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 audited 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. 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.
“
“GoodHemp” and “GoodWheat” are our registered trademarks in
and, in some cases, in certain other countries. This report may also contain
trademarks, service marks, and trade names of other companies. 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 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. We use state of the art gene-editing
technology and advanced breeding techniques to develop these proprietary
innovations which we are beginning to monetize through a number of methods
including seed and grain sales, product extract sales, trait licensing and
royalty agreements.
Our commercial strategy is to link consumer’s 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. In
particular, we believe the recent legalization of hemp in the
other areas of the world has created a significant agricultural and financial
opportunity. The demonstrated broad demand for industrial, nutritional, health
and wellness products from hemp, coupled with its poor genetics represent a
vast, new opportunity for Arcadia to add substantial value to its existing high
value trait and seed estate. We are applying our proprietary, rapid prototyping
technology platform, ArcaTech, to deliver innovations addressing the many
challenges farmers face in growing what is essentially an undomesticated
crop. As such, our forward discovery research is focused on non-
innovations.
The passage of 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. Hemp,
not previously distinguished by the federal government from cannabis, a Schedule
1 drug and banned as an agricultural crop, lacks substantive plant biology
research and suffers from suboptimal genetics, highly fragmented germplasm and
rampant inconsistencies. We are targeting hemp-based solutions that allow
farmers to reliably and consistently achieve compliance with
through varieties with improved functionality and application of specific
attributes such as select cannabinoid contents for health and wellness, enhanced
proteins profiles for plant-based dietary applications and industrial
applications such as clothing and hempcrete. Arcadia conducts its business in
only federal and state markets in which its activities are legal.
44
——————————————————————————–
Table of Contents
On
the Agriculture Improvement Act of 2018 for hemp cultivation, which mandates
that states test hemp crops and dispose of “hot” crops that exceed 0.3% THC.
While hemp farmers will have access to crop protection options, the destruction
of hot crops that fail these stringent inspections will not be a covered loss
under crop insurance programs. In 2019 alone, more than 20% of
were non-compliant, representing over
Arcadia GoodHemp
In
the company’s new commercial brand for delivering genetically superior hemp
seeds, transplants, flower and extracts. The first variety in GoodHemp’s
catalog, Complia Bot+, is a widely adapted cannabis strain that delivers high
cannabinoid (CBD) content (more than 10%) with ultra-low THC, the psychoactive
compound in cannabis. It is part of the Complia hemp seed line Arcadia is
bringing to market through GoodHemp, with six additional proprietary varieties
in early adopter farmer trials with sales expected in the 2020 season.
non-psychoactive compound in hemp – totaled
By 2022, the
market for non-cannabinoid, industrial hemp market will exceed
2027.
In
American and Asian hemp markets,
(“Archipelago”). This new 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. Additionally, Legacy brings to the partnership years of proven
success in extraction, product formulation and sales of cannabinol oil and
distillate products through its equity partner, Vapen CBD. Legacy was originally
formed to be a vehicle for its partners to pursue hemp opportunities within the
Hawaiian Islands. Legacy’s primary role within Archipelago is to build world
class cGMP extraction facilities to allow Hawaiian farmers an outlet for
maximizing their profits growing and converting hemp to high grade CBD, as well
as other high-value compounds. Legacy’s equity partner, Vapen CBD, is a wholly
owned subsidiary of VEXT which is a publicly traded cannabis operator based in
Archipelago creates a vertically integrated supply chain, from seed to sale, we
believe the first of its kind in
imperatives: (1) ensure a reliable supply chain during critical scale up of the
global hemp market, a major risk mitigation for success, (2) ensure high quality
throughout the supply chain, from genetics to the field and field to the
customer and (3) ensure being well-positioned to address the unique needs and
opportunities of the Hawaiian market.
Arcadia GoodWheat
In 2018, we launched our GoodWheat brand, a non-genetically modified (non-
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
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, cost effectively and in a time-frame 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-
Resistant Starch (RS) and Reduced Gluten wheat varieties, as well as future
wheat innovations. In
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.
45
——————————————————————————–
Table of Contents
With additional patents granted in 2019, 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 in 2019 strengthen our intellectual property for
our Resistant Starch portfolio of products.
We announced in
Arista Cereal Technologies to bring to market our resistant starch GoodWheat in
American diet approximately 500 calories come from wheat products, 25% of the
GoodWheat portfolio of specialty wheat varieties delivers new functional value
through an ingredient already an important component of the human diet.
In years to come, we expect to achieve enhanced nutritional characteristics
within a number of other broad acre crops using advanced breeding and
gene-editing techniques. Targets include but are not limited to higher fiber,
longer shelf life and enhanced protein in crops other than wheat.
Verdeca HB4® Soybean
In 2012, we partnered with
technology company, to form
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.
HB4® was discovered by researchers of the CONICET, the
Research Council
sunflower the capacity to tolerate hydric and saline stress. This gene was
transferred from sunflower to soybean.
Verdeca’s HB4® soybeans have undergone extensive testing, including
multi-location field trials in
regulatory field trials. The results of these trials demonstrate that the HB4®
trait can provide yield advantages under stress conditions – including drought
and low-water conditions – found in several soybean production areas. Verdeca
introduced a trait stack combining HB4® with an herbicide tolerance trait to
deliver two layers of value for growers.
HB4® is the first trait offering tolerance to drought and salinity in soybeans,
with 30 international patents. HB4® is currently approved in the four main
countries producing this strategic crop – the
are under consideration by
by
approval in late 2020 is under review in light of the recent coronavirus.
Soybeans are the world’s fourth largest crop, grown on more than 120 million
hectares annually. Global population growth, combined with a growing middle
class in countries like
this important protein source. More than 50 million of the world’s soybean
hectares are grown in
significant drought conditions in recent years.
Since our inception, we have devoted substantially all our efforts to research
and development activities, including the discovery, development, and testing of
our traits and products in development incorporating our traits. To date, we
have not generated revenues from sales of commercial products, other than
limited revenues from our GoodWheat and SONOVA products. We do receive revenues
from fees associated with the licensing of our traits to commercial partners.
Our long-term business plan and growth strategy is based in part on our
expectation that revenues from products that incorporate our traits will
comprise a significant portion of our future revenues.
46
——————————————————————————–
Table of Contents
We have never been profitable and had an accumulated deficit of
as of
million
to incur substantial costs and expenses before we obtain any revenues from the
sale of seeds incorporating our traits. As a result, our losses in future
periods could become even more significant, and we will need additional funding
to support our operating activities.
Impact of Novel Coronavirus
We are closely monitoring how the spread of the novel coronavirus is affecting
our employees and business operations. We have developed preparedness plans to
help protect the safety of our employees while safely continuing business
operations. Due to the spread of the outbreak in
we have corporate offices, we have temporarily restricted access to our offices
until at least
during this period.
At this time, there is significant uncertainty relating to the trajectory of the
novel coronavirus outbreak and impact of related responses. The continued spread
of the outbreak may further impact our business, results of operations, and
financial condition. See “Risk Factors- Risks Related to Our Business and Our
Other Industries-The novel coronavirus outbreak could adversely impact our
business, financial condition and results of operations.”
Components of Our Statements of Operations Data
Revenues
We derive our revenues from product revenues, licensing agreements, royalties,
contract research agreements, and government grants. Given our acute focus on
selling our GoodWheat and GoodHemp 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, with initial GoodWheat seed sale revenues recognized in the fourth
quarter of 2019. We recognize revenue from product sales when control of the
product is transferred to third-party distributors and manufacturers,
collectively “our customers,” which generally occurs upon shipment. Our revenues
fluctuate depending on the timing of shipments of product to our customers.
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.
Milestone fees are variable consideration that is initially constrained and
recognized only when it is probable that such amounts would not be reversed.
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.
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).
We have received payments from government entities in the form of government
grants. Government grant 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). Our obligation with respect to these agreements is to perform the
research on a best-efforts basis.
47
——————————————————————————–
Table of Contents Operating Expenses Cost of Product Revenues
Cost of product revenues relates to the sale of our SONOVA and GoodWheat
products and consists of in-licensing and royalty fees, any adjustments or
write-downs to inventory, as well as the cost of raw materials, including
inventory 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.
Change in Fair Value of Contingent Consideration
Change in the fair value of contingent consideration is comprised of the gain
associated with the reduction of our contingent liability as the result of a
decision to abandon a program that was previously accrued. See Note 13.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee
costs, professional service 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 ingredient products, we expect
to increase our investments in sales and marketing and business development.
Interest Expense
Interest expense consists primarily of contractual interest on notes payable
that were entered into in the third quarter of 2019 to finance the purchase of
company vehicles.
Other Income, Net
Other income, net, consists of interest income and the amortization of
investment premium and discount on our cash and cash equivalents and
investments.
Initial Loss on Common Stock Warrant and Common Stock Adjustment Feature
Liabilities
Initial loss on common stock warrant and common stock adjustment feature
liabilities is comprised of the loss associated with the initial recognition of
the common stock warrant and common stock adjustment feature liabilities
associated with the
values.
Change in the Estimated Fair Value of Common Stock Warrant Liabilities and
Common Stock Adjustment Feature Liability
Change in the estimated fair value of common stock warrant liabilities and
common stock adjustment feature liability is comprised of the fair value
remeasurement of the liabilities associated with the
Placement and the
48
——————————————————————————–
Table of Contents Offering Costs
Offering costs consists of the costs incurred with the issuance of Common Stock
and the
Also included are costs incurred with the
2019
stock warrant liability. Costs include placement agent, legal, advisory,
accounting and filing fees.
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 our
and 2018. We consider all available evidence, both positive and negative,
including but not limited to, cumulative losses, 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
our
Results of Operations
Comparison of the Years ended
Year Ended
December 31,
2019 2018
(in thousands)
Revenues:
Product $ 814 $ 657
License 67 150
Contract research and government grants 288 657
Total revenues 1,169 1,464
Operating expenses (income):
Cost of product revenues 885 661
Research and development 7,098 6,069
Change in fair value of contingent consideration (1,000 ) -
Selling, general and administrative 13,567 11,604
Total operating expenses 20,550 18,334
Loss from operations (19,381 ) (16,870 )
Interest expense (5 ) -
Other income, net 466 394
Initial loss on common stock warrant and
common stock adjustment feature liabilities - (4,000 )
Change in fair value of common stock warrant
and common stock adjustment feature
liabilities (9,243 ) 9,561
Offering costs (708 ) (2,555 )
Loss before income taxes (28,871 ) (13,470 )
Income tax provision (2 ) (10 )
Net loss (28,873 ) (13,480 )
Net loss attributable to non-controlling interests (68 ) -
Net loss attributable to common stockholders $ (28,805 ) $ (13,480 )
49
——————————————————————————–
Table of Contents Revenues
Product revenues accounted for 70% and 45% of our total revenues for the years
ended
in product revenues from sales of our SONOVA products was primarily driven by
additional volume of encapsulated orders.
License revenues accounted for 6% and 10% of our total revenues for the years
ended
executed in 2018 and 2019.
Contract research and government grant revenues accounted for 25% and 45% of our
total revenues for the years ended
was primarily driven by the completion of agreements and grants. Given our acute
focus on selling our GoodWheat and GoodHemp products, we do not intend to
continue pursuing contract research agreements and government grant projects.
Cost of Product Revenues
Cost of product revenues increased by
primarily due to increased product revenues and the write-down of wheat
inventory.
Research and Development
Research and development expenses increased by
year ended
increase was primarily driven by additional soybean pre-commercial activities
and higher employee-related expenses as we expand our research teams, as well as
external hemp-related costs. The increase was partially offset by the reduction
in GoodWheat field research costs as our commercial efforts progress, as well as
reduced subcontracting expenses related to government grants.
Change in Fair Value of Contingent Consideration
Change in the fair value of contingent consideration is comprised of the gain of
result of a decision to abandon a program that was previously accrued. See Note
13.
Selling, General, and Administrative
Selling, general, and administrative expenses increased by
for the year ended
2018
consultants’ stock compensation expense, stock compensation expense associated
with modification of CEO stock options, higher employee-related expenses, and
increased marketing and public relations activities. These increases were
partially offset by lower intellectual property legal fees.
Interest Expense
Interest expense was
notes payable agreements entered into during 2019. See Note 10. There was no
such expense for the year ended
Other Income, Net
Other income, net, increased
2019
the higher investment balance in 2019.
50
——————————————————————————–
Table of Contents
Initial Loss on Common Stock Warrant and Common Stock Adjustment Feature
Liabilities
Initial loss on common stock warrant and common stock adjustment feature
liabilities of
the non-cash loss associated with the initial recognition of the common stock
warrant and common stock adjustment feature liabilities associated with the
Private Placement in
million
during the year ended
Change in the Estimated Fair Value of Common Stock Warrant Liabilities and
Common Stock Adjustment Feature Liability
Change in the estimated fair value of common stock warrant liabilities and
common stock adjustment feature liability of
year ended
Offering,
fair value of the
estimated fair value of the
million
2019
the Company’s stock price from their issuance date of
the reduction in the number of warrants outstanding with the exercise of
1,053,745 warrants. The estimated fair value of the
decreased by
their issuance on
Change in the estimated fair value of common stock warrant liabilities and
common stock adjustment feature liability of
ended
2018
remeasurement of the common stock adjustment feature on
included is the remeasurement of the June Offering liabilities and the Purchase
Agreement common stock warrant liabilities through
estimated fair value of the Purchase Agreement common stock adjustment feature
was
stock warrants decreased by
June Offering common stock warrants decreased by
decrease in the Company’s stock price. The Purchase Agreement common stock
adjustment feature liability was released to equity following the final fair
value remeasurement in
Offering Costs
Offering costs for the year ended
of the placement agent fees, placement agent warrants, advisory fees, and legal
and accounting fees related to the
Offering costs for the year ended
of
related to the
Income Tax Provision
The income tax provision decreased
2019
51
——————————————————————————–
Table of Contents 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. In the future,
sales of commercial products that incorporate our seed traits will vary based on
crop growing seasons and weather patterns within particular regions.
The level of seasonality in our business overall is difficult to evaluate at
this time due to our relatively early stage of development, our relatively
limited number of commercialized products, our expansion into new geographical
markets and our introduction of new products and traits.
Liquidity, Capital Resources and Going Concern
We have funded our operations primarily with the net proceeds from our initial
public offering, private placements of equity securities and debt, as well as
proceeds from the sale of our SONOVA 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
replicating field trials, coordinating with our partners on their development
programs and scaling harvest production of wheat, hemp and soy. As of
31, 2019
investments of
the Company had net losses of
net cash used in operations of
As is disclosed in Note 11, the Company obtained funding through two separate
arrangements during the first half of 2018 and two offerings during
and
purchase agreements with institutional investors in connection with a private
placement of common stock and warrants in the amount of
of any related transaction fees. On
agreements with institutional investors through a registered direct offering in
the amount of
12, 2019
through a registered direct offering in the amount of
any related transaction fees. In August and
warrants, generating cash proceeds totaling
the Company entered into agreements with institutional investors through a
registered direct offering in the amount of
transaction fees.
We believe that our existing cash, cash equivalents and short-term investments
will not be sufficient to meet our anticipated cash requirements for at least
the next 12 months which raises substantial doubt about the Company’s ability to
continue as a going concern. See Note 1 of the notes to the consolidated
financial statements for more information.
We may seek to raise additional funds through debt or equity financings, if
necessary. We may also consider entering into additional partner arrangements.
Our sale of additional equity would result in dilution to our stockholders. Our
incurrence of debt would result in debt service obligations, and the instruments
governing our debt could provide for additional operating and financing
covenants that would restrict our operations. If we do require additional funds
and are not able to secure adequate additional funding, we may be forced to
reduce our spending, extend payment terms with our suppliers, liquidate assets,
or suspend or curtail planned development programs. Any of these actions could
materially harm our business, results of operations and financial condition.
At this time, there is significant uncertainty relating to the trajectory of the
novel coronavirus outbreak and impact of related responses. The continued spread
of the outbreak could materially harm our business, results of operations, and
financial condition. Due to this uncertainty and plans outside of management’s
control, we may not be able to achieve and implement such plans within one year
after the date that the financial statements are issued to address the
substantial doubt that exists.
52
——————————————————————————–
Table of Contents
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Year Ended
December 31,
2019 2018
Net cash (used in) provided by:
Operating activities $ (17,198 ) $ (13,631 )
Investing activities (8,369 ) (5,975 )
Financing activities 21,986 22,479
Net (decrease) increase in cash and cash equivalents $ (3,581 ) $ 2,873
Cash Flows from Operating Activities
Cash used in operating activities for the year ended
million
consideration of
amortization of investment premium and discount of
offset by the change in fair value of common stock warrant liabilities and
common stock adjustment feature liability of
financing activities and adjustments in our working capital accounts of
million
Cash used in operating activities for the year ended
million
warrant liabilities and common stock adjustment feature liability of
million
partially offset by the initial loss on common stock warrant and adjustment
feature liabilities of
stock-based compensation, and depreciation and amortization of
as
activities and adjustments in our working capital accounts of
Cash Flows from Investing Activities
Cash used in investing activities for the year ended
million
investments and
offset by
Cash used in investing activities for the year ended
million
investments and
offset by
Cash Flows from Financing Activities
Cash provided by financing activities for the year ended
relating to the
Offering of
warrants of
interest in our joint venture of
shares of
costs totaling
Offerings, respectively, as well as
the
Cash provided by financing activities for the year ended
by
Proceeds from the exercise of stock options and the purchase shares under the
employee stock purchase plan totaled
53
——————————————————————————–
Table of Contents
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 is discussed in the notes to the
consolidated financial statements.
Critical Accounting Polices and Estimates
Our management’s discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with GAAP. The preparation of these 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 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 and 11 for the estimates made in connection with the
securities purchase agreements executed during the years ended
and 2018.
Revenue Recognition
We recognize revenue when control of the promised goods or services is
transferred to customers at an amount that reflects the consideration to which
the entity expects to be entitled to in exchange for those goods or services.
See Note 2 for further detail.
We generally recognize product revenues once passage of title has occurred,
which is generally upon shipment. Shipping and handling costs charged to
customers are recorded as revenues and included in cost of product revenues at
the time the sale is recognized.
We have determined that, at the inception of each license agreement, there is
only one deliverable for the license for, access to and assistance with the
development of the specified intellectual property. We recognize revenue
up-front and annual license fees in full when it is deemed probable to be
earned. See Note 2 for further detail.
We recognize revenue related to milestone payments when it is probable that such
amounts would not be reversed. See Note 2 for further detail.
Up-front license fees for newly executed agreements are recognized upon
execution. Annual license fees and milestone fees are variable consideration
that is initially constrained and recognized only when it is probable that such
amounts would not be reversed. The evaluation and analysis of such fees is
performed and once the annual license or milestone fee is deemed probable to
have been earned, it is recognized in full in that period. See Note 2 for
further detail.
Contract research revenue consists of amounts earned from performing contracted
research activities for third parties. Activities performed are related to
breeding programs or the genetic engineering of plants and are subject to an
executed agreement. We generally recognize fees for research activities ratably
over the contractually specified performance period.
Grant revenues are recognized as eligible research and development expenses are
incurred using a proportional performance recognition methodology.
54
——————————————————————————–
Table of Contents Inventories
Inventory costs are tracked on a lot-identified basis, valued at the lower of
cost or net realizable value and are included as cost of product revenues when
sold. We compare the cost of inventories with market value and write down
inventories to net realizable value, if lower. We write down 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.
Additionally, we provide reserves for excess and slow-moving inventory to its
estimated net realizable value. The inventory write-downs are based upon
estimates about future demand from our customers and distributors and market
conditions. Future events that could significantly influence our judgment and
related estimates include conditions in target markets, introduction of new
products or changes to current or future competitor products.
Stock-Based Compensation
We recognize compensation expense related to the employee stock purchase plan
and stock options based on the estimated fair value of the awards on the date of
grant, net of estimated forfeitures. We estimate the grant date fair value, and
the resulting stock-based compensation expense, using the Black-Scholes
option-pricing model. The grant date fair value of the stock-based awards is
generally recognized on a straight-line basis over the requisite service period,
which is generally the vesting period of the respective awards.
We recorded stock-based compensation expense related to equity awards of
million
respectively.
In determining the fair value of stock-based awards, we use the Black-Scholes
option-pricing model and assumptions discussed below. Each of these inputs is
subjective and generally requires significant judgment to determine.
Expected Term-The expected term represents the period that stock-based awards
are expected to be outstanding and was estimated based on a simplified
method allowed by the
term as the average of the contractual term of the options and the
weighted-average vesting period for all open employee awards.
Expected Volatility-Since we were privately held and do not have sufficient
trading history for our common stock, the expected volatility was estimated
based on the average historical volatilities of common stock of comparable
publicly traded entities over a period equal to the expected term of the stock
option grants. The comparable companies were chosen based on their similar size,
stage in the life cycle, or area of specialty. We will continue to apply this
process until a sufficient amount of historical information regarding the
volatility of our own stock price becomes available.
Risk-Free Interest Rate-The risk-free interest rate is based on the
corresponding with the expected term of option.
Expected Dividend-We have never paid dividends on our common stock and have no
plans to pay dividends on our common stock. Therefore, we used an expected
dividend yield of zero.
For stock options and other equity awards, our board of directors determine the
fair value of each share of underlying common stock based on the closing price
of our common stock as reported on the
In addition to the Black-Scholes assumptions, we estimate our forfeiture rate
based on an analysis of our actual forfeitures and will continue to evaluate the
adequacy of the forfeiture rate based on actual forfeiture experience, analysis
of employee turnover behavior, and other factors. The impact from any forfeiture
rate adjustment would be recognized in full in the period of adjustment and if
the actual number of future forfeitures differs from our estimates, we might be
required to record adjustments to stock-based compensation in future periods.
55
——————————————————————————–
Table of Contents Income Taxes
We use the asset and liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting and the tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance is
provided when it is more likely than not that some portion or all of a deferred
tax asset will not be realized.
Recent Accounting Pronouncements
For discussions of the adoption and potential impacts of recently issued
accounting standards, refer to Note 3 – Recent Accounting Pronouncements and
Note 14 – Leases to the accompanying consolidated financial statements.
© Edgar Online, source
