Arcadia Biosciences(RKDA) - 2023 Q2 - Quarterly Report

FORM 10-Q Filing Information This Quarterly Report (Form 10-Q) for the period ended June 30, 2023, is filed by Arcadia Biosciences, Inc., a Delaware corporation headquartered in Dallas, TX, with common stock (RKDA) listed on the NASDAQ CAPITAL MARKET, classified as a non-accelerated filer and a smaller reporting company - Report Type: Quarterly Report (Form 10-Q) for the period ended June 30, 2023[2] Filing Details | Attribute | Value | | :--- | :--- | | Registrant Name | Arcadia Biosciences, Inc. | | State of Incorporation | Delaware | | Principal Executive Offices | Dallas, TX | | Trading Symbol | RKDA | | Exchange | NASDAQ CAPITAL MARKET | | Filer Status | Non-accelerated filer, Smaller reporting company | | Common Stock Outstanding (as of Aug 3, 2023) | 1,108,432 shares | INDEX Part I — Financial Information (Unaudited) Item 1. Condensed Consolidated Financial Statements This section presents Arcadia Biosciences, Inc.'s unaudited condensed consolidated financial statements for the quarter ended June 30, 2023, including balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, accompanied by detailed notes explaining the company's business, accounting policies, and financial activities Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (In thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Assets | | | | Cash and cash equivalents | $13,484 | $20,644 | | Short-term investments | $5,023 | — | | Total current assets | $23,339 | $25,398 | | Total assets | $26,798 | $28,922 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $4,091 | $4,209 | | Common stock warrant and option liabilities | $2,445 | $806 | | Total liabilities | $9,068 | $8,022 | | Total stockholders' equity | $17,730 | $20,900 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (In thousands, except per share data) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $1,389 | $3,858 | $2,899 | $7,078 | | Cost of revenues | $981 | $3,447 | $1,806 | $6,906 | | Research and development | $391 | $359 | $750 | $754 | | Selling, general and administrative | $3,815 | $4,652 | $8,209 | $9,000 | | Loss from operations | $(3,791) | $(3,783) | $(7,840) | $(8,406) | | Interest income | $207 | $30 | $405 | $29 | | Valuation loss on March 2023 PIPE | — | — | $(6,076) | — | | Change in fair value of common stock warrant and option liabilities | $4,416 | — | $5,357 | — | | Net income (loss) | $818 | $(3,797) | $(8,566) | $(8,407) | | Net income (loss) attributable to common stockholders | $823 | $(3,777) | $(8,561) | $(8,265) | | Basic and diluted EPS | $0.61 | $(6.81) | $(7.70) | $(14.90) | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (In thousands, except share data) | Item | December 31, 2022 | June 30, 2023 | | :----------------------------------- | :---------------- | :------------ | | Common Stock (Shares) | 616,079 | 1,108,432 | | Common Stock (Amount) | $65 | $65 | | Additional Paid-In Capital | $278,827 | $284,202 | | Accumulated Deficit | $(257,859) | $(266,420) | | Accumulated Other Comprehensive Income | — | $21 | | Non-Controlling Interest | $(133) | $(138) | | Total Stockholders' Equity | $20,900 | $17,730 | Key Changes (December 31, 2022 to June 30, 2023) * Issuance of shares related to March 2023 PIPE: $4,740 thousand * Stock-based compensation: $212 thousand (Q1) + $199 thousand (Q2) * Net loss (Q1): $(9,384) thousand * Net income (Q2): $823 thousand Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net cash used in operating activities | $(8,264) | $(8,250) | | Net cash used by investing activities | $(4,401) | $795 | | Net cash provided by financing activities | $5,505 | $4 | | Net decrease in cash and cash equivalents | $(7,160) | $(7,451) | | Cash and cash equivalents — beginning of period | $20,644 | $28,685 | | Cash and cash equivalents — end of period | $13,484 | $21,234 | Notes to Condensed Consolidated Financial Statements Note 1. Description of Business and Basis of Presentation - Arcadia Biosciences, Inc. focuses on plant-based food and beverage products, utilizing advanced breeding techniques for crop improvements and nutritionally enhanced food ingredients, with Zola coconut water as a key product[21] - The company decided to exit its remaining body care brands, ProVault and Soul Spring, in July 2023, following the licensing of Saavy Naturals in July 2022[22] - A 40:1 reverse stock split was approved and effected on March 1, 2023, retroactively adjusting all share and per share amounts[25] - Management has substantial doubt about the company's ability to continue as a going concern, as existing cash and short-term investments ($13.5 million cash, $5.0 million short-term investments as of June 30, 2023) are not expected to meet anticipated cash requirements for the next 12-18 months[30][31] Note 2. Recent Accounting Pronouncements - Adopted ASU No. 2016-13 (Credit Losses) on January 1, 2023, with an immaterial impact on disclosures[33] Note 3. Inventory - Inventory write-downs for the six months ended June 30, 2023, totaled $192 thousand (packaging materials and hemp seed), a decrease from $1.5 million in the same period of 2022 (wheat, hemp seed, CBD oil, body care)[35] Inventories, net (In thousands) | Item | June 30, 2023 | December 31, 2022 | | :---------------- | :------------ | :---------------- | | Raw materials | $647 | $610 | | Goods in process | $88 | — | | Finished goods | $3,726 | $2,728 | | Total Inventories | $4,461 | $3,338 | Note 4. Property and Equipment, Net Property and Equipment, Net (In thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Property and equipment, gross | $3,357 | $3,515 | | Less: accumulated depreciation and amortization | $(2,797) | $(2,811) | | Property and equipment, net | $560 | $704 | | Assets held for sale | $87 | $87 | - Gain on sale of property and equipment was $26 thousand for the six months ended June 30, 2023, down from $386 thousand in the same period of 2022[40] Note 5. Investments and Fair Value Instruments Investments and Fair Value (In thousands) | Item | June 30, 2023 (Fair Value) | December 31, 2022 (Fair Value) | | :----------------------- | :------------------------- | :--------------------------- | | Money market funds | $11,353 | $18,620 | | Treasury bills | $5,023 | — | | Total Assets at Fair Value | $16,376 | $18,620 | | Unrealized gains on available-for-sale securities | $21 | — | | Total Level 3 Liabilities | $4,445 | $2,806 | - Level 3 liabilities increased from $2.8 million to $4.4 million, driven by the initial recognition of March 2023 Options ($6.8 million) offset by changes in fair value and other adjustments ($5.2 million decrease)[48] Note 6. Consolidated Joint Venture - Archipelago Ventures Hawaii, LLC, a joint venture with Legacy Ventures Hawaii, LLC, is consolidated by Arcadia (50.75% interest)[50][51] - Cultivation activities of Archipelago were wound down in October 2021 due to regulatory challenges and a saturated hemp market[52] Note 7. Collaborative Arrangements - Collaborative arrangement with Corteva AgriScience for R&D and commercialization of an improved wheat quality trait in North America, involving cost and profit sharing[53] - R&D costs are expensed as incurred, including internal and third-party costs[54] Note 8. Leases Leases (In thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------ | :---------------- | | Right of use asset | $1,384 | $1,848 | | Operating lease liability — current | $993 | $1,010 | | Operating lease liability — noncurrent | $532 | $1,007 | | Total leased liabilities | $1,525 | $2,017 | Lease Cost (In thousands) | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------- | :------------------------------- | :------------------------------- | | Operating lease cost | $381 | $544 | | Short term lease cost | $7 | $11 | | Sublease income | $(218) | $(177) | | Net lease cost | $170 | $378 | Note 9. Equity Financing - March 2023 Private Placement raised $6.0 million gross proceeds through the issuance of common stock, pre-funded warrants, and Series A & B preferred investment options[57] - Existing warrants were repriced to $9.00 per share as part of the March 2023 Private Placement, leading to a $404 thousand increase in fair value recognized as a valuation loss[58] - March 2023 Options and Placement Agent Options are classified as Level 3 liabilities due to early settlement provisions, with an estimated fair value of $6.6 million upon issuance[59] Note 10. Warrants and Options Equity Classified Common Stock Warrants Outstanding | Item | December 31, 2022 | June 30, 2023 | | :----------------------------------- | :---------------- | :------------ | | Total Outstanding Warrants | 342,570 | 516,957 | | Exercised during Six Months Ended June 30, 2023 | — | (307,647) | Liability Classified Preferred Investment Options Outstanding | Item | December 31, 2022 | June 30, 2023 | | :----------------------------------- | :---------------- | :------------ | | Total Outstanding Options | 123,967 | 1,489,952 | | March 2023 Options - Series A | — | 666,334 | | March 2023 Options - Series B | — | 666,334 | | March 2023 Placement Agent Options | — | 33,317 | | August 2022 Options (repriced) | 118,063 | 118,063 | | August 2022 Placement Agent Options | 5,904 | 5,904 | - March 2023 Pre-Funded Warrants (250,834 exercised) and August 2022 Pre-Funded Warrants (56,813 fully exercised) significantly impacted warrant activity[69] - Liability-classified preferred investment options are adjusted to fair value at each balance sheet date, with changes recorded in the consolidated statements of operations[72] Note 11. Stock-Based Compensation and Employee Stock Purchase Program Stock Option Information (In thousands, except share data and price per share) | Item | December 31, 2022 | June 30, 2023 | | :----------------------------------- | :---------------- | :------------ | | Outstanding Options (Shares) | 60,002 | 84,755 | | Weighted Average Exercise Price | $114.80 | $82.21 | | Options granted (6 months ended June 30, 2023) | — | 26,021 | | Options forfeited (6 months ended June 30, 2023) | — | (1,058) | | Options expired (6 months ended June 30, 2023) | — | (210) | Stock-Based Compensation Expense (In thousands) | Period | Amount | | :------------------------------- | :----- | | Three Months Ended June 30, 2023 | $199 | | Six Months Ended June 30, 2023 | $411 | | Three Months Ended June 30, 2022 | $323 | | Six Months Ended June 30, 2022 | $583 | - Unrecognized compensation cost related to unvested stock-based compensation grants was $969 thousand as of June 30, 2023, with a weighted-average remaining recognition period of 2.2 years[79] - ESPP allows employees to purchase shares at a discount (up to 15%), with 9,170 shares reserved for future issuance and 1,563 shares issued as of June 30, 2023[83] Note 12. Income Taxes - Effective tax rate was 0.00% for both periods due to a full valuation allowance on net deferred tax assets, reflecting cumulative losses[85] - The Archipelago joint venture is under IRS audit for the 2021 tax year[86] Note 13. Commitments and Contingencies - A $2.0 million contingent liability from the Anawah acquisition remains on the balance sheet, related to two active development programs[89] - The contingent consideration liability for the ISI acquisition was fully written down in 2022 due to the remote probability of achieving revenue milestones[90] - No material litigation, but routine audits are in process relating to government grant revenues[88][93] Note 14. Net Income (Loss) per Share Anti-Dilutive Securities Excluded from EPS Calculation (in shares) | Item | For the Three and Six Months Ended June 30, 2023 | For the Three and Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Options to purchase common stock | 84,755 | 57,092 | | Warrants to purchase common stock | 266,957 | 283,751 | | Preferred investment options | 1,489,952 | — | | Total | 1,841,664 | 340,843 | Note 15. Related-Party Transactions - Royalty fees due to John Sperling Foundation (JSF) were $33 thousand as of June 30, 2023, compared to $48 thousand as of December 31, 2022[97] Note 16. Subsequent Events - Subsequent events were evaluated through August 10, 2023, with no material events identified[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting strategic shifts towards plant-based food and beverage products, growth initiatives for GoodWheat and Zola, and a detailed analysis of revenues and expenses, while also addressing liquidity challenges and going concern uncertainty Overview - Arcadia Biosciences is a producer and marketer of innovative, plant-based food and beverage products, commercializing proprietary innovations in seed, grain, food ingredients, and products, including Zola coconut water[102] - GoodWheat™ technology offers superior nutrient density (fiber and protein) in wheat, aiming to improve dietary intake without changing eating habits, and has significant market opportunity due to wheat's high consumption[104] Our Growth Strategy - Accelerate monetization of GoodWheat™ wheat trait portfolio by building partnerships and launching products in multiple categories, aiming for compelling differentiation and attractive margins[105] - Evaluate potential acquisitions to scale the business faster in new wheat-based categories beyond pasta[105] - Scale Zola coconut water brand through retail expansion, packaging refresh, new innovation, and brand-building activities, leveraging its preferred taste[106] Arcadia Wellness, LLC - Arcadia Wellness acquired Eko, Lief, and Zola businesses in May 2021, including CBD brands (Soul Spring, ProVault) and Zola coconut water[107] - Decision to exit remaining body care brands (ProVault and Soul Spring) in July 2023, following the licensing of Saavy Naturals in July 2022, to strategically focus on food and beverage[107] Our Product Portfolio GoodWheat™ Consumer Products - GoodWheat pasta (launched June 2022) delivers 4x fiber and 9g protein per serving, with taste parity to traditional pasta and American Heart Association's Heart-Check mark[108] - GoodWheat expanded into breakfast (August 2023) with pancake/waffle mixes (8x fiber, 5g protein) and Quikcakes™ (11x fiber, 7g protein), addressing fiber deficiency[109][110][111][112] Zola Coconut Water - Zola Coconut Water is a pure, natural, 100% coconut water, Non-GMO Project Verified, with a crisp taste, 60 calories per serving, and superior taste test results against competitors[114] CBD Body Care ProVault Topical Pain Relief - Exiting CBD body care brands (ProVault, Soul Spring) due to regulatory uncertainty and strategic focus on food and beverage products[115][116] Components of Our Statements of Operations Data Revenues - Revenue streams include product sales (Arcadia Wellness, GoodWheat, GLA), royalties from third-party sales, and license fees (up-front, annual, milestone payments)[117] - Milestone fees are recognized when probable of achievement and reversal is unlikely, leading to significant period-to-period fluctuations due to agricultural seasonality and development timelines[121] Operating Expenses - Cost of revenues includes raw materials, processing, packaging, shipping, in-licensing, royalty fees, and inventory write-downs[122] - R&D expenses cover product development and testing, consultant fees, and milestone payments for in-licensed technologies, expensed as incurred[123][124] - Selling, general and administrative expenses primarily consist of employee costs, professional services, broker/sales commissions, and overhead, with expected increases for consumer product commercialization[130] - Other significant operating items include gain on sale of Verdeca, impairment of intangible assets, change in fair value of contingent consideration, impairment/gain on sale of property and equipment, valuation loss on March 2023 PIPE, and change in fair value of common stock warrant and option liabilities[125][126][127][128][129][133][134] Results of Operations Comparison of the Three Months Ended June 30, 2023 and 2022 Financial Performance (Three Months Ended June 30, In thousands, except percentage) | Item | 2023 | 2022 | $ Change | % Change | | :------------------------------------------------- | :--- | :--- | :------- | :------- | | Total revenues | $1,389 | $3,858 | $(2,469) | (64)% | | Product revenues | $1,379 | $2,946 | $(1,567) | (53)% | | Royalty revenues | — | $50 | $(50) | (100)% | | License revenues | $10 | $862 | $(852) | (99)% | | Cost of revenues | $981 | $3,447 | $(2,466) | (72)% | | Gross profit | $408 | $411 | $(3) | (1)% | | Research and development | $391 | $359 | $32 | 9% | | Selling, general and administrative | $3,815 | $4,652 | $(837) | (18)% | | Loss from operations | $(3,791) | $(3,783) | $(8) | 0% | | Interest income | $207 | $30 | $177 | 590% | | Change in fair value of common stock warrant and option liabilities | $4,416 | — | $4,416 | 100% | | Net income (loss) | $818 | $(3,797) | $4,615 | (122)% | | Net income (loss) attributable to common stockholders | $823 | $(3,777) | $4,600 | (122)% | - Product revenues decreased by $1.6 million (53%) due to lower GoodWheat grain sales and exit of body care products[138] - License revenue decreased by $852 thousand (99%) due to a one-time $862 thousand recognition in 2022 from the Verdeca-Bioceres agreement[140] - Selling, general, and administrative expenses decreased by $837 thousand (18%) due to lower employee compensation, insurance, and research expenses[148] Comparison of the Six Months Ended June 30, 2023 and 2022 Financial Performance (Six Months Ended June 30, In thousands, except percentage) | Item | 2023 | 2022 | $ Change | % Change | | :------------------------------------------------- | :--- | :--- | :------- | :------- | | Total revenues | $2,899 | $7,078 | $(4,179) | (59)% | | Product revenues | $2,889 | $6,116 | $(3,227) | (53)% | | Royalty revenues | — | $100 | $(100) | (100)% | | License revenues | $10 | $862 | $(852) | (99)% | | Cost of revenues | $1,806 | $6,906 | $(5,100) | (74)% | | Gross profit | $1,093 | $172 | $921 | 536% | | Research and development | $750 | $754 | $(4) | (1)% | | Selling, general and administrative | $8,209 | $9,000 | $(791) | (9)% | | Loss from operations | $(7,840) | $(8,406) | $566 | (7)% | | Interest income | $405 | $29 | $376 | 1297% | | Valuation loss on March 2023 PIPE | $(6,076) | — | $(6,076) | 0% | | Change in fair value of common stock warrant and option liabilities | $5,357 | — | $5,357 | 0% | | Net income (loss) | $(8,566) | $(8,407) | $(159) | 2% | | Net income (loss) attributable to common stockholders | $(8,561) | $(8,265) | $(296) | 4% | - Product revenues decreased by $3.2 million (53%) due to lower GoodWheat grain sales and the exit of body care products[154] - Gross profit increased significantly to $1.1 million from $172 thousand, driven by the absence of low-margin GoodWheat grain sales, focus on higher-margin products, and lower inventory write-downs[157] - A $6.1 million valuation loss on the March 2023 PIPE financing transaction was recognized[168] Seasonality - Seasonality is influenced by agricultural growing seasons for field trials and consumer demand patterns (e.g., body care around holidays, coconut water in summer)[171] - Overall seasonality is difficult to evaluate due to limited commercialized products and market expansion[172] Liquidity & Capital Resources - Operations funded primarily by equity/debt financings and product/license sales[173] Liquidity Snapshot (In thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $13,484 | $20,644 | | Short-term investments | $5,023 | — | | Net cash used in operating activities (6 months) | $(8,264) | $(8,250) | | Net loss (6 months) | $(8,566) | $(8,407) | | Net losses (12 months ended Dec 31, 2022) | — | $(15,600) | | Net cash used in operations (12 months ended Dec 31, 2022) | — | $(14,000) | Going Concern - Substantial doubt about the company's ability to continue as a going concern due to insufficient cash and short-term investments for the next 12-18 months[174] - Potential actions include seeking additional debt/equity financing (leading to dilution or restrictive covenants) or partner arrangements; failure to secure funds could force spending cuts, asset liquidation, or suspension of product launches[175] Liquidity Liquidity (In thousands) | Item | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------ | :---------------- | | Current assets | $23,339 | $25,398 | | Current liabilities | $4,091 | $4,209 | | Working capital surplus | $19,248 | $21,189 | Cash Flows Cash Flows Summary (Six Months Ended June 30, In thousands) | Activity | 2023 | 2022 | | :----------------------- | :--- | :--- | | Operating activities | $(8,264) | $(8,250) | | Investing activities | $(4,401) | $795 | | Financing activities | $5,505 | $4 | | Net decrease in cash | $(7,160) | $(7,451) | - Operating cash outflow of $8.3 million in 2023 was influenced by an $8.6 million net loss, offset by non-cash charges like $6.1 million valuation loss on March 2023 PIPE and $5.4 million change in fair value of warrant liabilities[178] - Investing activities used $4.4 million in 2023, primarily due to $5.0 million in purchases of investments, compared to $0.8 million provided in 2022[180][181] - Financing activities provided $5.5 million in 2023, mainly from $6.0 million gross proceeds from the March 2023 PIPE offering[183] Off-Balance Sheet Arrangements - No off-balance sheet arrangements, except for Verdeca (disposed in November 2020)[185] Critical Accounting Policies and Estimates - Critical accounting policies and estimates are revenue recognition, income tax provision, and net realizable value of inventory, requiring significant judgment and assumptions[187] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for the company, indicating no material quantitative or qualitative disclosures about market risk are presented - Not Required[188] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[190] - No material changes in internal control over financial reporting during the quarter ended June 30, 2023[191] Part II — Other Information Item 1. Legal Proceedings The company is not currently a party to any material litigation or other material legal proceedings, though it may be subject to ordinary course legal proceedings and claims from time to time - Not a party to any material litigation or other material legal proceedings[192] Item 1A. Risk Factors Readers are directed to the 'Risk Factors' section in the company's Annual Report on Form 10-K for the year ended December 31, 2022, for a comprehensive discussion of factors that could materially affect the business, financial condition, liquidity, or future results, with additional unknown or immaterial risks also potentially existing - Refer to Part I, 'Item 1A. Risk Factors' in the Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of material risks[193] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[194] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period - None[195] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[196] Item 5. Other Information There is no other information to report under this item for the period - None[197] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents, which are either attached or incorporated by reference - Exhibits include Principal Executive Officer's and Principal Financial Officer's Certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents[200] SIGNATURES