Arcadia Biosciences, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Arcadia develops crop traits and markets food ingredients and nutritional oils, with activities spanning GoodWheat, soybean programs and its newer hemp business.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0.392 | $0.370 | $0.753 | $1.020 |
| Operating loss | $(6.193) | $(4.099) | $(15.392) | $(12.516) |
| Net loss | $(14.187) | Net income $4.450 | $(22.562) | $(12.834) |
| Basic and diluted loss per share | $(2.04) | $0.93 income | $(4.03) | $(3.74) |
- Q3 revenue increased 6%; nine-month revenue declined 26%. Nine-month product revenue rose 23% to $0.485 million, while license revenue fell to $0.017 million and contract research and grant revenue declined 52% to $0.251 million.
- Operating expenses rose 47% in Q3 to $6.585 million and 19% year to date to $16.145 million. R&D and SG&A increased, including hemp and soybean work, expanded staffing and consulting, marketing, and CEO-option modification costs.
- Reported earnings were significantly affected by noncash warrant-liability remeasurement: a $7.777 million Q3 loss, versus an $8.421 million gain in Q3 2018; the nine-month 2019 charge was $6.790 million. This volatility reflects fair-value changes in warrants, in part related to Arcadia’s share price.
- Cash and cash equivalents were $20.541 million and short-term investments $10.355 million at September 30, versus $11.998 million and $9.825 million, respectively, at year-end 2018. Nine-month operating cash use was $12.186 million; investing cash use was $1.285 million and financing provided $22.014 million.
- Total assets were $37.302 million and current liabilities $6.023 million. Notes payable totaled $0.137 million; operating lease liabilities totaled $2.059 million. Warrant liabilities were $12.483 million and should not be confused with conventional borrowing. Accumulated deficit was $200.928 million.
Material changes, outlook and risks
- Two 2019 offerings raised gross proceeds of $7.5 million in June and $10.0 million in September; exercise of June-offering warrants generated a further $5.3 million. Shares outstanding rose from 4.775 million at December 31, 2018 to 8.646 million at September 30, 2019, reflecting significant dilution.
- Management said available cash and investments were sufficient to fund operations for at least 12 months from issuance of the statements, but continued operations depend on achieving profitable operations or obtaining additional financing or partners. The company has never been profitable and expects substantial costs before significant product revenue.
- Management expects contract research and grant revenue to continue declining as agreements conclude. It reported plans to begin hemp seed, extract and CBD product sales in Q4 2019, and anticipated GoodWheat commercialization beginning in late 2019; these are plans, not guaranteed results. No quantified financial guidance was provided.
- Arcadia formed Archipelago Ventures Hawaii, a hemp joint venture it controls and consolidates, holding 50.75%; its partner contributed $0.689 million and is reflected as noncontrolling interest. The company described hemp licensing, regulation, commercialization and market execution as important considerations.
- A patent infringement action and related USPTO interference concerned resistant-starch wheat. The Federal Circuit upheld a prior USPTO decision, leaving Arista’s patent in place. Arcadia subsequently entered a binding term sheet intended to resolve the disputes, including commercial-rights arrangements; investors should verify the final status and terms.
- Other risks include ongoing losses and cash burn, possible future dilution or debt obligations, seasonality and agricultural/weather impacts, and warrant fair-value volatility. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Important facts for investors to verify
- Cash runway assumptions and actual subsequent operating cash use.
- Revenue conversion and commercial progress for GoodWheat and hemp products, including required licenses and facilities.
- Final legal and commercial arrangements with Arista and Bay State Milling, and the resulting scope of Arcadia’s wheat rights.
- Outstanding warrant terms, potential share dilution and future warrant-liability remeasurement effects.
- Whether declining grant and contract revenue is replaced by sustainable product or licensing revenue.