Arcadia Biosciences, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results; financial amounts below are in U.S. dollars unless stated otherwise.
Business context
Arcadia develops and sells plant-based health and wellness products, including GoodWheat and GoodHemp products, and crop traits and related licenses. During the period it expanded into consumer wellness products through its May acquisition of Eko, Lief and Zola, and acquired Agrasys assets in April to commercialize Tritordeum in Europe.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1.405m | $0.281m | $2.234m | $0.590m |
| Operating loss | $7.682m | $6.876m | $13.009m | $12.666m |
| Net loss | $5.422m | $9.894m | $3.740m | $7.471m |
| Net loss attributable to common stockholders | $5.261m | $9.689m | $3.202m | $7.164m |
| Basic and diluted loss per share | $0.24 | $1.04 | $0.15 | $0.80 |
- Product revenue drove the increase: it rose to $1.379m for the quarter and $2.183m for the half year. The acquired lines contributed about $837,000 of sales from May 17 to June 30; GoodHemp seeds and higher GoodWheat sales also contributed.
- Product costs exceeded product revenue in Q2 ($1.587m versus $1.379m), implying a negative product gross margin before other revenue categories.
- For the six months, operating cash use was $10.940m, compared with $16.548m in 2020. Investing activities provided $16.882m, including proceeds from selling investments; financing activities provided $21.993m, principally from the January private placement.
- Cash and cash equivalents were $43.977m at June 30, versus $14.042m at year-end 2020. The company reported $50.916m of current assets and $7.651m of current liabilities.
- Balance-sheet debt was $1.140m current and $87,000 noncurrent. The $2.0m MidFirst note was repaid in February and the credit line closed in March. Operating lease liabilities totaled $6.689m.
Material changes and unusual items
- Arcadia raised $25.1m gross in a January 2021 private placement, issuing 7.88m shares and warrants to purchase up to 3.94m additional shares. Common shares outstanding increased from 13.45m at December 31, 2020 to 22.16m at June 30, 2021.
- The May Arcadia Wellness acquisition had estimated consideration of $6.1m, comprising $4.0m cash and $2.1m in shares. The purchase-price allocation is preliminary. The April Agrasys acquisition also broadened the business, though the filing text does not provide a clear purchase consideration for that transaction.
- Sale of all Bioceres (BIOX) shares generated $22.2m gross proceeds and a $10.222m realized gain, recorded in other income. This one-time gain materially supported reported earnings and cash generation; it is not recurring operating revenue.
- Q2 SG&A increased 73% to $6.370m, reflecting acquisition-related transaction costs, higher headcount, and increased commercial and marketing activity. R&D declined 43% to $1.131m as the company shifted toward commercialization and reduced research-team costs.
- Warrant fair-value changes were volatile: a $498,000 loss in Q2 and $176,000 income for the first half. Warrant liabilities were $12.514m at June 30, versus $2.708m at year-end. These remeasurements are noncash and depend on valuation assumptions, including volatility.
- The company recorded a $983,000 inventory write-down for the first half and a $210,000 impairment of Hawaii CBD-processing equipment. The impairment followed delay of a Hawaii CBD-processing bill; management said the earliest vote could be in 2022 and effectiveness could be delayed until 2023.
Outlook, risks and contingencies
- Management said the $44.0m of cash and cash equivalents should meet anticipated cash requirements through at least August 2022. This is management’s estimate, not a guarantee; the company continued to report operating cash burn and may seek additional financing or partnerships.
- No quantified revenue, earnings or other operating guidance is provided. Management plans to emphasize commercial products, including a GoodWheat pasta soft launch by year-end 2021 and additional product categories in 2022.
- Risks include uncertain demand and inventory recoverability, agricultural seasonality and weather, regulatory changes affecting CBD products and claims, and delayed Hawaii processing legislation. Management warned that inability to obtain acceptable additional funding could require spending cuts or curtailment of development plans.
- The company had an accumulated deficit of $215.0m. It reported no material litigation, but routine audits of government grant revenue were in process; an adverse audit could require refunds or other sanctions. PPP loan forgiveness remained uncertain.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level, with no material changes in internal control during the quarter.
Important facts for investors to verify
- Whether commercial sales growth continues after separating acquired-brand revenue from legacy product sales, and whether product margins improve.
- Cash burn and runway assumptions, including the effect of acquisition integration, marketing spending and working-capital needs.
- Final purchase-price allocations and performance of the Arcadia Wellness and Agrasys businesses.
- Potential dilution from outstanding warrants and options; the filing lists 11.54m potential shares from warrants and 1.71m options, excluded from diluted loss per share as anti-dilutive.
- Warrant liability valuation sensitivity, inventory write-down exposure, Hawaii regulatory timing, and the outcome of PPP forgiveness and government audits.