Arcadia Biosciences, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial amounts below are in millions of dollars unless stated otherwise. The company sells plant-based food and beverage products, including GoodWheat and Zola, and commercializes crop traits. In July 2023, it decided to exit its body care brands; those operations ceased September 30 and are reported as discontinued operations.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1.60 | $1.57 | $4.16 | $6.67 |
| Gross profit / margin | $0.50 / 31.0% | $0.44 / 28.2% | $1.53 / 36.8% | $1.47 / 22.1% |
| Net loss | $2.57 | $2.88 | $11.13 | $11.28 |
| Cash used in operating activities | Not separately presented | Not separately presented | $11.15 | $11.62 |
Q3 product revenue increased 3% year over year, as higher GoodWheat sales offset lower Zola sales. For the nine months, total revenue fell 38%: product revenue declined 27%, and the prior-year period included $0.86 million of one-time Verdeca license revenue and $0.12 million in royalties. Gross profit was approximately flat for the nine-month comparison despite lower revenue, reflecting lower cost of revenues, including less GoodWheat grain sold at cost and fewer inventory write-downs in 2023.
Q3 continuing-operations loss was $2.48 million, compared with $2.29 million in Q3 2022; nine-month continuing-operations loss widened to $10.54 million from $7.65 million. The nine-month 2023 result included a $6.08 million valuation loss related to the March 2023 private placement, partly offset by a $5.97 million gain from remeasurement of warrant and option liabilities. These are valuation items and materially affect reported earnings. Nine-month discontinued-operations loss improved to $0.59 million from $3.64 million.
At September 30, cash and cash equivalents were $10.61 million and short-term investments were $5.09 million, down from $20.64 million cash at December 31, 2022. Current assets were $20.01 million and current liabilities $3.89 million, for working capital of $16.12 million. The balance sheet shows no conventional borrowing line; operating lease liabilities totaled $1.27 million, and other noncurrent liabilities included a $2.00 million Anawah contingent liability.
Nine-month investing cash outflow was $4.40 million, largely reflecting $5.00 million of investment purchases; financing provided $5.51 million, including $6.00 million gross proceeds from the March 2023 PIPE, net of offering costs. Cash decreased by $10.03 million during the period.
Material changes, outlook and risks
- Management stated that cash and short-term investments would not be sufficient for anticipated requirements for at least the next 12–18 months from the financial statement issuance date, raising substantial doubt about the company’s ability to continue as a going concern. The statements contain no adjustments for the outcome of this uncertainty. Possible responses include additional debt or equity, partnerships, spending reductions, asset sales, or curtailing launches; equity financing could dilute shareholders.
- Management’s stated priorities include growing GoodWheat, expanding Zola distribution, and evaluating acquisitions. The filing gives no quantified revenue, earnings, or cash-flow guidance. GoodWheat pancake and waffle products launched in August 2023.
- The March 2023 PIPE raised $6.0 million gross and included pre-funded warrants and preferred investment options. The company also repriced existing warrants. At September 30, 1,489,952 preferred investment options were outstanding; exercise or conversion could increase share count. Common shares outstanding were 1,110,337 at September 30 and November 2.
- Inventory was $4.28 million, including $1.62 million classified as noncurrent; the company recorded $0.44 million in inventory write-downs during the first nine months. Management warns that changes in demand or market conditions could require further write-downs.
- CBD market regulatory uncertainty drove the body care exit. The filing also notes an IRS audit of the Archipelago joint venture’s 2021 tax year and routine audits relating to prior government grant revenue; management anticipated no adverse audit result. No material litigation was reported.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Key investor verification points
- Assess cash runway against the stated 12–18-month funding shortfall and monitor whether financing or partnership plans are secured.
- Separate operating performance from the large, noncash PIPE and warrant/option fair-value effects when evaluating net loss.
- Track GoodWheat and Zola sales, product-level economics, and whether GoodWheat launches generate recurring revenue sufficient to offset declining or lumpy legacy revenue.
- Review potential dilution from outstanding warrants, options, and preferred investment options, including their terms and fair-value accounting.
- Verify inventory realizability, the outcome of the Archipelago tax audit and government grant audits, and any subsequent financing or liquidity developments.