Arcadia Biosciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited; amounts below are in millions of dollars unless stated otherwise. Arcadia develops and sells plant-based food and beverage products, including GoodWheat and Zola, and licenses crop traits.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1.389 | $3.858 | $2.899 | $7.078 |
| Gross profit | $0.408 | $0.411 | $1.093 | $0.172 |
| Operating loss | $(3.791) | $(3.783) | $(7.840) | $(8.406) |
| Net income (loss) attributable to common stockholders | $0.823 | $(3.777) | $(8.561) | $(8.265) |
| Net cash used in operations | Not stated separately | Not stated separately | $(8.264) | $(8.250) |
- Reported gross margins were approximately 29% for Q2 2023 and 38% for the first half of 2023. These are calculated from reported revenue and cost of revenue.
- At June 30, cash and cash equivalents were $13.484 million and short-term investments were $5.023 million. Working capital was $19.248 million; current assets were $23.339 million and current liabilities were $4.091 million.
- Total liabilities were $9.068 million. The balance sheet reports operating lease liabilities of $1.525 million and a $2.0 million contingent liability; it does not report conventional borrowing debt.
- Cash and cash equivalents declined $7.160 million during the first half. Financing provided $5.505 million, principally from the March 2023 private placement; investing used $4.401 million, including $5.002 million spent on investments.
Changes versus comparable periods
- Revenue fell 64% in Q2 and 59% in the first half. Product revenue declined 53% in both comparisons, primarily reflecting prior-year GoodWheat grain sales and sales of body-care products no longer in the portfolio. Prior-year comparisons also included $0.862 million of one-time Verdeca license revenue; Q2 2022 included $0.050 million of royalties.
- Cost of revenue fell substantially as prior-year periods included GoodWheat grain sold at cost, low-margin body-care sales and larger inventory write-downs. Management attributed improved first-half gross profit to higher-margin product focus and lower write-downs.
- SG&A declined 18% in Q2 and 9% in the first half, which management attributed to lower employee compensation, insurance and research expenses. Operating losses remained significant.
- Q2 net income included a $4.416 million gain from remeasuring warrant and option liabilities. The first-half net loss included a $6.076 million March 2023 PIPE valuation loss, partly offset by a $5.357 million gain from subsequent fair-value changes in those liabilities. These non-operating valuation items materially affected reported earnings.
Outlook, risks and unusual items
- Going concern: Management stated that cash, cash equivalents and short-term investments would not be sufficient for anticipated cash requirements for at least the next 12–18 months from the financial statements’ issuance date, raising substantial doubt about the company’s ability to continue as a going concern. Management may seek debt or equity financing or partnerships; equity financing could dilute shareholders. If funding is unavailable, spending cuts, asset sales or delayed or curtailed launches may be necessary.
- Financing and dilution: The March 2023 PIPE raised approximately $6.0 million gross. It included common shares and pre-funded warrants, plus substantial liability-classified investment options. The filing reports 1,108,432 common shares outstanding at June 30, 2023 and 1,108,432 at August 3, 2023; 1,489,952 preferred investment options were outstanding at quarter-end.
- Business changes: In July 2023, Arcadia announced it would exit its remaining body-care brands, ProVault and Soul Spring. In August 2023, it launched GoodWheat pancake and waffle mixes and single-serve Quikcakes. The filing provides no quantified revenue or earnings guidance.
- Other risks and contingencies: Inventory totaled $4.461 million, including $1.297 million classified as noncurrent; the company recorded $0.192 million of inventory write-downs in the first half and cautioned that further write-downs may be required. An IRS audit of Archipelago’s 2021 tax year is underway, and routine audits of government grant revenues are in process. The company reported no material litigation.
- Management reported disclosure controls and procedures were effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Funding plans, cash burn and whether available liquidity can bridge the disclosed 12–18-month shortfall.
- Underlying product demand and margins, especially GoodWheat and Zola, as revenue fell sharply year over year.
- Potential dilution and the accounting and settlement terms of outstanding warrants and preferred investment options.
- Inventory sell-through and valuation, including any further write-downs following the brand exits.
- Progress and potential financial impact of the IRS and government-grant audits.