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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, 2022

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 6, 2022, the registrant had 22,188,918 shares of common stock outstanding, $0.001 par value per share.

 


 

Arcadia Biosciences, Inc.

FORM 10-Q FOR THE QUARTER ENDED March 31, 2022

INDEX

 

 

 

 

 

 

 

Page

Part I —

 

Financial Information (Unaudited)

 

 

 

 

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements:

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) 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

 

20

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

Part II —

 

Other Information

 

27

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

27

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

27

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

27

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

27

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

27

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

28

 

 

 

 

 

 

 

SIGNATURES

 

29

 

 


 

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Arcadia Biosciences, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,551

 

 

$

28,685

 

Accounts receivable, net of allowance for doubtful accounts of $54 and $76 
   as of March 31, 2022 and December 31, 2021, respectively

 

 

2,768

 

 

 

1,370

 

Inventories, net — current

 

 

3,235

 

 

 

4,433

 

Assets held for sale

 

 

254

 

 

 

 

Prepaid expenses and other current assets

 

 

691

 

 

 

900

 

Total current assets

 

 

31,499

 

 

 

35,388

 

Property and equipment, net

 

 

1,468

 

 

 

2,291

 

Right of use asset

 

 

2,546

 

 

 

3,081

 

Inventories, net — noncurrent

 

 

2,656

 

 

 

2,494

 

Intangible assets, net

 

 

471

 

 

 

484

 

Other noncurrent assets

 

 

159

 

 

 

180

 

Total assets

 

$

38,799

 

 

$

43,918

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

3,440

 

 

$

3,638

 

Amounts due to related parties

 

 

69

 

 

 

64

 

Operating lease liability — current

 

 

1,036

 

 

 

1,074

 

Other current liabilities

 

 

264

 

 

 

264

 

Total current liabilities

 

 

4,809

 

 

 

5,040

 

Operating lease liability — noncurrent

 

 

1,709

 

 

 

2,220

 

Common stock warrant liabilities

 

 

 

 

 

3,392

 

Other noncurrent liabilities

 

 

2,039

 

 

 

2,070

 

Total liabilities

 

 

8,557

 

 

 

12,722

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value—150,000,000 shares authorized as
   of March 31, 2022 and December 31, 2021;
22,188,918
   and
22,184,235 shares issued and outstanding as of March 31,
   2022 and December 31, 2021, respectively

 

 

63

 

 

 

63

 

Additional paid-in capital

 

 

277,169

 

 

 

257,515

 

Accumulated deficit

 

 

(246,971

)

 

 

(226,485

)

Total Arcadia Biosciences stockholders’ equity

 

 

30,261

 

 

 

31,093

 

Non-controlling interest

 

 

(19

)

 

 

103

 

Total stockholders' equity

 

 

30,242

 

 

 

31,196

 

Total liabilities and stockholders’ equity

 

$

38,799

 

 

$

43,918

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

 

2022

 

 

 

2021

 

Revenues:

 

 

 

 

 

 

Product

 

$

3,170

 

 

$

803

 

Royalty

 

 

50

 

 

 

25

 

Total revenues

 

 

3,220

 

 

 

828

 

Operating expenses (income):

 

 

 

 

 

 

Cost of revenues

 

 

3,458

 

 

 

856

 

Research and development

 

 

395

 

 

 

1,159

 

Change in fair value of contingent consideration

 

 

(31

)

 

 

(140

)

Impairment of property and equipment

 

 

 

 

 

210

 

Gain on sale of property and equipment

 

 

(328

)

 

 

 

Selling, general and administrative

 

 

4,349

 

 

 

4,069

 

Total operating expenses

 

 

7,843

 

 

 

6,154

 

Loss from operations

 

 

(4,623

)

 

 

(5,326

)

Interest expense

 

 

(1

)

 

 

(9

)

Other income, net

 

 

14

 

 

 

7,463

 

Change in fair value of common stock warrant liabilities

 

 

 

 

 

322

 

Issuance and offering costs

 

 

 

 

 

(769

)

Net (loss) income before income taxes

 

 

(4,610

)

 

 

1,681

 

Income tax provision

 

 

 

 

 

 

Net (loss) income

 

 

(4,610

)

 

 

1,681

 

Net loss attributable to non-controlling interest

 

 

(122

)

 

 

(377

)

Net (loss) income attributable to common stockholders

 

$

(4,488

)

 

$

2,058

 

Net (loss) income per share attributable to common stockholders:

 

 

 

 

 

 

Basic

 

$

(0.20

)

 

$

0.11

 

Diluted

 

$

(0.20

)

 

$

0.11

 

Weighted-average number of shares used in per share
   calculations:

 

 

 

 

 

 

Basic

 

 

22,186,993

 

 

 

18,970,250

 

Diluted

 

 

22,186,993

 

 

 

19,042,962

 

 

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, 2021

 

 

22,184,235

 

 

$

63

 

 

$

257,515

 

 

$

(226,485

)

 

$

103

 

 

$

31,196

 

Reclassification upon adoption of ASU 2020-06

 

 

 

 

 

 

 

$

19,390

 

 

$

(15,998

)

 

 

 

 

 

3,392

 

Issuance of shares related to employee stock
   purchase plan

 

 

4,683

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Stock-based compensation

 

 

 

 

 

 

 

 

260

 

 

 

 

 

 

 

 

 

260

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,488

)

 

 

(122

)

 

 

(4,610

)

Balance at March 31, 2022

 

 

22,188,918

 

 

$

63

 

 

$

277,169

 

 

$

(246,971

)

 

$

(19

)

 

$

30,242

 

 

 

 

 

 

 

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 (loss)

 

 

 

 

 

 

 

 

 

 

 

2,058

 

 

 

(377

)

 

 

1,681

 

Balance at March 31, 2021

 

 

21,336,249

 

 

$

62

 

 

$

254,208

 

 

$

(209,767

)

 

$

1,200

 

 

$

45,703

 

 

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,

 

 

 

 

2022

 

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net (loss) income

 

$

(4,610

)

 

$

1,681

 

Adjustments to reconcile net loss to cash used in operating activities:

 

 

 

 

 

 

Change in fair value of common stock warrant liabilities

 

 

 

 

 

(322

)

Change in fair value of contingent consideration

 

 

(31

)

 

 

(140

)

Issuance and offering costs

 

 

 

 

 

769

 

Depreciation

 

 

149

 

 

 

236

 

Amortization of intangible assets

 

 

13

 

 

 

20

 

Lease amortization

 

 

166

 

 

 

289

 

Gain on disposal of property and equipment

 

 

(328

)

 

 

 

Stock-based compensation

 

 

260

 

 

 

325

 

Unrealized gain on corporate securities

 

 

 

 

 

(7,463

)

Write-down of fixed assets

 

 

 

 

 

210

 

Write-down of inventory

 

 

368

 

 

 

160

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,398

)

 

 

293

 

Inventories

 

 

669

 

 

 

184

 

Prepaid expenses and other current assets

 

 

208

 

 

 

(90

)

Other noncurrent assets

 

 

22

 

 

 

 

Accounts payable and accrued expenses

 

 

(198

)

 

 

(591

)

Amounts due to related parties

 

 

5

 

 

 

(54

)

Unearned revenue

 

 

 

 

 

55

 

Other current liabilities

 

 

 

 

 

3

 

Operating lease payments

 

 

(180

)

 

 

(272

)

Net cash used in operating activities

 

 

(4,885

)

 

 

(4,707

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

Proceeds from sale of property and equipment

 

 

787

 

 

 

 

Purchases of property and equipment

 

 

(40

)

 

 

(485

)

Net cash provided by (used in) investing activities

 

 

747

 

 

 

(485

)

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

)

Proceeds from ESPP purchases

 

 

4

 

 

 

21

 

Capital contributions received from non-controlling interest

 

 

 

 

 

750

 

Net cash provided by financing activities

 

 

4

 

 

 

21,997

 

Net (decrease) increase in cash and cash equivalents

 

 

(4,134

)

 

 

16,805

 

Cash and cash equivalents — beginning of period

 

 

28,685

 

 

 

16,043

 

Cash and cash equivalents — end of period

 

$

24,551

 

 

$

32,848

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

Cash paid for interest

 

$

1

 

 

$

19

 

NONCASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

Common stock warrant liabilities reclassified to equity
   upon adoption of ASU 2020-06

 

$

3,392

 

 

 

 

Common stock warrants issued to placement agent and included in offering
   costs related to January 2021 PIPE securities purchase agreement

 

$

 

 

$

942

 

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 American Falls, Idaho, and Chatsworth, California. The Company was reincorporated in Delaware in March 2015.

The Company is a producer and marketer of innovative, plant-based health and wellness products. Its history as a leader in science-based approaches to developing high-value crop improvements, as well as nutritionally enhanced food ingredients and health and wellness products, has laid the foundation for its path forward. The Company used advanced breeding techniques to develop these proprietary innovations which are now being commercialized through the sales of seed and grain, as well as food ingredients and products. The recent acquisition of the businesses of Lief Holdings, LLC (“Lief”), EKO Holdings, LLC (“Eko”) and Live Zola, LLC (“Zola”) added bath and body care products, as well as coconut water, to the Company’s portfolio.

In May 2021, the Company’s wholly owned subsidiary Arcadia Wellness, LLC (“Arcadia Wellness” or “AW”, see Note 6), acquired the businesses of Eko, Lief, and Zola. The acquisition included consumer CBD brands like Soul Spring™, a CBD-infused botanical therapy brand in the natural category, Saavy Naturals™, a line of 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 coconut water sourced exclusively with sustainably grown coconuts from Thailand.

In August 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 partnership Archipelago Ventures Hawaii, LLC (“Archipelago”), combines the Company’s extensive genetic expertise and resources with Legacy’s experience in hemp extraction and sales. In October 2021, Arcadia and Legacy mutually agreed to wind down the cultivation activities of Archipelago, due to regulatory challenges and a saturated hemp market.

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, Arcadia Wellness, 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 $122,000 and $377,000 is recorded as an adjustment to net (loss) income to arrive at net (loss) income attributable to common stockholders for the three months ended March 31, 2022 and 2021, respectively. The non-controlling partner’s equity interests are presented as non-controlling interests on the condensed consolidated balance sheets as of March 31, 2022.

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, 2021 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2022.

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

5


 

Company has financed its operations primarily through equity and debt financings. As of March 31, 2022, the Company had an accumulated deficit of $247.0 million, and cash and cash equivalents of $24.6 million. For the three months ended March 31, 2022, the Company had a net loss of $4.6 million and net cash used in operations of $4.9 million. For the twelve months ended December 31, 2021, the Company had net losses of $16.1 million and net cash used in operations of $25.9 million.

With cash and cash equivalents of $24.6 million as of March 31, 2022, the Company believes that its existing cash and cash equivalents will not be sufficient to meet its anticipated cash requirements for at least the next 12 months from the issuance date of these financial statements, 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. 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 August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). The FASB Board is issuing this Update to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. In addressing the complexity, the FASB Board focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The amendments in this Update are effective for public business entities that meet the definition of a smaller reporting company, as defined by the SEC, for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company early adopted ASU No. 2020-06 on January 1, 2022, using the modified retrospective method. Prior to the adoption of ASU No. 2020-06, the Company had liability classified awards due to the existence of certain contingent cash payment feature. Upon adoption, these clauses no longer preclude equity classification. Under the modified retrospective method, the historical mark-to-market adjustments related to outstanding awards were reversed through retained earnings and the original carrying value of the awards were reclassified to additional paid-in capital. Adoption of the new standard resulted in an increase to accumulated deficit of $16.0 million, an increase to additional paid-in capital of $19.4 million, and a decrease to common stock warrant liabilities of $3.4 million, on the condensed consolidated balance sheets.

In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in this Update clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this Update affect all entities that issue freestanding written call options that are classified in equity. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU No. 2021-04 on January 1, 2022 with an immaterial impact on the Company’s disclosures.

6


 

3. Inventory

Inventory costs are tracked on a lot-identified basis and are included as cost of 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 revenues and are based upon estimates about future demand from the Company’s customers and distributors and market conditions. The Company recorded write-downs of wheat and body care inventories of $368,000 during the three months ended March 31, 2022. The Company recorded a write-down of hemp seed inventories of $160,000 during the three months ended March 31, 2021. If there are significant changes in demand and market conditions, substantial future write-downs of inventory may be required, which would materially increase the Company’s expenses in the period the write down is taken and materially affect the Company’s operating results.

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

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Raw materials

 

$

1,922

 

 

$

1,851

 

Goods in process

 

 

714

 

 

 

842

 

Finished goods

 

 

3,255

 

 

 

4,234

 

Inventories

 

$

5,891

 

 

$

6,927

 

 

4. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Laboratory equipment

 

$

2,226

 

 

$

2,659

 

Software and computer equipment

 

 

575

 

 

 

548

 

Machinery and equipment

 

 

868

 

 

 

1,809

 

Furniture and fixtures

 

 

203

 

 

 

211

 

Vehicles

 

 

333

 

 

 

417

 

Leasehold improvements

 

 

2,264

 

 

 

2,306

 

Property and equipment, gross

 

 

6,469

 

 

 

7,950

 

Less accumulated depreciation and amortization

 

 

(5,001

)

 

 

(5,659

)

Property and equipment, net

 

$

1,468

 

 

$

2,291

 

 

Depreciation expense was $149,000 and $236,000 for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, and December 31, 2021, respectively, there was $197,000 and $267,000 of construction in progress included in property and equipment that had not been placed into service and was not subject to depreciation.

We consider property and equipment to be assets held for sale when management approves and commits to a plan to dispose of a property or group of properties. The property and equipment held for sale prior to the sale date is separately presented, within current assets, on the condensed consolidated balance sheet as assets held for sale.

During the first quarter of 2022 management initiated the sale of property and equipment related to Archipelago, located in Hawaii. The Company completed the sale of a portion of such property and equipment with a gain on sale of property and equipment in the amount of $328,000 recorded on the condensed consolidated statements of operations and comprehensive (loss) income, during the first quarter of 2022, with proceeds of $787,000 through a local auction. The Company had no sales of assets held for sale during the first quarter of 2021. Property and equipment related to Archipelago, in the amount of $254,000, have been classified as assets held for sale, and are recorded at fair value as of March 31, 2022. The fair value has been estimated using publicly available prices for some of the assets, and business partners' estimates for assets with prices not readily available, due to the relatively small size of the industry in which they can be used.

5. Investments and Fair Value Instruments

Investments

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 condensed consolidated statements of operations and comprehensive loss.

7


 

The following tables summarize the amortized cost and fair value of the investment securities portfolio at March 31, 2022 and December 31, 2021.

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

22,343

 

 

 

 

 

 

 

 

 

22,343

 

Total Assets at Fair Value

 

$

22,343

 

 

$

 

 

$

 

 

$

22,343

 

 

(Dollars in thousands)

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

26,842

 

 

$

 

 

$

 

 

$

26,842

 

Total Assets at Fair Value

 

$

26,842

 

 

$

 

 

$

 

 

$

26,842

 

 

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, 2022.

 

Fair Value Measurement

 

The fair value of the investment securities at March 31, 2022 were as follows:

 

 

 

Fair Value Measurements at March 31, 2022

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

 

22,343

 

 

 

 

 

 

 

 

 

22,343

 

Total Assets at Fair Value

 

$

22,343

 

 

$

 

 

$

 

 

$

22,343

 

 

The fair value of the investment securities at December 31, 2021 were as follows:

 

 

 

Fair Value Measurements at December 31, 2021

 

(Dollars in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets at Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

26,842

 

 

$

 

 

$

 

 

$

26,842

 

Total Assets at Fair Value

 

$