Arcadia Biosciences, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are with FY2018. Arcadia is an agricultural biotechnology company developing crop traits and products, particularly in hemp, wheat, and soybeans. Its commercialization is at an early stage, with revenue from SONOVA products, initial GoodWheat seed sales, and licensing and research activities.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Total revenue | $1.17 million | $1.46 million |
| Product revenue | $814,000 | $657,000 |
| License revenue | $67,000 | $150,000 |
| Contract research and grant revenue | $288,000 | $657,000 |
| Cost of product revenue | $885,000 | $661,000 |
| Operating loss | $19.38 million | $16.87 million |
| Net loss | $28.87 million | $13.48 million |
| Net loss per common share | $4.53 | $3.58 |
| Net cash used in operating activities | $17.20 million | $13.63 million |
- Product revenue exceeded cost of product revenue by $71,000 in cost, equivalent to an approximately negative 8.7% product gross margin. The filing reports no positive operating or net margin.
- At year-end, cash and cash equivalents were $8.42 million and short-term investments were $16.92 million. Current assets were $28.44 million versus current liabilities of $5.71 million.
- Notes payable totaled $131,000 ($24,000 current); operating lease liabilities totaled $2.11 million. Separately, common-stock warrant liabilities were $14.94 million and are not conventional borrowing.
- Accumulated deficit was $207.17 million. Equity offerings and warrant exercises provided substantial 2019 financing, while cash and cash equivalents declined by $3.58 million.
Changes, outlook, and material items
- Revenue declined about 20%, largely because contract research and grant revenue fell 56% as agreements and grants concluded. Product revenue rose 24%, primarily on higher SONOVA volumes; initial GoodWheat seed revenue was recognized in Q4 2019.
- Net loss more than doubled. Operating expenses increased, while the change in fair value of warrant and related liabilities shifted from $9.56 million of income in 2018 to $9.24 million of expense in 2019. This fair-value item was noncash and substantially affected reported loss.
- Management said existing cash, cash equivalents, and investments would not meet anticipated cash needs for at least the next 12 months; the financial statements state they are insufficient through at least March 2021. Management identified substantial doubt about the company’s ability to continue as a going concern. Additional financing or partnerships may be needed, and financing plans may not succeed.
- Management expects continued losses and higher commercialization investment. It plans to scale GoodHemp and GoodWheat sales and advance HB4 soybean commercialization, but provided no quantified revenue, earnings, or cash-flow guidance.
- HB4 soybean had approvals in the U.S., Brazil, Argentina, and Paraguay, but Chinese import approval was required for commercial launch in Argentina. The expected timing of Chinese approval was under review because of COVID-19. The pandemic could also disrupt employees, suppliers, growers, and operations.
- Hemp production carries regulatory and crop-compliance risks: crops exceeding the 0.3% THC limit may have to be destroyed, potentially at Arcadia’s cost. The company also described its limited hemp operating history and risk of failing to fulfill seed orders.
- Arcadia settled disputes with Arista and Bay State Milling concerning resistant-starch wheat. Bay State became exclusive commercial partner in North America; Arista received exclusive rights in specified geographies, including Australia and Europe. The settlement followed an adverse patent-interference outcome for Arcadia.
- The independent auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about going concern. Management reported effective disclosure controls and internal control over financial reporting.
Key facts for investors to verify
- Cash runway and financing requirements against actual subsequent cash use, available investment maturities, and any new capital raised.
- Revenue traction, product-level gross margins, and fulfillment of GoodHemp orders and planned 2020 sales.
- Regulatory progress and commercialization conditions for HB4, especially Chinese import approval and the impact of COVID-19.
- Potential dilution and cash or accounting effects from outstanding warrants, equity offerings, and warrant-liability remeasurement.
- Execution and economics of the GoodWheat settlement and commercial-partner arrangements, including intellectual-property rights by geography.
- Hemp crop THC compliance, regulatory changes, and any destruction, inventory, or customer-deposit exposure.