Arcadia Biosciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited consolidated results. Amounts below are in U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
Arcadia develops and sells plant-based food, agricultural and wellness products, including GoodWheat products, Zola coconut water and consumer body-care brands. Management said it was prioritizing commercialization and scaling consumer brands. GoodWheat pasta launched in select retailers in June 2022.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $3.858 | $1.405 | $7.078 | $2.234 |
| Gross profit (loss) | $0.411 | $(0.182) | $0.172 | $(0.209) |
| Operating loss | $(3.783) | $(7.682) | $(8.406) | $(13.009) |
| Net loss attributable to common stockholders | $(3.777) | $(5.261) | $(8.265) | $(3.202) |
| Basic and diluted loss per share | $(0.17) | $(0.24) | $(0.37) | $(0.15) |
| Cash used in operating activities | — | — | $8.250 | $10.940 |
Q2 gross margin was approximately 10.7%, versus a gross loss in the prior-year quarter. Despite higher six-month revenue and a lower operating loss, the six-month net loss increased from 2021, when results included a $10.222 million realized gain on corporate securities.
Product revenue drove most growth: Q2 product sales rose 114% to $2.946 million, primarily from Zola and body-care products. Six-month product revenue increased 180% to $6.116 million, including $1.7 million of GoodWheat grain and pasta sales. Q2 and six-month license revenue of $0.862 million followed China’s approval of the HB4 soybean trait. Cost of revenue rose with product sales and inventory write-downs.
At June 30, cash and cash equivalents were $21.234 million, down from $28.685 million at year-end. Current assets were $30.058 million and current liabilities $4.740 million. Total liabilities were $8.240 million, including $2.494 million of operating lease liabilities and a $2.000 million contingent liability; the balance sheet reports no separate conventional debt balance. Management expressly said cash would not be sufficient for anticipated requirements for at least 12 months from issuance of the statements, raising substantial doubt about the company’s ability to continue as a going concern. It may seek debt or equity financing or partner arrangements; equity issuance could dilute shareholders.
Material changes and unusual items
- Q2 operating loss narrowed year over year, aided by lower R&D and SG&A and higher revenue. SG&A fell 27% in Q2 and 14% for the six months, while R&D fell 68% and 67%, respectively, as the company reduced research activity and focused on commercialization.
- Inventory write-downs were $1.1 million in Q2 and $1.5 million for the six months, compared with $0.8 million and $1.0 million in the respective 2021 periods. The filing warns that further demand or market changes could require additional write-downs.
- Q2 included a $1.138 million gain on the Verdeca sale and $0.862 million of license revenue related to China’s HB4 approval. The company also recorded $0.346 million of property-and-equipment impairment, $0.072 million of intangible-asset impairment and a $0.058 million gain on asset sales. Six-month property-and-equipment sale proceeds were $0.841 million.
- On July 8, 2022, Arcadia granted Radiance Beauty an exclusive, perpetual worldwide license to Saavy Naturals. The arrangement includes transfer of certain receivables, inventory and equipment, specified salary and occupancy costs, and a 4% royalty on gross product sales beginning January 1, 2023. Related Q2 write-downs included $0.394 million of inventory, $0.320 million of property and equipment and $0.072 million of intangible assets.
- Arcadia and its Archipelago joint-venture partner had agreed to wind down hemp cultivation, citing regulatory challenges and a saturated hemp market. Archipelago assets of $0.254 million were classified as held for sale at June 30.
- Adoption of ASU 2020-06 reclassified $3.392 million of warrant liabilities to equity. The company had 11.35 million warrants outstanding at June 30, a potential source of dilution. Common shares outstanding were 22.189 million at June 30 and 22.193 million as of August 8.
Outlook, risks and other disclosures
No numerical revenue or earnings guidance is provided. Management described plans to expand GoodWheat commercialization and consumer-brand distribution, while noting that seasonality and limited commercial history make overall seasonality difficult to assess. Key risks include the stated funding shortfall and going-concern uncertainty, ability to raise capital, product demand and margins, inventory valuation, hemp-market and regulatory conditions, and execution of commercialization plans. The filing reports no material litigation; management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Cash runway assumptions behind management’s conclusion that existing cash will not cover anticipated needs for at least 12 months, and any subsequent financing or partnering developments.
- Whether revenue growth—especially GoodWheat and Arcadia Wellness sales—can translate into durable gross-margin improvement after inventory write-downs.
- Cash collection and accounting for the Verdeca-related China approval milestone, including any remaining payment conditions.
- Radiance Beauty license implementation, transferred assets and costs, and the timing and basis for future royalty revenue.
- Potential dilution from outstanding warrants and options, and any further inventory, asset or intangible-asset impairments.