

 

 

 

 

 

 

 

Page

Part I —

 

Financial Information

 

1

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements:

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income

 

2

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

3

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

5

 

 

 

 

 

 

 

Item 2.

 

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

 

21

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

29

 

 

 

 

Part II —

 

Other Information

 

30

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

30

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

30

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

30

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

30

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

30

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

31

 

 

 

 

 

 

 

SIGNATURES

 

32

 

 

 

 


 

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Arcadia Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,848

 

 

$

14,042

 

Short-term investments

 

 

19,088

 

 

 

11,625

 

Accounts receivable

 

 

1,113

 

 

 

1,406

 

Inventories, net — current

 

 

2,663

 

 

 

3,812

 

Prepaid expenses and other current assets

 

 

901

 

 

 

811

 

Total current assets

 

 

56,613

 

 

 

31,696

 

Restricted cash

 

 

 

 

 

2,001

 

Property and equipment, net

 

 

3,480

 

 

 

3,539

 

Right of use asset

 

 

5,636

 

 

 

5,826

 

Inventories, net — noncurrent

 

 

4,290

 

 

 

3,485

 

Goodwill

 

 

408

 

 

 

408

 

Intangible assets, net

 

 

350

 

 

 

370

 

Other noncurrent assets

 

 

23

 

 

 

23

 

Total assets

 

$

70,800

 

 

$

47,348

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,418

 

 

$

4,105

 

Amounts due to related parties

 

 

26

 

 

 

80

 

Debt — current

 

 

1,141

 

 

 

1,141

 

Unearned revenue — current

 

 

63

 

 

 

8

 

Operating lease liability — current

 

 

705

 

 

 

717

 

Other current liabilities

 

 

264

 

 

 

263

 

Total current liabilities

 

 

5,617

 

 

 

6,314

 

Debt — noncurrent

 

 

96

 

 

 

2,105

 

Operating lease liability — noncurrent

 

 

5,228

 

 

 

5,389

 

Common stock warrant liabilities

 

 

12,016

 

 

 

2,708

 

Other noncurrent liabilities

 

 

2,140

 

 

 

2,280

 

Total liabilities

 

 

25,097

 

 

 

18,796

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

62

 

 

 

54

 

Additional paid-in capital

 

 

254,208

 

 

 

239,496

 

Accumulated deficit

 

 

(209,767

)

 

 

(211,825

)

Total Arcadia Biosciences stockholders’ equity

 

 

44,503

 

 

 

27,725

 

Non-controlling interest

 

 

1,200

 

 

 

827

 

Total stockholders' equity

 

 

45,703

 

 

 

28,552

 

Total liabilities and stockholders’ equity

 

$

70,800

 

 

$

47,348

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

 

2021

 

 

 

2020

 

Revenues:

 

 

 

 

 

 

 

 

Product

 

$

803

 

 

$

154

 

License

 

 

 

 

 

100

 

Royalty

 

 

25

 

 

 

30

 

Contract research and government grants

 

 

 

 

 

25

 

Total revenues

 

 

828

 

 

 

309

 

Operating expenses:

 

 

 

 

 

 

 

 

Cost of product revenues

 

 

856

 

 

 

132

 

Research and development

 

 

1,159

 

 

 

2,244

 

Change in fair value of contingent consideration

 

 

(140

)

 

 

 

Write-down of fixed assets

 

 

210

 

 

 

 

Selling, general and administrative

 

 

4,069

 

 

 

3,723

 

Total operating expenses

 

 

6,154

 

 

 

6,099

 

Loss from operations

 

 

(5,326

)

 

 

(5,790

)

Interest expense

 

 

(9

)

 

 

(3

)

Other income, net

 

 

7,463

 

 

 

72

 

Issuance and offering costs

 

 

(769

)

 

 

 

Change in fair value of common stock warrant liabilities

 

 

322

 

 

 

8,161

 

Net income before income taxes

 

 

1,681

 

 

 

2,440

 

Income tax provision

 

 

 

 

 

(17

)

Net income

 

 

1,681

 

 

 

2,423

 

Net loss attributable to non-controlling interest

 

 

(377

)

 

 

(102

)

Net income attributable to common stockholders

 

$

2,058

 

 

$

2,525

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

$

0.29

 

Diluted

 

$

0.11

 

 

$

0.29

 

Weighted-average number of shares used in per share

   calculations:

 

 

 

 

 

 

 

 

Basic

 

 

18,970,250

 

 

 

8,651,213

 

Diluted

 

 

19,042,962

 

 

 

8,674,610

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

Unrealized losses on investment securities

 

 

 

 

 

(1

)

Other comprehensive loss

 

 

 

 

 

(1

)

Comprehensive income attributable to common stockholders

 

$

2,058

 

 

$

2,524

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.


2


 

 

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Non-

Controlling

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Equity

 

Balance at December 31, 2020

 

 

13,450,861

 

 

$

54

 

 

$

239,496

 

 

$

(211,825

)

 

$

827

 

 

$

28,552

 

Issuance of shares related to the

   January 2021 PIPE

 

 

7,876,784

 

 

 

8

 

 

 

15,508

 

 

 

 

 

 

 

 

 

15,516

 

Offering costs related to the January 2021 PIPE

 

 

 

 

 

 

 

 

(2,084

)

 

 

 

 

 

 

 

 

(2,084

)

Issuance of placement agent warrants related to

   issuance of January 2021 PIPE

 

 

 

 

 

 

 

 

942

 

 

 

 

 

 

 

 

 

942

 

Issuance of shares related to employee stock

   purchase plan

 

 

8,604

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

Non-controlling interest capital contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

750

 

 

 

750

 

Stock-based compensation

 

 

 

 

 

 

 

 

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

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Non-

Controlling

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Loss) Income

 

 

Interest

 

 

Equity

 

Balance at December 31, 2019

 

 

8,646,149

 

 

$

49

 

 

$

214,826

 

 

$

(207,171

)

 

$

1

 

 

$

621

 

 

$

8,326

 

Issuance of shares related to employee stock

   purchase plan

 

 

7,946

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

14

 

Stock-based compensation

 

 

 

 

 

 

 

 

772

 

 

 

 

 

 

 

 

 

 

 

 

772

 

Unrealized losses on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Non-controlling interest contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

689

 

 

 

689

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

2,525

 

 

 

 

 

 

(102

)

 

 

2,423

 

Balance at March 31, 2020

 

 

8,654,095

 

 

$

49

 

 

$

215,612

 

 

$

(204,646

)

 

$

 

 

$

1,208

 

 

$

12,223

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.


3


 

 

Arcadia Biosciences, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

 

2021

 

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

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

 

Raw materials

 

$

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.

 

(Dollars in thousands)

 

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

 

 

(Dollars in thousands)

 

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