Arcadia Biosciences, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results; amounts below are in U.S. dollars.
Business context
Arcadia develops and markets plant-based food, seed, and health and wellness products. Its portfolio includes GoodWheat, Arcadia Wellness brands acquired in May 2021 (including Zola and ProVault), and royalties from licensed traits. Management says it is shifting focus toward commercialization, including scaling consumer brands and monetizing GoodWheat.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $3.22 million | $0.83 million |
| Operating loss | $4.62 million | $5.33 million |
| Net income (loss) attributable to common stockholders | $(4.49) million | $2.06 million |
| Operating cash flow | $(4.89) million | $(4.71) million |
- Revenue rose 289%, principally from sales of acquired Arcadia Wellness brands and $1.3 million of GoodWheat grain. Product revenue was $3.17 million; royalty revenue was $50,000.
- Cost of revenue was $3.46 million, exceeding revenue and producing a $238,000 gross loss (approximately -7.4% gross margin), versus a $28,000 gross loss (approximately -3.4%) a year earlier. Q1 2022 cost included $368,000 of inventory write-downs.
- Research and development expense fell 66% to $395,000 as the company reduced research staffing and activity. Selling, general and administrative expense increased 7% to $4.35 million, reflecting commercial and marketing preparation.
- Q1 2021 results included $7.46 million of other income from an unrealized gain on corporate securities; accordingly, the prior-year net income is not directly comparable to Q1 2022’s loss.
- Cash and cash equivalents were $24.55 million at March 31, down from $28.69 million at December 31, 2021. Investing activities provided $747,000, mainly from asset-sale proceeds; financing activities provided $4,000. Cash used in operations was $4.89 million.
- Total assets were $38.80 million and total liabilities $8.56 million. Current assets were $31.50 million and current liabilities $4.81 million. The balance sheet presents operating lease liabilities of $2.75 million; interest expense was $1,000. No other borrowing balance is separately presented in the supplied balance-sheet data.
Material changes and unusual items
- Arcadia adopted ASU 2020-06 on January 1, 2022. The adoption reclassified $3.39 million of warrant liabilities to equity and increased additional paid-in capital by $19.39 million, with a $16.00 million increase to accumulated deficit. It eliminated warrant fair-value gains or losses from Q1 2022 results.
- The company sold some Archipelago property and equipment, receiving $787,000 and recording a $328,000 gain. A further $254,000 of related property and equipment was classified as held for sale.
- Arcadia and its joint-venture partner had agreed in October 2021 to wind down Archipelago’s hemp cultivation because of regulatory challenges and a saturated hemp market.
- Inventory fell to $5.89 million from $6.93 million at year-end, including current inventory of $3.24 million. Management warns further write-downs may be needed if demand or market conditions worsen.
Outlook, risks, and contingencies
- Going concern: Management states existing cash is not expected to meet anticipated requirements for at least the next 12 months from issuance of the financial statements, raising substantial doubt about the company’s ability to continue as a going concern. Potential responses include additional debt or equity, partner arrangements, spending reductions, asset sales, or curtailing development; funding may not be available on acceptable terms.
- Management planned to launch GoodWheat pasta in Q2 2022 and additional product categories in 2023. The filing provides no quantified revenue, earnings, or cash-flow guidance.
- Management expects investment in consumer-product sales and marketing. Execution, product demand, margins, distribution, seasonality, and crop-growing conditions may affect results.
- Contingent liabilities include approximately $2.0 million related to the Anawah acquisition and $39,000 of estimated fair value related to the ISI acquisition. The company also disclosed routine audits in process concerning prior government grant revenue; management anticipated no adverse result, but repayments or other sanctions could arise if costs are found improper.
- The filing reports no material litigation. Disclosure controls and procedures were concluded effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Cash runway assumptions behind management’s going-concern assessment, expected cash use, and the timing and availability of any financing or partnerships.
- Whether GoodWheat pasta launched as planned and whether Arcadia Wellness and GoodWheat sales can generate positive gross margins after inventory write-downs and commercialization costs.
- Inventory recoverability and the status, proceeds, and remaining assets from the Archipelago wind-down.
- Potential dilution: 11.35 million warrants were outstanding at March 31, 2022, in addition to outstanding stock options; confirm subsequent exercises, expirations, or financing activity.
- Outcomes of government grant audits and changes in the Anawah and ISI contingent liabilities.