Arcadia Biosciences, Inc. — FY2020 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2020, with 2019 comparisons; it does not provide a standalone fourth-quarter income statement. Arcadia develops and commercializes crop traits and products, principally GoodWheat and GoodHemp, as well as safflower oil products and trait licenses. It acquired hemp seed company Industrial Seed Innovations (ISI) in August and sold its Verdeca soybean joint-venture interest to Bioceres in November 2020.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $8.0 million | $1.2 million |
| Operating loss | $12.8 million | $19.4 million |
| Net loss | $6.0 million | $28.9 million |
| Net loss attributable to common stockholders | $4.7 million | $28.8 million |
| Net cash used in operating activities | $30.2 million | $17.2 million |
- Revenue rose by $6.9 million, primarily from $6.7 million of license revenue allocated to the Bioceres transaction. Product revenue increased 28% to $1.0 million; royalty revenue was $83,000. One customer accounted for 83% of 2020 revenue.
- Cost of product revenue was $5.2 million, exceeding product revenue by $4.2 million. The cost included $4.3 million of inventory and production-cost write-downs, including hemp seed quality issues and regulatory changes affecting Archipelago inventory.
- The $8.8 million gain on Verdeca sale and a $6.6 million noncash gain from remeasuring warrant liabilities helped reduce the reported net loss. The operating loss remained $12.8 million.
- At year-end, cash and cash equivalents were $14.0 million, short-term investments $11.6 million, and restricted cash $2.0 million. Total current assets were $31.7 million versus current liabilities of $6.3 million.
- Year-end debt was $3.2 million, including a $2.0 million secured bank note and a $1.1 million Paycheck Protection Program note. The bank note was repaid in February 2021. Operating lease liabilities totaled $6.1 million.
- Operating cash outflow increased to $30.2 million, while investing activities provided $17.3 million and financing activities provided $20.6 million. Common shares outstanding rose to 13.45 million at year-end from 8.65 million a year earlier.
Material changes, outlook and risks
- Arcadia acquired ISI for estimated consideration of $1.2 million, including cash, shares and contingent share consideration. The acquisition added hemp varieties, germplasm and intellectual property.
- The Verdeca transaction provided $5.0 million cash, 1.875 million Bioceres shares, additional fixed payments and potential royalties. The agreement provides for royalties of up to $10 million on HB4 soybean sales and a separate wheat-product royalty; additional $2 million cash is contingent on specified milestones. The Bioceres shares were subject to a six-month trading restriction.
- Management is shifting emphasis from new trait discovery toward food-science innovation, product formulation and commercialization of existing wheat and hemp varieties. It described scaling GoodWheat sales in 2021 and growing GoodHemp seed sales, but provided no quantified revenue or earnings guidance.
- Management stated that year-end cash, cash equivalents and investments were expected to cover anticipated needs for at least 12 months; the financial statement note states funding was expected to be sufficient through at least March 2022. A subsequent January 2021 private placement generated $23.3 million net proceeds, alongside warrants, increasing potential dilution.
- COVID-19 slowed hemp-seed purchasing and diverted food-company attention from research and development. Key risks include continuing losses and cash burn, uncertain product demand, hemp regulation and crop THC compliance, inventory valuation, customer concentration, competition, and reliance on collaborators. A crop exceeding the 0.3% THC limit may require disposal at Arcadia’s expense.
- The auditor identified GoodWheat and GoodHemp inventory valuation as a critical audit matter because demand forecasts and marketability assumptions require significant judgment. The auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting.
Key facts for investors to verify
- Cash runway assumptions and the reconciliation between the MD&A’s “at least 12 months” statement and the note’s estimate through March 2022; include the effect of the January 2021 financing and February debt repayment.
- Whether hemp and wheat inventories can be sold or used as planned, and the potential for further write-downs after the $4.3 million recorded in 2020.
- Revenue quality and customer concentration, particularly the transaction-related Bioceres license revenue and the timing and conditions of future milestones and royalties.
- Potential dilution from outstanding warrants, the January 2021 financing warrants and shares issued, and the market value and sale restrictions on Bioceres shares.
- Progress in GoodWheat and GoodHemp commercialization, regulatory approvals and hemp crop compliance, against management’s stated plans.