ARCADIA BIOSCIENCES, INC. Special Note Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes to those statements included herein. In addition to historical financial information, this report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "seek," "should," "strategy," "target," "will," "would" and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" included in the most recent Annual Report on Form 10-K filed by the Company. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Solely for convenience, the trademarks, service marks and trade names referred to in this report may appear without the ®, TM, or SM symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, or trade names.
Overview
We are a producer and marketer of innovative, plant-based health and wellness products. Our history as a leader in science-based approaches to developing high value crop improvements primarily in wheat, hemp and soy, 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, has laid the foundation for our path forward. We have used advanced breeding techniques to develop these proprietary innovations which we are now commercializing through the sales of seed and grain, food ingredients and products, hemp extracts, trait licensing and royalty agreements. The recent acquisition of the assets ofLief Holdings, LLC ("Lief"),EKO Holdings, LLC ("EKO") andLive Zola, LLC ("Zola") adds bath and body care products, as well as coconut water, to our portfolio of products. Our commercial strategy is to satisfy consumer nutrition, health and wellness demands with the superior functional benefits our crops deliver directly from the farm, enabling us to share premium economics throughout the ag-food supply chain and to build a world-class estate of high value traits and varieties. The acquisition of the Lief, EKO and Zola brands allows us to broaden our reach within the health and wellness sector. According to ResearchandMarkets.com, the global wheat flour market in 2019 totaled$181 billion and is expected to reach$220 billion by 2027. It is also estimated by theU.S. Department of Agriculture ("USDA"), that approximately one-quarter of the FDA recommended calories consumed by people in the US are from wheat. Therefore, the market opportunity for nutritional improvements in wheat are significant not only because the wheat market itself is vast, but also because of the "share of stomach" wheat represents. Considering that most people today are not getting enough fiber or protein in their daily diets, the superior nutrient density of our non-GM GoodWheat™ ("GoodWheat") technology can improve the dietary intake of average consumers, by increasing their fiber and protein consumption without changing the way they eat. We believe this proprietary advantage gives GoodWheat the potential to become a global standard in wheat. The passage of theU.S. Agriculture Improvement Act of 2018 - also known as the Farm Bill - confirmed the federal legalization of hemp, the term given to non-psychoactive cannabis containing less than 0.3% tetrahydrocannabinol (THC). It also included provisions for legalizing on a federal level hemp's cultivation, transport and sale for the first time in more than 75 years. Arcadia conducts its business in only federal and state markets in which its activities are legal. 23
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In addition to bringing new hemp varieties to market, we also see an attractive
opportunity to service the growing consumer demand for Cannabidiol ("CBD") and
other hemp-derived cannabinoids. CBD is a naturally occurring compound found in
the resinous flower of cannabis, a plant with a rich history as a medicine going
back thousands of years. Today the therapeutic properties of CBD are being
tested and confirmed by scientists and doctors around the world. According to a
New Frontier Data report issued in March 2020 , U.S. consumer spending on CBD is
projected to grow from an estimated $14B USD in 2020 to $26B USD in 2025 with
global demand accelerating significantly as countries formalize regulatory
frameworks for the industry. Backed by our own consumer survey data, we believe
our premium Hawaiian grown hemp provides a unique value proposition to consumers
that will enable us to gain traction in the marketplace as we grow our business
channels.
Arcadia GoodWheat™
In 2018, we launched our GoodWheat brand, a non-genetically modified (non-GM )
portfolio of wheat products that enables food manufacturers to differentiate
their consumer-facing brands. Consumer food companies are looking to simplify
their food ingredient formulations and consumers are demanding "clean labeling"
in their foods, paying more for foods having fewer artificial ingredients and
more natural, recognizable and healthy ingredients. A 2017 survey by PR agency
Ingredient Communications found that 73% of consumers are happy to pay a higher
retail price for a food or drink product made with ingredients they recognize.
Because GoodWheat increases the nutrient density directly in the primary grains
and oils, it provides the mechanism for food formulation simplification
naturally and cost effectively to meet evolving consumer demands.
The brand launch is a key element of the company's go-to-market strategy to
achieve greater value for its innovations by participating in downstream
consumer revenue opportunities. We designed the brand to make an immediate
connection with consumers that products made with GoodWheat meet their demands
for healthier wheat options that also taste great. The GoodWheat brand
encompasses our current and future non-GM wheat portfolio of high fiber
Resistant Starch (RS) and Reduced Gluten wheat varieties, as well as future
wheat innovations. In October 2019 , the U.S. Patent and Trademark Office granted
us the latest patents for extended shelf life wheat, the newest trait in our
non-genetically modified wheat portfolio. This new trait was designed to promote
whole wheat consumption by improving the shelf life and taste of whole grain
wheat products.
With additional patents granted in 2020 we now hold more than 15 global patents
on our high fiber Resistant Starch wheat, protecting both bread wheat and durum
(pasta) wheat. Claims granted recently strengthen our intellectual property for
our Resistant Starch portfolio of products.
We are preparing for the launch of a line of food products under our GoodWheat
brand, with pasta as the initial category to be introduced in a soft-launch at
the beginning of next year. Our pasta products will utilize our GoodWheat grain
as the sole ingredient, providing them with a higher fiber content than
traditional wheat. Additional categories of products are slated for launch in
2022.
Arcadia Wellness, LLC
In May 2021 , our wholly-owned subsidiary Arcadia Wellness, LLC , acquired the
assets of Eko, Lief, and Zola. The acquisition includes leading consumer CBD
brands like Soul Spring™, the top selling CBD-infused botanical therapy brand in
the natural category, Saavy Naturals™, a leading line of all-natural body care
products and Provault™, a CBD-infused sports performance formula made with
natural ingredients, providing effective support and recovery for athletes. Also
included in the purchase is Zola, a leading coconut water sourced exclusively
with sustainably grown coconuts from Thailand . Key personnel have joined Arcadia
Wellness.
Arcadia GoodHemp™
In December 2019 , we announced the launch of a new product line, GoodHemp, as
the company's commercial brand for delivering hemp seeds, transplants, flower
and extracts. The acquisition of Industrial Seed Innovations ("ISI") in August
2020 brought ISI's portfolio of strong performing, federally compliant hemp
varieties to Arcadia's GoodHemp™ catalog. ISI's popular Umpqua, Rogue and
Santiam seed varieties each bring unique and highly desirable characteristics to
further differentiate Arcadia's GoodHemp catalog.
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--------------------------------------------------------------------------------InAugust 2019 , we formed a new joint venture to serve the Hawaiian, North American and Asian hemp markets,Archipelago Ventures Hawaii, LLC ("Archipelago"). This venture between Arcadia and Legacy Ventures Hawaii ("Legacy") combines Arcadia's extensive genetic expertise and seed innovation history with Legacy's growth capital and strategic advisory expertise in the Hawaiian markets.
In
Arcadia SPA
InApril 2021 , we acquired the assets ofAgrasys S.A. , a food ingredients company based inBarcelona, Spain . The physical and intellectual property assets enable us to commercialize Tritordeum, a proprietary cereal grain that is a combination of durum wheat and wild barley, resulting in a nutritious grain high in fiber, protein and lutein. Tritordeum was developed at the Instituto de Agricultura Sostenible - Consejo Superior de Investigaciones Científicas, (IAS-CSIC) the largest public institution dedicated to agricultural research inSpain , and subsequently licensed exclusively to Agrasys for commercialization. We completed the transaction throughArcadia SPA, S.L ., a newly formed company based inSpain , and key Agrasys personnel have joined Arcadia SPA to operate the Tritordeum business inEurope .
Verdeca HB4® Soybean
In 2012, we partnered withBioceres, Inc. ("Bioceres") anArgentina -based technology company, to formVerdeca LLC , ("Verdeca") aU.S. -based joint venture company to deploy next-generation soybean traits developed to benefit soybean producers through quality improvement, stress mitigation and management practices. The HB4® soybean varieties deliver two layers of value for growers: drought and herbicide tolerance, offering resistance to a broad-spectrum herbicide utilized to prevent growth of a wide range of annual and perennial broadleaf weeds and grasses. InNovember 2020 , we sold our membership interest in Verdeca toBioceres in a transaction in which we received cash, shares ofBioceres stock and a royalty stream of up to$10 million on HB4 soybean sales. An additional$2 million in cash is to be paid upon achievement by Verdeca of specific regulatory or commercial milestones.
Impact of COVID-19
In early 2020, theWorld Health Organization ("WHO") determined the coronavirus ("COVID-19") was a worldwide pandemic. We are closely monitoring how the spread of the new strains of coronavirus are affecting our employees and business operations. We have developed preparedness plans to help protect the safety of our employees while safely continuing business operations. While management currently expects the impact of COVID-19 to be temporary, there is uncertainty around the duration and its broader impact on the economy and therefore the effects it will have on the Company's financial condition, liquidity, operations, suppliers, industry, and workforce. The Company experienced delivery delays during the third quarter of 2021 due to a slowed global supply chain. However, management does not expect this will significantly impact revenues, due to the growth the Company is experiencing.
Components of Our Statements of Operations Data
Revenues
We derive our revenues from product revenues, royalties, license revenues and contract research agreements. Given our acute focus on selling our GoodWheat and Arcadia Wellness products, we do not intend to continue pursuing contract research agreements and government grant projects.
Product Revenues
Our product revenues to date have consisted primarily of sales of our SONOVA
products, GoodWheat grain sales, and GoodHemp seeds sales. This quarter also
includes revenues from products within the recently acquired brands now part of
Arcadia Wellness and Arcadia Spain. We recognize revenue from product sales when
control of the product is transferred to third-party
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--------------------------------------------------------------------------------distributors and manufacturers, collectively "our customers," which generally occurs upon delivery. Our revenues fluctuate depending on the timing of shipments of product to our customers and are reported net of estimated chargebacks, returns and losses.
License Revenues
Our license revenues to date consist of up-front, nonrefundable license fees, annual license fees, and subsequent milestone payments that we receive under our research and license agreements. Revenue generated from up-front license fees are recognized upon execution of the agreement. We recognize annual license fees when it is probable that a material reversal will not occur. Milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed. The Company assesses when achievement of milestones are probable in order to determine the timing of revenue recognition for milestone fees. Milestones typically consist of significant stages of development for our traits in a potential commercial product, such as achievement of specific technological targets, completion of field trials, filing with regulatory agencies, completion of the regulatory process, and commercial launch of a product containing our traits. Given the seasonality of agriculture and time required to progress from one milestone to the next, achievement of milestones is inherently uneven, and our license revenues are likely to fluctuate significantly from period to period.
Royalty Revenues
Our royalty revenues consist of amounts earned from the sale of commercial products that incorporate our traits by third parties. Our royalty revenues consist of a minimum annual royalty, offset by amounts earned from the sale of products. We recognize the minimum annual royalty on a straight-line basis over the year, and we recognize royalty revenue resulting from the sale of products when the third parties transfer control of the product to their customers, which generally occurs upon shipment. Our royalty revenues can fluctuate depending on the timing of shipments of product by the third parties to their customers.
Contract research and government grant revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties. Contract research revenue is accounted for as a single performance obligation for which revenues are recognized over time using the input method (e.g., costs incurred to date relative to the total estimated costs at completion).
Operating Expenses
Cost of Product Revenues
Cost of product revenues relates to the sale of our SONOVA, GoodWheat, GoodHemp, Arcadia Wellness, and Arcadia Spain products and consists of in-licensing and royalty fees, any adjustments or write-downs to inventory or prepaid production costs, as well as the cost of raw materials, including internal and third-party services costs related to procuring, processing, formulating, packaging and shipping our products.
Research and Development Expenses
Research and development expenses consist of costs incurred in the discovery,
development and testing of our products and products in development
incorporating our traits. These expenses consist primarily of employee salaries
and benefits, fees paid to subcontracted research providers, fees associated
with in-licensing technology, land leased for field trials, chemicals and
supplies, and other external expenses. These costs are expensed as incurred.
Additionally, we are required from time to time to make certain milestone
payments in connection with the development of technologies in-licensed from
third parties. Our research and development expenses may fluctuate from period
to period.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee costs, professional service fees, broker and sales commission fees, and overhead costs. Our selling, general, and administrative expenses may fluctuate from period to period. In connection with our commercialization activities for our consumer products, we expect to increase our investments in sales and marketing and business development, including additional consulting fees.
Impairment of intangible assets
Impairments of intangible assets are recorded when the fair value of intangible assets drops below the previously recorded value from the time of the acquisition.
Change in Fair Value of Contingent Consideration
Change in the fair value of contingent consideration is comprised of the fair value remeasurement of the liabilities associated with our contingent consideration.
Write-down of fixed assets
Write-down of fixed assets includes losses from tangible assets due to impairment or recoverability test charges to adjust fixed assets to their fair value or recoverability value.
Interest Expense
Interest expense consists primarily of contractual interest on notes payable relating to the purchase of company vehicles, and the revolving line of credit.
Other Income, Net
Other income, net, consists of realized gains on corporate securities, interest income and the amortization of investment premium and discount on our cash and cash equivalents and investments.
Issuance and offering costs
Issuance and offering costs generally include placement agent, legal, advisory, accounting and filing fees related to financing transactions.
Change in the Estimated Fair Value of Common Stock Warrant Liabilities
Change in the estimated fair value of common stock warrant liabilities is comprised of the fair value remeasurement of the liabilities associated with our financing transactions.
Income Tax Provision Our income tax provision has not been historically significant, as we have incurred losses since our inception. The provision for income taxes consists of state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance against ourU.S. deferred tax assets as ofSeptember 30, 2021 andDecember 31, 2020 . We consider all available evidence, both positive and negative, including but not limited to, earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets in assessing the extent to which a valuation allowance should be applied against ourU.S. deferred tax assets. 27 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Three Months Ended
Three Months Ended September 30, $ Change % Change
2021 2020
(In thousands except percentage)
Revenues:
Product $ 2,324 $ 245 $ 2,079 849 %
License 17 10 7 70 %
Royalty 35 16 19 119 %
Contract research and government
grants - 43 (43 ) (100 )%
Total revenues 2,376 314 2,062 657 %
Operating expenses:
Cost of product revenues 2,511 1,841 670 36 %
Research and development 1,038 1,762 (724 ) (41 )%
Impairment of intangible assets 120 - 120 100 %
Write-down of fixed assets 1,108 - 1,108 100 %
Selling, general and
administrative 6,312 4,292 2,020 47 %
Total operating expenses 11,089 7,895 3,194 40 %
Loss from operations (8,713 ) (7,581 ) (1,132 ) 15 %
Interest expense (15 ) (23 ) 8 (35 )%
Other (expense) income, net (7 ) - (7 ) (100 )%
Change in fair value of common
stock warrant liabilities 4,777 1,130 3,647 323 %
Loss on extinguishment of warrant
liability - (682 ) 682 (100 )%
Gain on extinguishment of PPP
loan 1,123 - 1,123 100 %
Net loss before income taxes (2,835 ) (7,156 ) 4,321 (60 )%
Income tax provision (1 ) (9 ) 8 (89 )%
Net loss (2,836 ) (7,165 ) 4,329 (60 )%
Net loss attributable to
non-controlling interest (661 ) (774 ) 113 (15 )%
Net loss attributable to common
stockholders $ (2,175 ) $ (6,391 ) $ 4,216 (66 )%
Revenues
Product revenues accounted for 98% and 78% of our total revenues in the three
months ended September 30, 2021 and 2020, respectively. The $2.1 million , or
849%, increase in product revenues for the three months ended September 30, 2021
compared to the same period in 2020 was primarily driven by $1.8 million of
sales related mainly to the newly acquired lines of products of Arcadia
Wellness, in addition to higher GLA SONOVA sales.
Royalty revenues accounted for 1% and 5% of our total revenues in the three
months ended
Contract research and government grant revenues accounted for 0% and 14% of our total revenues for the three months endedSeptember 30, 2021 and 2020, respectively. Our contract research and government grant revenues decreased by$43,000 , or 100%, in the three months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was driven by the completion of agreements and grants during 2020. We do not intend to continue pursuing contract research agreements and government grant projects as we focus on selling our commercial products. Cost of Product Revenues Cost of product revenues increased by$670,000 , or 36%, in the three months endedSeptember 30, 2021 compared to the same period in 2020. The increase is mainly due to the increase in cost of product revenues of$1.7 million related to the newly acquired product lines, partially offset by lower inventory write-downs, which amounted to$449,000 during the three months endedSeptember 30, 2021 , and$1.5 million during the third quarter of 2020. The$449,000 of write-downs in third quarter of 2021 was to reduce hemp seed inventory to fair value and record the destruction of hemp crops. 28 --------------------------------------------------------------------------------
Research and Development
Research and development expenses decreased by$724,000 , or 41%, in the three months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was primarily driven by the Company pivoting its focus to commercialization, which led to lower employee-related expenses, and related activity costs as we right-sized our research teams. Partially offsetting the favorability for the quarter is$333,000 of expense included in 2021 for the release of product from inventory that was not commercialized by Arcadia.
Selling, General, and Administrative
Selling, general, and administrative expenses increased by$2 million , or 47%, in the three months endedSeptember 30, 2021 , compared to the same period in 2020. The increase was driven by increased commercial and marketing personnel and consulting activities in preparation for new product launches.
Impairment of intangible assets
We recognized an impairment of intangible assets in the amount of$120,000 for the third quarter of 2021. The impairment charge was primarily the result of a decline in the hemp seed market forecasted sales. No impairment losses were recorded in the same period of 2020.
Write-down of fixed assets
We assessed Archipelago's fixed assets related to cultivating hemp and
processing CBD for impairment and recorded a write-down in the amount of
Change in the Estimated Fair Value of Common Stock Warrant Liabilities
Change in the estimated fair value of common stock warrant liabilities resulted in a gain of$4.8 million for the three months endedSeptember 30, 2021 , due to the fair value remeasurement of the common stock warrant liabilities driven by the change in the stock price, risk-free rates and volatility during the third quarter of 2021.
Gain on extinguishment of PPP loan
During the quarter endedSeptember 30, 2021 we were notified by the lender that the SBA had forgiven the original PPP loan amount in full, and this resulted in a$1.1 million gain for the quarter.
Income Tax Expense
Income tax expense for the three months ended
Comparison of the Nine Months Ended
Nine Months Ended September 30, $ Change % Change
2021 2020
(In thousands except percentage)
Revenues:
Product $ 4,506 $ 630 $ 3,876 615 %
License 17 110 (93 ) (85 )%
Royalty 86 58 28 48 %
Contract research and government
grants - 106 (106 ) (100 )%
Total revenues 4,609 904 3,705 410 %
Operating expenses:
Cost of product revenues 4,954 3,463 1,491 43 %
Research and development 3,328 5,999 (2,671 ) (45 )%
Impairment of intangible assets 120 - 120 100 %
Change in fair value of
contingent consideration (140 ) - (140 ) (100 )%
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Write-down of fixed assets 1,319 - 1,319 100 % Selling, general and administrative 16,750 11,689 5,061 43 % Total operating expenses 26,331 21,151 5,180 24 % Loss from operations (21,722 ) (20,247 ) (1,475 ) (7 )% Interest expense (23 ) (32 ) 9 28 % Other (expense) income, net 10,214 83 10,131 12206 % Change in fair value of common stock warrant liabilities 4,601 6,212 (1,611 ) 26 % Loss on extinguishment of warrant liability - (635 ) 635 (100 )% Gain on extinguishment of PPP loan 1,123 - 1,123 100 % Issuance and offering costs (769 ) - (769 ) (100 )% Net loss before income taxes (6,576 ) (14,619 ) 8,043 (55 )% Income tax provision (1 ) (15 ) 14 93 % Net loss (6,577 ) (14,634 ) 8,057 (55 )% Net loss attributable to non-controlling interest (1,199 ) (1,081 ) (118 ) (11 )% Net loss attributable to common stockholders$ (5,378 ) $ (13,553 ) $ 8,175 (60 )% Revenues Product revenues accounted for 98% and 70% of our total revenues in the nine months endedSeptember 30, 2021 and 2020, respectively. The$3.9 million , or 615%, increase in product revenues for the nine months endedSeptember 30, 2021 compared to the same period in 2020 was primarily driven by$2.6 million of sales related mainly to the newly acquired lines of products of Arcadia Wellness, plus$584,000 of additional sales of GoodWheat grain, and$257,000 of GoodHemp seed sales. License revenues accounted for 0% and 12% of our total revenues in the nine months endedSeptember 30, 2021 , and 2020, respectively. The$110,000 in license revenues for the nine months endedSeptember 30, 2020 was due to the achievement of certain milestones.
Royalty revenues accounted for 2% and 6% of our total revenues in the nine
months ended
Contract research and government grant revenues accounted for 0% and 12% of our total revenues for the nine months endedSeptember 30, 2021 and 2020, respectively. Our contract research and government grant revenues decreased by$106,000 , or 100%, in the first nine months of 2021, compared to the same period in 2020. The decrease was driven by the completion of agreements and grants during 2020. We do not intend to continue pursuing contract research agreements and government grant projects, as we focus on selling our commercial products.
Cost of Product Revenues
Cost of product revenues increased by$1.5 million , or 43%, in the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase is in line with sales from the newly acquired lines of products within Arcadia Wellness, in the amount of$2.3 million of additional cost of product revenues, in addition to GoodWheat grain and GoodHemp seeds. The increase is partially offset by lower inventory write-downs, in the amount of$1.3 million , during the nine months endedSeptember 30, 2021 , compared to$3.1 million during the nine months endedSeptember 30, 2020 .
Research and Development
Research and development expenses decreased by$2.7 million , or 45%, in the nine months endedSeptember 30, 2021 compared to the same period in 2020. The decrease was primarily driven by the Company pivoting its focus to commercialization, which led to lower employee-related expenses as we right-sized our research teams. Partially offsetting this favorability was$333,000 of expense included in 2021 for the release of product from inventory that was not commercialized by Arcadia.
Selling, General, and Administrative
Selling, general, and administrative expenses increased by$5.1 million , or 43%, in the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily driven by acquisitive activities, including investment banker success 30 -------------------------------------------------------------------------------- fees, legal diligence and transaction fees, and additional salaries and benefits associated with the increased headcount. We have also increased commercial and marketing personnel and consulting activities in preparation for new product launches.
Impairment of intangible assets
We recognized an impairment of intangible assets in the amount of$120,000 for the nine months endedSeptember 30, 2021 . The impairment charge was primarily the result of a decline in the hemp seed market forecasted sales. No impairment losses were recorded in the same period of 2020.
Change in fair value of contingent consideration
During the nine months endedSeptember 30, 2021 , the change in the fair value of contingent consideration was due to the ISI contingent consideration remeasurement that resulted in a decrease of the liability in the amount of$140,000 . There was no change in fair value of contingent consideration during the nine months endedSeptember 30, 2020 .
Write-down of fixed assets
We assessed Archipelago's fixed assets related to cultivating hemp and
processing CBD for impairment and recorded a write-down in the amount of
Other Income, Net
Other income, net increased by$10.1 million in the nine months endedSeptember 30, 2021 when compared to the same period in 2020. This is primarily due to the realized gain resulting from the sale of the shares of BIOX.
Gain on extinguishment of PPP loan
During the nine months ended
Issuance and offering costs
Offering costs increased by$769,000 for the nine months endedSeptember 30, 2021 , and were comprised of the placement agent fees, placement agent warrants, and legal and accounting fees related to theJanuary 2021 PIPE financing transaction. There were no issuance and offering costs for the nine months endedSeptember 30, 2020 .
Change in the Estimated Fair Value of Common Stock Warrant Liabilities
Change in the estimated fair value of common stock warrant liabilities resulted in income of$4.6 million for the nine months endedSeptember 30, 2021 , due to the fair value remeasurement of the common stock warrant liabilities driven by the change in the stock price, risk-free rates and volatility during the nine months endedSeptember 30, 2021 .
Income Tax Expense
Income tax expense for the nine months ended
Seasonality
We and our commercial partners operate in different geographies around the world
and conduct field trials used for data generation, which must be conducted
during the appropriate growing seasons for particular crops and markets. Often,
there is only one crop-growing season per year for certain crops and markets.
Similarly, climate conditions and other factors that may influence the sales of
our products may vary from season to season and year to year. In particular,
weather conditions, including natural disasters such as heavy rains, hurricanes,
hail, floods, tornadoes, freezing conditions, drought, or fire, may affect the
timing and outcome of field trials, which may delay milestone payments and the
commercialization of products incorporating our seed traits. Sales of commercial
products that incorporate our seed traits will vary based on crop growing
seasons and weather patterns within particular regions.
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--------------------------------------------------------------------------------Liquidity, Capital Resources, and Going Concern
We have funded our operations primarily with the net proceeds from the sale of our securities and incurring debt, as well as from the sale of our SONOVA, GoodWheat, and GoodHemp products and payments under license agreements, contract research agreements and government grants. Our principal use of cash is to fund our operations, which are primarily focused on completing development and commercializing our quality seed traits. This includes scaling harvest production of wheat and hemp, as well as coordinating with our partners on their development programs. As ofSeptember 30, 2021 , we had cash and cash equivalents of$35.5 million . For the nine months endedSeptember 30, 2021 , the Company had a net loss of$6.6 million and net cash used in operations of$19.2 million . For the twelve months endedDecember 31, 2020 , the Company had net losses of$6.0 million and net cash used in operations of$30.2 million . We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash requirements for at least the next 12 months. See Note 1 of the notes to the condensed consolidated financial statements for more information. As is disclosed in Notes 12 and 13, onJanuary 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.
We sold all of the 1,875,000 shares of
We may seek to raise additional funds through debt or equity financings. We 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, we 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.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Nine Months Ended September 30,
2021 2020
Net cash (used in) provided by:
Operating activities $ (19,208 ) $ (23,467 )
Investing activities 16,678 14,428
Financing activities 22,014 12,824
Effects of foreign currency translation on cash
and cash equivalents (1 ) -
Net increase in cash $ 19,483 $ 3,785
Cash flows from operating activities
Cash used in operating activities for the nine months endedSeptember 30, 2021 , was$19.2 million . With respect to our net loss of$6.6 million , non-cash charges including$1.0 million of stock-based compensation,$914,000 of lease amortization,$1.8 million of write-downs of inventory,$1.3 million of write-down of fixed assets,$769,000 of issuance and offering costs, and$737,000 of depreciation were offset by adjustments in our working capital accounts of$2.4 million ,$10.2 million of realized gain on corporate securities, the change in fair value of common stock warrant liabilities of$4.6 million , other non-cash income from the change in fair value of contingent consideration of$140,000 , and operating lease payments of$984,000 . 32 -------------------------------------------------------------------------------- Cash used in operating activities for the nine months endedSeptember 30, 2020 was$23.5 million . Our net loss of$14.6 million , adjustments in our working capital accounts of$8.6 million , non-cash income from the change in fair value of common stock warrant liabilities of$6.2 million , operating lease payments of$629,000 , amortization of investment premium of$44,000 and gain on disposal of equipment of$8,000 , were partially offset by noncash charges including$3.1 million of write-downs of inventory and prepaid production costs,$1.8 million of stock-based compensation,$745,000 of lease amortization,$635,000 of loss on extinguishment of warrant liability and$395,000 of depreciation.
Cash flows from investing activities
Cash provided by investing activities for the nine months endedSeptember 30, 2021 consisted of$21.8 million of proceeds from sales of investments, partially offset by$4.3 million of acquisitions, and$919,000 in purchases of property and equipment. Cash provided by investing activities for the nine months endedSeptember 30, 2020 consisted of$18.3 million in proceeds from sales and maturities of investments and$8,000 in proceeds from sales of equipment, which were partially offset by$2.0 million in purchases of property and equipment,$1.3 million in purchases of short-term investments and$500,000 in acquisitions (for ISI acquisition).
Cash flows from financing activities
Cash provided by financing activities for the nine months endedSeptember 30, 2021 consisted of proceeds from the issuance of common stock relating to theJanuary 2021 PIPE financing transaction of$25.1 million gross proceeds, capital contributions from the non-controlling interest in our joint venture of$750,000 , and proceeds from the purchase of ESPP shares of$39,000 , which were offset by payments of transaction costs related to theJanuary 2021 PIPE of$1.9 million and principal payments on debt of$2.0 million . Cash provided by financing activities for the nine months endedSeptember 30, 2020 consisted of proceeds from the issuance of common stock relating to the exercise of theJune 2018 Warrants of$6.8 million and the exercise of half of theMarch 2018 PIPE Warrants of$2.6 million , proceeds from borrowings of$3.1 million , capital contributions from the non-controlling interest in our joint venture of$1.2 million , and proceeds from the purchase of ESPP shares of$51,000 , which were offset by payments of transactions costs related to the extinguishment of warrant liability of$863,000 and principal payments on notes payable of$26,000 .
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities, or variable interest entities other than Verdeca, which has been disposed of inNovember 2020 .
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with GAAP. The preparation of these condensed
consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements, as well as the reported revenue generated, and expenses
incurred during the reporting periods. Our estimates are based on our historical
experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We consider our critical accounting policies and estimates to be revenue
recognition, determination of the provision for income taxes, stock-based
compensation, fair value of certain equity instruments, and net realizable value
of inventory. See Notes 5, 12 and 13 for the estimates made in connection with
the securities purchase agreements executed during 2018, 2019, 2020 and 2021.
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