Arcadia Biosciences, Inc. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities. Our common stock has been listed on the NASDAQ Stock Market under the symbol “RKDA” since May 15, 2015. Prior to May 15, 2015, there was no public trading for our common stock. Holders of Record As of March 24, 2022, we had 43 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these record holders. Dividend Policy We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any decision to declare and pay cash dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions, and other factors that our board of directors may deem relevant. Securities Authorized for Issuance under Equity Compensation Plans See Part III, Item 12, for a description of securities authorized for issuance under equity compensation plans. Recent Sales of Unregistered Securities We did not engage in any financing transaction involving sales of unregistered shares during the year ended December 31, 2021. Purchases of Equity Securities by the Issuer and Affiliated Purchasers We did not repurchase any of our equity securities during the year ended December 31, 2021. Item 6. [Reserved] 20 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Special Note Regarding Forward-Looking Statements The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes to those statements included herein. In addition to historical financial information, this report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. “Arcadia Biosciences,” “GoodWheat,” “GoodHemp,” “Zola coconut water,” “Soul Spring,” “ProVault” and “Saavy Naturals” are our registered trademarks in the United States and, in some cases, in certain other countries. This report may also contain trademarks, service marks, and trade names of other companies. Solely for convenience, the trademarks, service marks and trade names referred to in this report may appear without the ®, TM, or SM symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, or trade names. Overview We are a producer and marketer of innovative, plant-based health and wellness products. Our history as a leader in science-based approaches to developing high value crop improvements, primarily in wheat, designed to enhance farm economics by improving the performance of crops in the field, as well as their value as food ingredients, health and wellness products, and their viability for industrial applications, has laid the foundation for our path forward. We have used non-GMO advanced breeding techniques to develop these proprietary innovations which we are now commercializing through the sales of seed and grain, food ingredients and products, hemp extracts, trait licensing and royalty agreements. The recent acquisition of the assets of Lief, EKO, and Zola, adds bath and body care products, CBD consumer products, as well as coconut water, to our portfolio of products. Our commercial strategy is to satisfy consumer nutrition, health and wellness demands with the superior functional benefits our crops deliver directly from the farm, enabling us to share premium economics throughout the ag-food supply chain and to build a world-class estate of high value traits and varieties. The acquisition of the Lief, EKO and Zola brands allows us to broaden our reach within the health and wellness sector. It is also estimated by the USDA, that approximately one-fifth of the FDA recommended calories consumed by people in the US are from wheat. Therefore, the market opportunity for nutritional improvements in wheat are significant not only because the wheat market itself is vast, but also because of the “share of stomach” wheat represen ts. Considering that most people today are not getting enough fiber or protein in their daily diets, the superior nutrient density of our non-GMO GoodWheat technology can improve the dietary intake of average consumers, by increasing their fiber and protein consumption without changing the way they eat. We believe this proprietary advantage gives GoodWheat the potential to become a global standard in wheat. Components of Our Statements of Operations Data Revenues We derive our revenues from product sales, royalties, license fees, contract research agreements and government grant projects. Given our acute focus on selling our GoodWheat and Arcadia Wellness products, we do not intend to continue pursuing contract research agreements and government grant projects. 21 Table of Contents Product Revenues Our product revenues consist primarily of sales of Arcadia Wellness products, GoodWheat grain, GLA products, and GoodHemp seeds. We recognize revenue from product sales when control of the product is transferred to third-party distributors and manufacturers, collectively “our customers,” which generally occurs upon delivery. Our revenues fluctuate depending on the timing of shipments of product to our customers and are reported net of estimated chargebacks, returns and losses. License Revenues Our license revenues to date consist of up-front, nonrefundable license fees, annual license fees, and subsequent milestone payments that we receive under our license agreements. Revenue generated from up-front license fees are recognized upon execution of the agreement. We recognize annual license fees when it is probable that a material reversal will not occur. Milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed. The Company assesses when achievement of milestones are probable in order to determine the timing of revenue recognition for milestone fees. Milestones typically represent significant stages of development for our traits in a potential commercial product, such as achievement of specific technological targets, completion of field trials, filing with regulatory agencies, completion of the regulatory process, and commercial launch of a product containing our traits. Given the seasonality of agriculture and time required to progress from one milestone to the next, achievement of milestones is inherently uneven, and our license revenues are likely to fluctuate significantly from period to period. Royalty Revenues Our royalty revenues consist of amounts earned from the sale of commercial products that incorporate our traits by third parties. Our royalty revenues consist of a minimum annual royalty, offset by amounts earned from the sale of products. We recognize the minimum annual royalty on a straight-line basis over the year, and we recognize royalty revenue resulting from the sale of products when the third parties transfer control of the product to their customers, which generally occurs upon shipment. Our royalty revenues can fluctuate depending on the timing of shipments of product by the third parties to their customers. Contract Research and Government Grant Revenues Contract research and government grant revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties. Contract research revenue is accounted for as a single performance obligation for which revenues are recognized over time using the input method (e.g., costs incurred to date relative to the total estimated costs at completion). Operating Expenses Cost of Product Revenues Cost of product revenues relates to the sale of Arcadia Wellness, GoodWheat, GoodHemp, and GLA products and consists of the cost of raw materials, including internal and third-party services costs related to procuring, processing, formulating, packaging and shipping our products, as well as in-licensing and royalty fees, any adjustments or write-downs to inventory or prepaid production costs. Research and Development Expenses Research and development expenses consist of costs incurred in the discovery, development and testing of our products and products in development incorporating our traits. These expenses consist primarily of employee salaries and benefits, fees paid to subcontracted research providers, fees associated with in-licensing technology, land leased for field trials, chemicals and supplies, and other external expenses. These costs are expensed as incurred. Additionally, we are required from time to time to make certain milestone payments in connection with the development of technologies in-licensed from third parties. Our research and development expenses may fluctuate from period to period. 22 Table of Contents Selling, General and Administrative Expenses Selling, general and administrative expenses consist primarily of employee costs, professional service fees, broker and sales commission fees, and overhead costs. Our selling, general, and administrative expenses may fluctuate from period to period. In connection with our commercialization activities for our consumer products, we expect to increase our investments in sales and marketing, including additional consulting fees. Gain on sale of Verdeca The gain on sale of Verdeca is the gain recognized for the sale our membership interests in the Verdeca joint venture to our partner Bioceres. See Note 11. Loss on sale of Arcadia Spain The loss on sale of Arcadia Spain is the loss recognized for the sale of the assets of our subsidiary Arcadia Spain. See Note 1. Impairment of intangible assets Impairments of intangible assets are recorded when the fair value of intangible assets drops below its carrying amount. See Note 2 and 9. Impairment of goodwill Impairments of goodwill are recorded when the fair value of the reporting unit drops below its carrying amount. See Note 2. Change in fair value of contingent consideration Change in the fair value of contingent consideration is comprised of the fair value remeasurement of the liabilities associated with our contingent consideration. Impairment of property and equipment, net Impairment of property and equipment, net includes losses from tangible assets due to impairment or recoverability test charges to write down fixed assets to their fair value or recoverability value. Interest Expense Interest expense consists primarily of contractual interest on notes payable relating to the purchase of company vehicles. Other Income, net Other income, net, consists of realized gains on corporate securities, interest income and the amortization of investment premium and discount on our cash and cash equivalents and investments. Issuance and offering costs Issuance and offering costs generally include placement agent, legal, advisory, accounting and filing fees related to financing transactions. Change in the Estimated Fair Value of Common Stock Warrant Liabilities Change in the estimated fair value of common stock warrant liabilities is comprised of the fair value remeasurement of the liabilities associated with our financing transactions. Gain on extinguishment of PPP loan The PPP loan amount forgiven has been recorded as gain on extinguishment of PPP loan, as the Company has been legally released from being the primary obligor. See Note 19. 23 Table of Contents Loss on Extinguishment of Warrant Liabilities Loss on extinguishment of warrant liability is comprised of the difference between the reacquisition price and the carrying amount of the portion of the warrants associated with the warrant exercise transactions. Offering Costs Offering costs generally include placement agent, legal, advisory, accounting and filing fees, allocated to the common stock warrant liabilities. Income Tax Provision Our income tax provision has not been historically significant, as we have incurred losses since our inception. The provision for income taxes consists of state and foreign income taxes. Due to cumulative losses, we maintain a valuation allowance against our U.S. deferred tax assets as of December 31, 2021 and 2020. We consider all available evidence, both positive and negative, including but not limited to: earnings history, projected future outcomes, industry and market trends, and the nature of each of the deferred tax assets in assessing the extent to which a valuation allowance should be applied against our U.S. deferred tax assets. 24 Table of Contents Results of Operations Comparison of the Years ended December 31, 2021 and 2020 Year Ended December 31, 2021 2020 (in thousands) Revenues: Product $ 6,587 $ 1,044 License 17 6,801 Royalty 176 83 Contract research and government grants — 106 Total revenues 6,780 8,034 Operating expenses (income): Cost of product revenues 8,708 5,199 Research and development 3,889 7,960 Gain on sale of Verdeca — (8,814 ) Loss on sale of Arcadia Spain 497 — Impairment of intangible assets 3,302 — Impairment of goodwill 1,648 — Change in fair value of contingent consideration (210 ) — Impairment of property and equipment, net 1,534 — Selling, general and administrative 22,938 16,467 Total operating expenses 42,306 20,812 Loss from operations (35,526 ) (12,778 ) Interest expense (20 ) (47 ) Other income, net 10,114 740 Change in fair value of common stock warrant liabilities 8,946 6,570 Loss on extinguishment of warrant liability — (635 ) Gain on extinguishment of PPP loan 1,123 — Offering costs (769 ) — Net loss before income taxes (16,132 ) (6,150 ) Income tax (provision) benefit (2 ) 124 Net loss (16,134 ) (6,026 ) Net loss attributable to non-controlling interest (1,474 ) (1,371 ) Net loss attributable to common stockholders $ (14,660 ) $ (4,655 ) Revenues Product revenues accounted for 97% and 13% of our total revenues for the years ended December 31, 2021 and 2020, respectively. The $5.5 million, or 531%, increase in product revenues was primarily driven by $4.3 million of sales related to the newly acquired lines of products of Arcadia Wellness, plus higher sales of GoodWheat grain and GoodHemp seed. License revenues accounted for 0% and 85% of our total revenues for the years ended December 31, 2021 and 2020, respectively. The $6.8 million decrease in license revenues is the result of amounts previously allocated to the licenses granted to Bioceres for certain intellectual property rights provided in connection with the November 2020 transaction. There were no license agreements executed in 2021. Royalty revenues accounted for 3% and 1% of our total revenues for the years ended December 31, 2021 and 2020, respectively. The $93,000 increase of royalty revenues represents additional annual royalty fees earned. Contract research and government grant revenues accounted for 0% and 1% of our total revenues for the years ended December 31, 2021 and 2020, respectively. The $106,000, or 100%, decrease in contract research and 25 Table of Contents government grant revenues was driven by the completion of agreements and grants. Given our acute focus on selling our existing products, we do not intend to continue pursuing contract research agreements and government grant projects. Operating Expenses (Income) Cost of Product Revenues Cost of product revenues increased by $3.5 million, or 67%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase is mainly due to sales from the newly acquired lines of products within Arcadia Wellness, in addition to GoodWheat grain and GoodHemp seed sales. The increase was partially offset by $1.0 million lower inventory write-downs charged to cost of product revenues during the year ended December 31, 2021. Research and Development Research and development expenses decreased by $4.1 million, or 51%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease was driven by the Company pivoting its focus to commercialization, which led to lower employee-related expenses as we right-sized our research teams, along with the the absence of the expenses related to Verdeca. Gain on sale of Verdeca The gain on sale of Verdeca decreased by $8.8 million as we sold our membership interests in the Verdeca joint venture to our partner Bioceres in 2020. See Note 11. Loss on sale of Arcadia Spain The loss on sale of Arcadia Spain increased by $497,000 due to the transaction executed in November 2021 in which we sold our wholly owned subsidiary to a European partner. See Note 1. Impairment of intangible assets We recognized an impairment of intangible assets in the amount of $3.3 million for the year ended December 31, 2021. The impairment charges were primarily the result of lower margins in our wellness products due to unfavorable product mix and higher freight costs that have a significant impact in the near-term. A volatile economic climate and higher than normal inflation were also contributing factors, in addition to a decline in the hemp seed market forecasted sales. No impairment losses were recorded in the same period of 2020. See Note 2 and 9. Impairment of goodwill We recognized an impairment of goodwill in the amount of $1.6 million for the year ended December 31, 2021. The impairment charge was primarily the result of weakness in our newly acquired consumer product margins, combined with a volatile economic climate and higher than normal inflation. No impairment losses were recorded in the same period of 2020. See Note 2. Change in fair value of contingent consideration The change in fair value of contingent consideration during the year ended December 31, 2021 was due to the Industrial Seed Innovations ("ISI") contingent consideration remeasurement that resulted in a decrease of the liability in the amount of $210,000. See Note 6 and 17. There was no change in fair value of contingent consideration during the year ended December 31, 2020. Impairment of property and equipment, net We recorded write-downs of fixed assets in the amount of $1.5 million for the year ended December 31, 2021. The majority of this amount was because Arcadia and Legacy mutually agreed to wind down the cultivation activities of Archipelago, due to regulatory challenges and a saturated hemp market. As a result, the Company assessed Archipelago’s fixed assets for impairment, and recorded write-downs in the amount of $1.4 million for the 26 Table of Contents year ended December 31, 2021. An additional fixed assets impairment in the amount of $100,000 was recorded for other fixed assets determined to have no future economic benefit. See Note 5. No write-downs of fixed assets were recorded in 2020. Selling, General, and Administrative Selling, general, and administrative expenses increased by $6.5 million, or 39%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by selling expenses and other general and support costs related to the acquired businesses, as well as acquisition-related investment banker success fees, legal diligence and transaction fees. We have also increased commercial and marketing personnel and consulting activities in preparation for new product and channel launches. Interest Expense Interest expense was $20,000 for the year ended December 31, 2021, 60% lower compared to the amount recognized during the year ended December 31, 2020, due to the satisfaction of notes payable agreements during 2021. There was $47,000 of interest expense for the year ended December 31, 2020. Other Income, Net Other income, net, increased by $9.4 million, or 1267%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This was primarily due to the $10.2 million realized gain of corporate securities of Bioceres recorded in June 2021. See Note 6. No realized gains of corporate securities were recorded during the year ended December 31, 2020, as the prior year's other income, net balance mainly consisted of the unrealized gain of the same corporate securities in the amount of $656,000. Gain on extinguishment of PPP loan During the year ended December 31, 2021, we were notified by the lender that the SBA had forgiven the original PPP loan amount in full, resulting in a $1.1 million gain on the extinguishment of the PPP loan. See Note 19. Change in the Estimated Fair Value of Common Stock Warrant Liabilities Change in the estimated fair value of common stock warrant liabilities resulted in income of $8.9 million for the year ended December 31, 2021 due to the fair value remeasurement of the common stock warrant liabilities driven by the change in the stock price, risk-free rates and volatility as of December 31, 2021 compared to the change for the year ended December 31, 2020. Loss on Extinguishment of Warrant Liability In connection with the May and July 2020 Warrant Exercise Transactions, the Company recognized a loss on extinguishment of warrant liabilities of approximately $635,000 for the year ended December 31, 2020. There were no such transactions during the year ended December 31, 2021. Issuance and offering costs Offering costs increased by $769,000 for the year ended December 31, 2021, and were comprised of placement agent fees, placement agent warrants, and legal and accounting fees allocated to the stock warrant liabilities recorded with the January 2021 private placement financing transaction. There were no issuance and offering costs incurred during the year ended December 31, 2020. Income Tax Provision (Benefit) The income tax provision resulted in a $2,000 expense for the year ended December 31, 2021, compared to a benefit of $124,000 for the year ended December 31, 2020. In the prior year, purchase accounting deferred tax liabilities related to the ISI acquisition, enabled the realization of a portion of the existing deferred tax assets, thus allowing for a reduction in the valuation allowance in the amount of $107,000. 27 Table of Contents Seasonality We and our commercial partners operate in different geographies around the world and conduct field trials used for data generation, which must be conducted during the appropriate growing seasons for particular crops and markets. Often, there is only one crop-growing season per year for certain crops and markets. Similarly, climate conditions and other factors that may influence the sales of our products may vary from season to season and year to year. In particular, weather conditions, including natural disasters such as heavy rains, hurricanes, hail, floods, tornadoes, freezing conditions, drought or fire, may affect the timing and outcome of field trials, which may delay milestone payments and the commercialization of products incorporating our seed traits. In the future, sales of commercial products that incorporate our seed traits will vary based on crop growing seasons and weather patterns within particular regions. Demand for our consumer body care products tends to vary with major holidays and demand for coconut water products is generally higher in the summer months. The level of seasonality in our business overall is difficult to evaluate at this time due to our relatively limited number of commercialized products, our expansion into new geographical markets and our introduction of new products and traits. Liquidity, Capital Resources and Going Concern We have funded our operations primarily with the net proceeds from our private and public offerings of our equity securities and debt, as well as proceeds from the sale of our products and payments under license agreements, contract research agreements and government grants. Our principal use of cash is to fund our operations, which are primarily focused on commercializing our products. As of December 31, 2021, we had cash and cash equivalents of $28.7 million. For the years ended December 31, 2021 and 2020, the Company had net losses of $16.1 million and $6.0 million, respectively, and net cash used in operations of $25.9 million and $30.2 million, respectively. We believe that our existing cash and cash equivalents will not be sufficient to meet our anticipated cash requirements for at least the next 12 months from the issuance date of our 2021 financial statements, and thus raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We may seek to raise additional funds through debt or equity financings, if necessary. We may also consider entering into additional partner arrangements. Any sale of additional equity would result in dilution to our stockholders. Our incurrence of debt would result in debt service obligations, and the instruments governing our debt could provide for additional operating and financing covenants that would restrict our operations. If we do require additional funds and are not able to secure adequate additional funding, we may be forced to reduce our spending, extend payment terms with our suppliers, liquidate assets, or suspend or curtail planned development programs. Any of these actions could materially harm our business, results of operations and financial condition. Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2021 2020 Net cash (used in) provided by: Operating activities $ (25,868 ) $ (30,218 ) Investing activities 16,608 17,284 Financing activities 21,900 20,560 Effects of foreign currency translation on cash and cash equivalents 2 — Net increase in cash and cash equivalents $ 12,642 $ 7,626 Cash flows from operating activities Cash used in operating activities for the year ended December 31, 2021 was $25.9 million. Our net loss of $16.1 million, non-cash charges including $1.5 million of stock-based compensation, $1.3 million of lease amortization, $3.6 million of write-downs of inventory, $1.5 million of impairment of property and equipment, $769,000 of issuance and offering costs, $1.6 million of impairment of goodwill, $3.3 million of impairment of 28 Table of Contents intangible assets, and $929,000 of depreciation were offset by $1.7 million adjustments in our working capital accounts, $10.2 million of realized gain on corporate securities, $8.9 million for the change in fair value of common stock warrant liabilities, $210,000 of other non-cash income from the change in fair value of contingent consideration, and $1.3 million of operating lease payments. Cash used in operating activities for the year ended December 31, 2020 was $30.2 million. Our net loss of $6.0 million, adjustments in our working capital accounts of $11.5 million, gain on sale of Verdeca of $8.8 million, corporate securities received in exchange for license agreement of $4.3 million, change in fair value of common stock warrant liabilities of $6.6 million, operating lease payments of $910,000, unrealized gain on corporate securities of $656,000 and net amortization of investment premium of $44,000 were partially offset by non-cash charges of $2.0 million for stock-based compensation, depreciation and amortization of $662,000, lease amortization of $1.0 million, loss on extinguishment of warrant liability of $635,000, as well as $4.3 million of inventory write-downs. Cash flows from investing activities Cash provided by investing activities for the year ended December 31, 2021 of $16.6 million primarily consisted of $21.8 million of proceeds from sales of investments, partially offset by $4.3 million of acquisitions, and $1.0 million in purchases of property and equipment. Cash provided by investing activities for the year ended December 31, 2020 of $17.3 million primarily consisted of $18.3 million of proceeds from sales and maturities of investments and $3.2 million of proceeds from the sale of Verdeca, partially offset by $2.3 million in purchases of property and equipment, $1.3 million of purchases of investments and $500,000 of acquisitions, net of cash acquired. Cash flows from financing activities Cash provided by financing activities for the year ended December 31, 2021 of $21.9 million consisted of proceeds from the issuance of common stock relating to the January 2021 private placement financing transaction of $25.1 million of gross proceeds, capital contributions from the non-controlling interest in our joint venture of $750,000, and proceeds from the purchase of ESPP shares of $39,000, which were offset by payments of transaction costs related to the January 2021 private placement of $1.9 million and principal payments on debt of $2.1 million. Cash provided by financing activities for the year ended December 31, 2020 of $20.6 million consisted of proceeds from the exercise of warrants of $9.4 million, proceeds from the issuance of stock and warrants relating to the December 2020 Offering of $8.0 million, proceeds from borrowings of $3.1 million, capital contributions from the non-controlling interest in our joint venture of $1.6 million and proceeds from the purchase of ESPP shares of $51,000. Partially offsetting these proceeds were payments of offering costs totaling $652,000 for the December 2020 Offering, as well payments of transaction costs relating to extinguishment of warrant liability of $863,000. Off-Balance Sheet Arrangements Since our inception, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities, other than Verdeca, a joint venture sold in November 2020. See Note 11. Critical Accounting Polices and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated, and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider our critical accounting policies and estimates to be revenue recognition, determination of the provision for income taxes, stock-based compensation, impairments of long-lived assets such as intangible assets and goodwill, impairment of property and equipment, and net realizable value of inventory. 29 Table of Contents Revenue recognition We recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. See Note 2 for further detail on each of the below revenue streams. We generally recognize product revenues once passage of title has occurred, which is generally upon delivery. Shipping and handling costs charged to customers are recorded as revenues and included in cost of product revenues at the time the sale is recognized. We have determined that, at the inception of each license agreement, there is only one deliverable for the license for access to and assistance with the development of the specified intellectual property. We recognize revenue up-front and annual license fees in full when it is deemed probable to be earned. We recognize royalty revenue when the Company can reasonably determine the amounts earned. We recognize revenue related to milestone payments when it is probable that such amounts would not be reversed. Contract research revenue consists of amounts earned from performing contracted research activities for third parties. Activities performed are related to breeding programs or the genetic engineering of plants and are subject to an executed agreement. We generally recognize fees for research activities over the contractually specified performance period. Grant revenues are recognized as eligible research and development expenses are incurred, using a proportional performance recognition methodology. Determination of the provision for income taxes We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Stock-based compensation We recognize compensation expense related to the employee stock purchase plan and stock options based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. We recorded stock-based compensation expense related to equity awards of $1.5 million and $2.0 million for the years ended December 31, 2021 and 2020, respectively. In determining the fair value of stock-based awards, we use the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine. Expected Term —The expected term is the estimated period of time outstanding for stock options granted and was estimated based on a simplified method allowed by the SEC due to insufficient historical data, and defines the term as the average of the contractual term of the options and the weighted-average vesting period for all open employee awards. Expected Volatility —The historical volatility data was computed using the daily closing prices for the Company’s shares during the equivalent period of the calculated expected term of the stock-based awards. Risk-Free Interest Rate —The risk-free interest rate is based on the interest rate of U.S. Treasuries of comparable maturities on the date the options were granted. 30 Table of Contents Expected Dividend —We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero. For stock options and other equity awards, our board of directors determine the fair value of each share of underlying common stock based on the closing price of our common stock as reported on the NASDAQ Stock Market on the date of grant. In addition to the Black-Scholes assumptions, we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from our estimates, we might be required to record adjustments to stock-based compensation in future periods. Impairments of long-lived intangible assets and goodwill The Company evaluates if events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets, such as identifiable intangible assets and goodwill, may warrant revision or that the remaining balance of these assets may not be recoverable. In evaluating for recoverability, the Company estimates the future undiscounted cash flows for intangible assets, and discounted cash flows for goodwill, expected to result from the use of the assets and their eventual disposition. In the event that the balance of any asset exceeds the future undiscounted or discounted cash flow estimate, impairment is recognized based on the excess of the carrying amounts of the asset above its estimated fair value. Impairments of property and equipment The Company evaluates if events and circumstances have occurred that indicate the remaining estimated useful life of property and equipment may warrant revision or that the remaining balance of these assets may not be recoverable. In evaluating for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. In the event that the balance of any asset exceeds the future undiscounted cash flow estimate, impairment is recognized based on the excess of the carrying amounts of the asset above its estimated fair value. Net realizable value of inventories Inventory costs are tracked on a lot-identified basis, valued at the lower of cost or net realizable value and are included as cost of product revenues when sold. We compare the cost of inventories with market value and write down inventories to net realizable value, if lower. We write down inventory when conditions indicate that the net realizable value may be less than cost due to physical deterioration, obsolescence, changes in price levels or other factors. Additionally, we provide reserves for excess and slow-moving inventory to its estimated net realizable value. The inventory write-downs are based upon estimates about future demand from our customers and distributors and market conditions. Future events that could significantly influence our judgment and related estimates include conditions in target markets, introduction of new products or changes to current or future competitor products. Recent Accounting Pronouncements For discussions of the adoption and potential impacts of recently issued accounting standards, refer to Note 3 – Recent Accounting Pronouncements. Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk. Not applicable. 31 Table of Contents Item 8. Financial Statement s and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 33 Consolidated Balance Sheets 35 Consolidated Statements of Operations and Comprehensive Loss 36 Consolidated Statement of Stockholders’ Equity 37 Consolidated Statements of Cash Flows 39 Notes to Consolidated Financial Statements 41 32 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Arcadia Biosciences, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arcadia Biosciences, Inc. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has an accumulated deficit, recurring net losses and net cash used in operations, and resources that will not be sufficient to meet its anticipated cash requirements, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by 33 Table of Contents communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. GoodWheat Inventory Valuation – Refer to Note 4 to the consolidated financial statements Critical Audit Matter Description GoodWheat inventories are recorded at the lower of cost or net realizable value. Management periodically evaluates the carrying value of inventories in relation to the forecasts of product demand, which takes into consideration the estimated marketability and salability of products. When quantities on hand exceed forecasted demand, regulatory changes occur, or quality specifications are not met, a write-down is recorded for such inventories. Changes in assumptions of forecasted product demand could have a significant impact on the amount of inventory valuation, and any related write-downs. Given the significant judgments made by management in forecasting product demand, including the impact of product marketability and salability, auditing the reasonableness of management’s estimates and assumptions required a high degree of auditor judgment and an increased extent of effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures over GoodWheat inventory valuation included the following, among others: • We tested the demand forecasts by obtaining documentation to support customer orders, contracts, historical and future sales that corroborate the reasonableness of amount estimated for demand. • We evaluated management’s ability to accurately forecast product demand by comparing actual results to management’s historical estimates. • We performed corroborative inquiries with the personnel responsible for sales forecasting to evaluate the reasonableness of the product salability and demand forecasts. • We assessed whether write-downs of inventory may be understated by examining write-down activity subsequent to December 31, 2021. /s/ Deloitte & Touche LLP Phoenix, Arizona March 31, 2022 We have served as the Company's auditor since 2007. 34 Table of Contents Arcadia Biosciences, Inc. Consolidated B alance Sheets (In thousands, except share data) As of December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 28,685 $ 14,042 Short-term investments — 11,625 Accounts receivable, net of allowance for doubtful accounts of $ 76 and $ 0 as of December 31, 2021 and 2020, respectively 1,370 1,406 Inventories, net — current 4,433 3,812 Prepaid expenses and other current assets 900 811 Total current assets 35,388 31,696 Restricted cash — 2,001 Property and equipment, net 2,291 3,539 Right of use assets 3,081 5,826 Inventories, net — noncurrent 2,494 3,485 Goodwill — 408 Intangible assets, net 484 370 Other noncurrent assets 180 23 Total assets $ 43,918 $ 47,348 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 3,638 $ 4,105 Amounts due to related parties 64 80 Debt — current — 1,141 Unearned revenue — current — 8 Operating lease liability — current 1,074 717 Other current liabilities 264 263 Total current liabilities 5,040 6,314 Debt — noncurrent — 2,105 Operating lease liability — noncurrent 2,220 5,389 Common stock warrant liabilities 3,392 2,708 Other noncurrent liabilities 2,070 2,280 Total liabilities 12,722 18,796 Commitments and contingencies (Note 17) Stockholders’ equity: Common stock, $ 0.001 par value— 150,000,000 shares authorized as of December 31, 2021 and December 31, 2020; 22,184,235 and 13,450,861 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively. 63 54 Additional paid-in capital 257,515 239,496 Accumulated deficit ( 226,485 ) ( 211,825 ) Total Arcadia Biosciences stockholders’ equity 31,093 27,725 Non-controlling interest 103 827 Total stockholders' equity 31,196 28,552 Total liabilities and stockholders’ equity $ 43,918 $ 47,348 The accompanying notes are an integral part of these consolidated financial statements. 35 Table of Contents Arcadia Biosciences, Inc. Consolidated Statem ents of Operations and Comprehensive Loss (In thousands, except share and share data) Year Ended December 31, 2021 2020 Revenues: Product $ 6,587 $ 1,044 License 17 6,801 Royalty 176 83 Contract research and government grants — 106 Total revenues 6,780 8,034 Operating expenses (income): Cost of product revenues 8,708 5,199 Research and development 3,889 7,960 Gain on sale of Verdeca — ( 8,814 ) Loss on sale of Arcadia Spain 497 — Impairment of intangible assets 3,302 — Impairment of goodwill 1,648 — Change in fair value of contingent consideration ( 210 ) — Impairment of property and equipment, net 1,534 — Selling, general and administrative 22,938 16,467 Total operating expenses 42,306 20,812 Loss from operations ( 35,526 ) ( 12,778 ) Interest expense ( 20 ) ( 47 ) Other income, net 10,114 740 Change in fair value of common stock warrant liabilities 8,946 6,570 Loss on extinguishment of warrant liability — ( 635 ) Gain on extinguishment of PPP loan 1,123 — Offering costs ( 769 ) — Net loss before income taxes ( 16,132 ) ( 6,150 ) Income tax (provision) benefit ( 2 ) 124 Net loss ( 16,134 ) ( 6,026 ) Net loss attributable to non-controlling interest ( 1,474 ) ( 1,371 ) Net loss attributable to common stockholders $ ( 14,660 ) $ ( 4,655 ) Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.69 ) $ ( 0.47 ) Weighted-average number of shares used in per share calculations: Basic and diluted 21,280,620 9,959,018 Other comprehensive loss, net of tax Unrealized losses on investment securities — ( 1 ) Other comprehensive loss — ( 1 ) Comprehensive loss attributable to common stockholders $ ( 14,660 ) $ ( 4,656 ) The accompanying notes are an integral part of these consolidated financial statements. 36 Table of Contents Arcadia Biosciences, Inc. Consolidated St atements of Stockholders’ Equity (In thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Non-controlling Interest Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 13,450,861 $ 54 $ 239,496 $ ( 211,825 ) $ 827 $ 28,552 Issuance of shares related to the January 2021 PIPE 7,876,784 8 15,508 — — 15,516 Offering costs related to the January 2021 PIPE — — ( 2,084 ) — — ( 2,084 ) Issuance of placement agent warrants related to issuance of January 2021 PIPE — — 942 — — 942 Issuance of shares at closing of Arcadia Wellness acquisition 827,401 1 2,052 — — 2,053 Issuance of shares related to exercise of Service and Performance Warrants 14,000 — 22 — — 22 Issuance of shares related to employee stock purchase plan 15,189 — 38 — — 38 Stock-based compensation — — 1,541 — — 1,541 Non-controlling interest contributions — — — — 750 750 Net loss — — — ( 14,660 ) ( 1,474 ) ( 16,134 ) Balance at December 31, 2021 22,184,235 $ 63 $ 257,515 $ ( 226,485 ) $ 103 $ 31,196 The accompanying notes are an integral part of these consolidated financial statements. 37 Table of Contents Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive (Loss) Income Non-controlling Interest Total Stockholders’ Equity Shares Amount Balance at December 31, 2019 8,646,149 $ 49 $ 214,826 $ ( 207,171 ) $ 1 $ 620 8,325 Issuance of shares related to employee stock purchase plan 19,667 — 51 — — — 51 Issuance of shares related to exercise of June 2018 Warrants 1,392,345 1 5,568 — — — 5,569 Issuance of investor warrants related to May 2020 Warrant Transaction — — 4,415 — — — 4,415 Issuance of placement agent warrants related to issuance of May 2020 Warrants — — 215 — — — 215 Issuance of shares related to the exercise of March 2018 PIPE 641,416 1 2,443 — — — 2,444 Issuance of investor warrants related to July 2020 Warrant Transaction — — 2,059 — — — 2,059 Issuance of placement agent warrants related to issuance of July 2020 Warrants — — 101 — — — 101 Shares of common stock issued at closing of ISI transaction 132,626 — 432 — — — 432 Issuance of shares and warrants related to December 2020 Offering 2,618,658 3 7,997 — — — 8,000 Offering costs related to December 2020 Offering — — ( 939 ) — — — ( 939 ) Issuance of placement agent warrants related to December 2020 Offering — — 287 — — — 287 Stock-based compensation — — 2,042 — — — 2,042 Non-controlling interest contributions — — — — — 1,578 1,578 Unrealized losses on investment securities — — — — ( 1 ) — ( 1 ) Net loss — — — ( 4,655 ) — ( 1,371 ) ( 6,026 ) Balance at December 31, 2020 13,450,861 $ 54 $ 239,496 $ ( 211,825 ) $ — $ — $ 827 $ 28,552 The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents Arcadia Biosciences, Inc. Consolidated Statem ents of Cash Flows (In thousands) Year Ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 16,134 ) $ ( 6,026 ) Adjustments to reconcile net loss to cash used in operating activities: Change in fair value of common stock warrant liabilities ( 8,946 ) ( 6,570 ) Change in fair value of contingent consideration ( 210 ) — Offering costs 769 — Depreciation 929 632 Amortization of intangible assets 116 30 Lease amortization 1,276 1,048 Impairment of intangible assets 3,302 — Impairment of goodwill 1,648 — Loss (Gain) on disposal of equipment 23 ( 8 ) Loss on disposal of intangible assets 222 — Net amortization of investment premium — ( 44 ) Stock-based compensation 1,541 2,042 Bad debt expense 76 — Gain on sale of Verdeca — ( 8,814 ) Realized gain on corporate securities ( 10,221 ) — Corporate securities received in exchange for license agreement — ( 4,318 ) Unrealized gain on corporate securities — ( 656 ) Write-down of inventory and prepaid production costs 3,593 4,311 Loss on extinguishment of warrant liability — 635 Gain on extinguishment of PPP loan ( 1,123 ) — Impairment of property and equipment 1,534 — Deferred income taxes — ( 107 ) Changes in operating assets and liabilities: Accounts receivable ( 40 ) ( 1,119 ) Inventories ( 2,383 ) ( 9,751 ) Prepaid expenses and other current assets 56 39 Other noncurrent assets ( 158 ) ( 15 ) Accounts payable and accrued expenses ( 372 ) ( 580 ) Amounts due to related parties ( 16 ) 40 Unearned revenue ( 8 ) ( 34 ) Other current liabilities 1 ( 43 ) Operating lease payments ( 1,343 ) ( 910 ) Net cash used in operating activities ( 25,868 ) ( 30,218 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 19 8 Purchases of property and equipment ( 1,007 ) ( 2,335 ) Proceeds from sale of Verdeca — 3,153 Acquisitions, net of cash acquired ( 4,250 ) ( 500 ) Purchases of investments — ( 1,292 ) Proceeds from sales and maturities of investments 21,846 18,250 Net cash provided by (used in) investing activities 16,608 17,284 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock and warrants from December 2020 Offering — 8,000 Payments of offering costs relating to December 2020 Offering — ( 652 ) Proceeds from issuance of common stock and warrants from January 2021 PIPE securities purchase agreement 25,147 — Payments of offering costs relating to January 2021 PIPE securities purchase agreement ( 1,912 ) — Proceeds from borrowings — 3,108 Payments of transaction costs relating to extinguishment of warrant liability — ( 863 ) Principal payments on notes payable ( 2,146 ) ( 34 ) Proceeds from exercise of warrants 22 9,372 Proceeds from exercise of stock options and purchases through ESPP 39 51 Capital contributions received from non-controlling interest 750 1,578 Net cash provided by financing activities 21,900 20,560 Effects of foreign currency translation on cash and cash equivalents 2 — Net increase (decrease) in cash, cash equivalents and restricted cash 12,642 7,626 Cash, cash equivalents and restricted cash — beginning of period 16,043 8,417 Cash, cash equivalents and restricted cash — end of period $ 28,685 $ 16,043 The accompanying notes are an integral part of these consolidated financial statements. 39 Table of Contents SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 25 $ 10 Cash paid for taxes $ 1 $ 1 NONCASH TRANSACTIONS: Shares of common stock issued at closing of ISI transaction $ — $ 432 Common stock warrants issued to placement agent and included in offering costs related to December 2020 Purchase Agreement — 287 Common stock warrants issued to placement agent and included in offering costs related to May 2020 Warrant Transaction — 215 Common stock warrants issued to placement agent and included in offering costs related to July 2020 Warrant Transaction — 101 Fair value of shares of common stock issued at closing of Arcadia Wellness transaction 2,053 — Common stock warrants issued to placement agent and included in offering costs related to January 2021 PIPE securities purchase agreement 942 — Right of use assets obtained in exchange for new operating lease liabilities 1,664 331 Right of use assets obtained through modification of existing lease agreement — 4,207 Fixed assets acquired with notes payable — 37 Purchases of fixed assets included in accounts payable and accrued expenses — 71 The accompanying notes are an integral part of these consolidated financial statements. 40 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements Note 1. Description of Business Organization Arcadia Biosciences, Inc. (the "Company"), was incorporated in Arizona in 2002 and maintains its headquarters in Davis, California, with additional facilities in American Falls, Idaho, and Chatsworth, California. The Company was reincorporated in Delaware in March 2015 . The Company is a producer and marketer of innovative, plant-based health and wellness products. Its history as a leader in science-based approaches to developing high-value crop improvements, as well as nutritionally enhanced food ingredients and health and wellness products, has laid the foundation for its path forward. The Company used advanced breeding techniques to develop these proprietary innovations which are now being commercialized through the sales of seed and grain, as well as food ingredients and products. The recent acquisition of the businesses of Lief Holdings, LLC (“Lief”), EKO Holdings, LLC (“Eko”) and Live Zola, LLC (“Zola”) added bath and body care products, as well as coconut water, to the Company’s portfolio. In May 2021, the Company’s wholly owned subsidiary Arcadia Wellness, LLC (“Arcadia Wellness” or “AW”, see Note 8), acquired the businesses of Eko, Lief, and Zola. The acquisition included consumer CBD brands like Soul Spring™, a CBD-infused botanical therapy brand in the natural category, Saavy Naturals™, a line of natural body care products and Provault™, a CBD-infused sports performance formula made with natural ingredients, providing effective support and recovery for athletes. Also included in the purchase is Zola, a coconut water sourced exclusively with sustainably grown coconuts from Thailand. In April 2021, the newly formed Company’s wholly owned subsidiary Arcadia SPA, S.L. (“Arcadia Spain” or “ASPA”) acquired the physical and intellectual property assets of Agrasys S.A. (“Agrasys”), a food ingredients company based in Barcelona, Spain. The Company sold all of the assets and liabilities related to the subsidiary Arcadia Spain in November 2021 to a European buyer (the "buyer"), to focus on the US domestic market. The loss on sale of Arcadia Spain recorded on the consolidated statements of operations and comprehensive loss was $ 497,000 . The buyer assumed all present and future liabilities, including the initial commitments related to the 2022 planting season. In August 2019, the Company entered into a joint venture agreement with Legacy Ventures Hawaii, LLC (“Legacy,” see Note 10) to grow, extract, and sell hemp products. The partnership Archipelago Ventures Hawaii, LLC (“Archipelago”), combines the Company’s extensive genetic expertise and resources with Legacy’s experience in hemp extraction and sales. In October 2021, Arcadia and Legacy mutually agreed to wind down the cultivation activities of Archipelago, due to regulatory challenges and a saturated hemp market. As a result, the Company recorded impairments of property and equipment in the amount of $ 1.4 million and $ 0 for the years ended December 31, 2021, and 2020, respectively. The Company assessed Archipelago’s fixed assets for impairment through an asset recoverability test, using prices for similar assets. See Note 5. Liquidity, Capital Resources, and Going Concern The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities during the normal course of business. Since inception, the Company has financed its operations primarily through equity and debt financings. As of December 31, 2021, the Company had an accumulated deficit of $ 226.5 million, and cash and cash equivalents of $ 28.7 million. For the years ended December 31, 2021 and 2020, the Company had net losses of $ 16.1 million and $ 6.0 million, respectively, and net cash used in operations of $ 25.9 million and $ 30.2 million, respectively. The Company believes that its existing cash and cash equivalents will not be sufficient to meet its anticipated cash requirements for at least the next 12 months from the issuance date of these financial statements, and thus raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company may seek to raise additional funds through debt or equity financings. The Company may also consider entering into additional partner arrangements. The sale of additional equity would result in dilution to the Company’s stockholders. The incurrence of debt would result in debt service obligations, and the instruments governing such debt could provide for additional operating and financing covenants that would restrict operations. If 41 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) the Company does require additional funds and is unable to secure adequate additional funding at terms agreeable to the Company, the Company may be forced to reduce spending, extend payment terms with suppliers, liquidate assets, or suspend or curtail planned development programs. Any of these actions could materially harm the business, results of operations and financial condition. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of the Company, Arcadia Wellness, Arcadia Spain and Archipelago. All intercompany balances and transactions have been eliminated in consolidation. The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP (“GAAP”), and with the rules of the Securities and Exchange Commission. The Company uses a qualitative approach in assessing the consolidation requirement for variable interest entities ("VIEs"). This approach focuses on determining whether the Company has the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and whether the Company has the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. For all periods presented, the Company has determined that it is the primary beneficiary of Archipelago, a joint venture, as it has a controlling interest in Archipelago. Accordingly, the Company consolidates Archipelago in the consolidated financial statements after eliminating intercompany transactions. For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities and operations of the joint venture is included in non-controlling interests as equity of the Company. The non-controlling partner’s interest is generally computed as the joint venture partner’s ownership percentage of Archipelago. Net loss attributable to non-controlling interest of $ 1,474,000 and $ 1,371,000 is recorded as an adjustment to net loss to arrive at net loss attributable to common stockholders for the years ended December 31, 2021 and 2020, respectively. The non-controlling partner’s equity interests are presented as non-controlling interests on the consolidated balance sheets as of December 31, 2021 and 2020. The functional currency of the foreign subsidiary Arcadia Spain during the year ended December 31, 2021, was its local currency (i.e., the Euro). Accordingly, period-end exchange rates were applied to translate its assets and liabilities and average transaction exchange rates to translate its revenues, expenses, gains, and losses into U.S. dollars. Upon disposal of all of the assets and liabilities related to Arcadia Spain, the Company deconsolidated the accounts of the subsidiary as of November 30, 2021, and recorded a loss on the sale in the amount of $ 497,000 during the quarter ended December 31, 2021. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in the Company’s consolidated financial statements and notes thereto. Significant estimates and assumptions made by management included the determination of the provision for income taxes, stock-based compensation, impairments of long-lived assets such as intangible assets and goodwill, impairment of property and equipment, and net realizable value of inventory. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Cash and cash equivalents The Company considers any liquid investment with a stated maturity of three months or less at the date of purchase to be a cash equivalent. Cash and cash equivalents consist of cash on deposit with banks, and money-market funds. The Company limits cash investments to financial institutions with high credit standings; therefore, management believes that there is no significant exposure to any credit risk in the Company’s cash and cash equivalents. However, as of December 31, 2021 and 2020, a substantial portion of the Company’s cash in depository accounts is in excess of the federal deposit insurance limits. 42 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Restricted cash Restricted cash consists of funds that are contractually or legally restricted as to usage or withdrawal and have been presented separately from cash and cash equivalents on the consolidated balance sheets. Investments in debt and equity securities Investments in debt and equity securities are carried at fair value and classified as short-term investments. Realized and unrealized gains and losses on investment securities are included in other income, net, in the consolidated statements of operations and comprehensive loss. Investment securities are reported as cash and cash equivalent, short-term investments or long-term investments in the consolidated balance sheets based on the nature of the investments and maturity period. Short-term investments have maturities of less than a year and long-term investments have maturities of a year and greater from the balance sheet date. Other-than-temporary impairments on investments The Company regularly reviews each of its investments for impairment by determining if the investment has sustained an other-than-temporary decline in its value, in which case the investment is written down to its fair value by a charge to earnings. Factors that are considered by the Company in determining whether an other-than-temporary decline in value has occurred include (i) the market value of the investment in relation to its cost basis, (ii) the financial condition of the investment, and (iii) the Company’s intent and ability to retain the investment for a sufficient period of time to allow for recovery of the market value of the investment. As of December 31, 2021, the Company had no short-term investments, and as of December 31, 2020, there was no impairment of the Company’s investments. Accounts receivable Accounts receivable represents amounts owed to the Company from product sales, licenses, and royalties. The carrying value of the Company’s receivables represents estimated net realizable values. The Company generally does not require collateral and estimates any required allowance for doubtful accounts based on historical collection trends, the age of outstanding receivables, and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is recorded accordingly. Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amounts due. The Company had $ 76,000 and $ 0 amounts reserved for doubtful accounts at December 31, 2021 and 2020, respectively, and the allowance activity during the year ended December 31, 2021, was immaterial. Inventory Inventory costs are tracked on a lot-identified basis and are included as cost of product revenues when sold. Inventories are stated at the lower of cost or net realizable value. The Company makes adjustments to inventory when conditions indicate that the net realizable value may be less than cost due to physical deterioration, obsolescence, changes in price levels, or other factors. Additional adjustments to inventory are made for excess and slow-moving inventory on hand that is not expected to be sold within a reasonable timeframe to reduce the carrying amount to its estimated net realizable value . GoodWheat: Proprietary wheat plants are grown, producing seed and grain with a variety of improved nutritional qualities, including high levels of amylose, improved shelf-life, and reduced gluten. The seed is used for subsequent plantings and the grain is either sold or used as an ingredient in the production of food products, which the Company refers to collectively as GoodWheat products. Amounts inventoried consist primarily of fees paid to contracted cooperators to grow the crops, costs to process harvested seed and grain, and costs to mill the grain into flour. Body care : A portfolio of CBD-infused and CBD-free consumer bath and body care products such as body lotions, bath-bombs and topical pain relievers, that are produced in the US. Amounts inventoried consist primarily of purchased raw materials, components, labor, and manufacturing facility costs. 43 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Zola Coconut water : Inventories mainly consist of coconut water imported from Thailand, freight-in, supplies, and labor. GoodHemp : Proprietary seeds are grown and used for subsequent plantings and sold as final product to other growers. Amounts in inventory for internally produced hemp seeds consist primarily of labor, supplies and facility costs. The costs to procure seeds from external growers and suppliers are included in inventory, as well. In addition, hemp seeds were planted on land leased in Hawaii. The costs of purchasing, planting and growing the seed, and harvesting the resulting biomass are captured as inventory, along with the costs to process the biomass into CBD oil. Amounts in inventory for growing biomass primarily consist of labor, supplies and facility costs. The inventories—current line item on the balance sheet represents inventory forecasted to be sold or used in production in the next 12 months, as of the balance sheet date, and consists primarily of the cost of GoodWheat seed and grain, body care products, Zola Coconut water, and hemp seed. The inventories—noncurrent line item on the balance sheet represents inventory expected to be used in production or sold beyond the next 12 months, as of the balance sheet date, and consists primarily of GoodWheat seed and grain, and GoodHemp seed. Raw materials inventories consist primarily of the costs to produce body care products and GoodWheat seeds. Goods in process inventories consist of costs to produce GoodHemp seed, hemp seed production costs incurred by Archipelago, and GoodWheat seed and grain. Finished goods inventories consist of GoodWheat and body care products, and GoodHemp seeds that are available for sale. Property and equipment Property and equipment acquisitions are recorded at cost. Provisions for depreciation are calculated using the straight-line method over the following average estimated useful lives of the assets: Years Laboratory equipment 5 Software and computer equipment 3 Machinery and equipment 2 - 20 Furniture and fixtures 7 Vehicles 5 Leasehold improvements 2 - 10 * * Leasehold improvements are depreciated over the shorter of the estimated life of the asset or the remaining life of the lease. The Company evaluates if events and circumstances have occurred that indicate the remaining estimated useful life of fixed assets may warrant revision or that the remaining balance of these assets may not be recoverable. In evaluating for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. In the event that the balance of any asset exceeds the future undiscounted cash flow estimate, impairment is recognized based on the excess of the carrying amounts of the asset above its estimated fair value. Impairment of long-lived intangible assets and goodwill The Company evaluates if events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets may warrant revision or that the remaining balance of these assets may not be recoverable. In evaluating for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. In the event that the balance of any asset exceeds the future undiscounted cash flow estimate, impairment is recognized based on the excess of the carrying amounts of the asset above its estimated fair value. Intangible assets, net As of December 31, 2021 and 2020, there were $ 3.3 million and $ 0 , respectively of impairm ent of intangible assets, recorded on the consolidated statements of operations and comprehensive loss. See Note 9 for more information. 44 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Goodwill During the year ended December 31, 2021, the Company recorded an impairment charge of $ 1.6 million, which was included as impairment of goodwill on our consolidated statements of operations and comprehensive loss. The goodwill carrying value of $ 1.6 million was fully impaired. See Note 7 and 8 for the goodwill recorded at the time of the ISI and AW acquisitions, respectively. The impairment charge was primarily the result of weakness in our newly acquired consumer product margins combined with a volatile economic climate and higher than normal inflation. The decline in the stock price observed during the fourth quarter of 2021, pushed our market capitalization significantly below the recorded value of our stockholders' equity. No goodwill impairment charges were recorded during the year ended December 31, 2020. Fair value of financial instruments Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities, are as follows: • Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. • Level 2 inputs are observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 inputs are unobservable inputs for the asset or liability. The carrying values of the Company’s financial instruments, including cash equivalents, accounts receivable, and accounts payable approximated their fair values due to the short period of time to maturity or repayment. Concentration of risk Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company seeks to mitigate its credit risks by spreading such risks across multiple counterparties and monitoring the risk profiles of these counterparties. Customer concentration Significant customers are those that represent greater than 10% of the Company’s total revenues or gross accounts receivable balance at each respective balance sheet date. Customers representing greater than 10% of accounts receivable were as follows (in percentages): As of December 31, 2021 2020 Customer B 11 21 Customer D 15 — Customer C — 12 Customer E 11 — Customer A — 57 45 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Customers representing greater than 10% of total revenues were as follows (in percentages): For Year Ended December 31, 2021 2020 Customer D 11 — Customer B 10 7 Customer A — 83 Stock-based compensation The Company recognizes compensation expense related to its employee stock purchase plan and the cost of stock-based compensation awards on a straight-line basis over the requisite service period, net of estimated forfeitures. Judgment is required in estimating the amount of stock-based awards that will be forfeited prior to vesting. Compensation expense could be revised in subsequent periods if actual forfeitures differ from those estimates. The Company has selected the Black-Scholes option-pricing model and various inputs to estimate the fair value of its stock-based awards. See Note 16 for additional information. Amounts recognized in the consolidated statements of operations and comprehensive loss were as follows (in thousands): Year Ended December 31, 2021 2020 (in thousands) Research and development $ 98 $ 341 Selling, general and administrative 1,443 1,701 Total stock-based compensation $ 1,541 $ 2,042 Income taxes The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. Net loss per share Basic net loss per share, which excludes dilution, is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, convertible promissory notes, convertible preferred stock, redeemable convertible preferred stock and warrants, result in the issuance of common stock which share in the losses of the Company. Certain potential shares of common stock have been excluded from the computation of diluted net loss per share as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce the loss per share. Due to net losses, there is no impact on earnings per share calculation in applying the two-class method since the participating securities have no legal requirement to share in any losses. Revenue recognition The Company derives its revenues from product sales, licensing agreements, royalty fees, contract research agreements, and government grants. Product revenues Product revenues to date have consisted primarily of sales of SONOVA GLA products, GoodWheat grain sales, body care products, Zola Coconut water, and GoodHemp seed sales. The Company recognizes revenue from product sales when ownership of the product is transferred to third-party distributors and consumers, collectively “our customers”, which generally occurs upon delivery. Shipping and handling costs charged to customers are 46 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) recorded as revenues and included in cost of product revenues at the time the sale is recognized. Revenues fluctuate depending on the timing of shipments of product to our customers. License revenues License revenues to date consist of up-front, nonrefundable license fees, annual license fees, and subsequent milestone payments that the Company receives under the Company’s research and license agreements. The Company recognizes revenue generated from up-front, nonrefundable license fees upon execution of the agreement and recognizes annual license fees when it is probable that a material reversal will not occur. Milestone fees are variable consideration that is initially constrained and recognized only when it is probable that such amounts would not be reversed. The Company assesses when achievement of milestones is probable to determine the timing of revenue recognition for milestone fees. Milestones typically consist of significant stages of development for the Company’s traits in a potential commercial product, such as achievement of specific technological targets, completion of field trials, filing with regulatory agencies, completion of the regulatory process, and commercial launch of a product containing the Company’s traits. Given the seasonality of agriculture and time required to progress from one milestone to the next, achievement of milestones is inherently uneven, and the Company’s license revenues are likely to fluctuate significantly from period to period. Royalty revenues Royalty revenues from the Company’s agreements with third parties are recognized when the Company can reasonably determine the amounts earned. In most cases, this will be upon notification from the third-party licensee. Contract research and government grant revenues Contract research and government grant revenues consist of amounts earned from performing contracted research primarily related to breeding programs or the genetic engineering of plants for third parties. Contract research revenue and government grants revenues are accounted for as a single performance obligation for which revenues are recognized over time using the input method (e.g., costs incurred to date relative to the total estimated costs at completion). The Company receives payments from government entities in the form of government grants. The Company’s obligation with respect to these government agreements is to perform the research on a best-efforts basis. Unearned revenue The Company defers revenue to the extent that cash received in conjunction with a license agreement, contract or grant exceeds the revenue recognized in accordance with Company policies. During the year ended December 31, 2021, the Company recognized revenue of $ 8,000 that was included in unearned revenue on the consolidated balance sheet as of December 31, 2020. Cost of product revenues Cost of product revenues relates to the sale of GoodWheat, Zola Coconut water, body care, GLA oil and GoodHemp products and consists of manufacturing costs, including production overhead costs such as depreciation, rent and others, in-licensing and royalty fees, any adjustments or write-downs to inventory, as well as the cost of raw materials, including inventory and third-party services costs related to procuring, processing, formulating, packaging, and shipping the Company’s products. Research and development expenses Research and development expenses consist of costs incurred in the discovery, development, and testing of the Company’s products and products in development incorporating the Company’s traits. These expenses consist primarily of employee salaries and benefits, fees paid to subcontracted research providers, fees associated with in-licensing technology, land leased for field trials, chemicals and supplies, and other external expenses. These costs are expensed as incurred. 47 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Change in fair value of contingent consideration Change in the fair value of contingent consideration is comprised of the gain associated with the reduction of the contingent liability. See Note 17. Change in the estimated fair value of common stock warrant liabilities Change in the estimated fair value of common stock warrant liabilities is comprised of the fair value remeasurement of liability classified common stock warrants. See Note 15. Note 3. Recent Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . Additionally, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, in April 2019 and ASU 2019-05, Financial Instruments — Credit Losses (Topic 326) — Targeted Transition Relief, in May 2019. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. In November 2019, the FASB issued ASU No. 2019-10, which defers the effective date of ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU No. 2016-13 on the consolidated financial statements. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying other areas of existing guidance. The amendments are effective for all entities for fiscal years beginning after December 15, 2020. The Company adopt ed ASU No. 2019-12 on January 1, 2021 with an immaterial impact on the Company’s disclosures. In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) . The FASB Board is issuing this Update to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. In addressing the complexity, the FASB Board focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The amendments in this Update are effective for public business entities that meet the definition of a smaller reporting company, as defined by the SEC, for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company early adopted ASU No. 2020-06 on January 1, 2022, using the modified retrospective method. The main impact on the consolidated financial statements that will be prepared on Form 10-Q as of March 31, 2022, will be the reclassification of the Company's stock warrant liabilities to equity on the consolidated balance sheets, and the elimination of quarterly changes in the fair value of our stock warrant liabilities on the consolidated statement of operations and comprehensive loss. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in this Update clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this Update affect all entities that issue freestanding written call options that are classified in equity. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted ASU No. 2021-04 on January 1, 2022 with an immaterial impact on the Company’s disclosures. 48 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 4. Inventory Inventories, net consist of the following (in thousands): December 31, 2021 December 31, 2020 Raw materials $ 1,851 $ 966 Goods in process 842 1,921 Finished goods 4,234 4,410 Inventories $ 6,927 $ 7,297 The write-downs to inventory are included in cost of product revenues and are based upon estimates about future demand from the Company’s customers and distributors and market conditions. Therefore, if there are significant changes in demand and market conditions, substantial future write-downs of inventory may be required, which would materially increase our expenses in the period the write down is taken and materially affect our operating results. The Company recorded write-downs of wheat inventories, hemp seed inventories, and body care products of $ 3.6 million for the year ended December 31, 2021. The Company recorded $ 4.3 million of inventory write-downs for the year ended December 31, 2020. Note 5. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of December 31, 2021 2020 Laboratory equipment $ 2,659 $ 2,951 Software and computer equipment 548 591 Machinery and equipment 1,809 2,046 Furniture and fixtures 211 181 Vehicles 417 428 Leasehold improvements 2,306 2,229 Property and equipment, gross 7,950 8,426 Less accumulated depreciation and amortization ( 5,659 ) ( 4,887 ) Property and equipment, net $ 2,291 $ 3,539 Depreciation expense was $ 929,000 and $ 632,000 for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, respectively, there was $ 267,000 and $ 239,000 of construction in progress included in property and equipment that had not been placed into service and was not subject to depreciation. The Company recorded impairments of property and equipment in the amount of $ 1.5 million and $ 0 for the years ended December 31, 2021, and 2020, respectively. The majority was related to the fact that Arcadia and Legacy mutually agreed to wind down the cultivation activities of Archipelago, due to regulatory challenges and a saturated hemp market. As a result, the Company assessed Archipelago’s fixed assets for impairment through an asset recoverability test, and recorded write-downs in the amount of $ 1.4 million for the year ended December 31, 2021, calculating the fair value using prices for similar assets. An additional fixed assets impairment in the amount of $ 100,000 was recorded as of December 31, 2021, for other fixed assets, not related to Archipelago, determined to have no future economic benefit . 49 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 6. Investments and Fair Value Instruments Investments The investments are carried at fair value, based on quoted market prices or other readily available market information. Unrealized and realized gains and losses are recognized as other income in the consolidated statements of operations and comprehensive loss. The Company classified its investments in corporate securities of Bioceres Crop Solutions Corp. (“BIOX”) as short-term investments. The Company recorded realized gains of $ 10.2 million for the year ended December 31, 2021, associated with the sale of these corporate securities in other income, net, in the consolidated statements of operations and comprehensive loss. The following tables summarize the amortized cost and fair value of the investment securities portfolio at December 30, 2021 and December 31, 2020. (Dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value December 31, 2021 Cash equivalents: Money market funds $ 26,842 $ — $ — $ 26,842 Total Assets at Fair Value $ 26,842 $ — $ — $ 26,842 (Dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value December 31, 2020 Cash equivalents: Money market funds $ 12,082 $ — $ — $ 12,082 Short-term investments: Corporate securities 10,969 656 — 11,625 Total Assets at Fair Value $ 23,051 $ 656 $ — $ 23,707 The Company did no t have any investment categories that were in a continuous unrealized loss position for more than twelve months as of December 31, 2021. Fair Value Measurement The fair value of the investment securities at December 31, 2021 were as follows: Fair Value Measurements at December 31, 2021 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets at Fair Value Cash equivalents: Money market funds $ 26,842 $ — $ — $ 26,842 Total Assets at Fair Value $ 26,842 $ — $ — $ 26,842 The fair value of the investment securities at December 31, 2020 were as follows: Fair Value Measurements at December 31, 2020 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets at Fair Value Cash equivalents: Money market funds $ 12,082 $ — $ — $ 12,082 Short-term investments: Corporate securities 11,625 — — 11,625 Total Assets at Fair Value $ 23,707 $ — $ — $ 23,707 50 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2021 or 2020. The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable. For accounts receivable, accounts payable, accrued liabilities, and notes payable the carrying amounts of these financial instruments as of December 31, 2021 and December 31, 2020 were considered representative of their fair values due to their short term to maturity or repayment. Cash equivalents are carried at cost, which approximates their fair value. The Company’s Level 3 liabilities consist of a contingent liability resulting from the Anawah acquisition, as described in Note 17, a contingent liability resulting from the Industrial Seed Innovations (“ISI”) acquisition, as described in Note 7 and 17, and common stock warrant liabilities related to the March 2018, the June 2019, the September 2019, and the January 2021 Offerings described in Note 15. The contingent liability related to the Anawah acquisition was measured and recorded on a recurring basis as of December 31, 2021 and December 31, 2020, using unobservable inputs, namely the Company’s ability and intent to pursue certain specific products developed using technology acquired in the purchase. A significant deviation in the Company’s ability and/or intent to pursue the technology acquired in the purchase could result in a significantly lower (higher) fair value measurement. The contingent liability related to the ISI acquisition was measured and recorded on a recurring basis as of December 31, 2021 and December 31, 2020, using unobservable inputs, namely ISI’s forecasted revenue. A significant deviation in ISI’s forecasted revenue could result in a significantly lower (higher) fair value measurement. The warrant liabilities were measured and recorded on a recurring basis using the Black-Scholes Model with the following assumptions at December 31, 2021 and 2020: January 2021 Warrants September 2019 Warrants June 2019 Warrants March 2018 Warrants December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 Expected term (in years) 4.58 — 3.20 4.20 2.96 3.96 1.22 2.22 Expected volatility 129.8 % — 109.7 % 135.0 % 110.8 % 135.0 % 86.0 % 130.0 % Risk-free interest rate 1.2 % — 0.9 % 0.3 % 0.8 % 0.3 % 0.5 % 0.1 % Expected dividend yield 0 % — 0 % 0 % 0 % 0 % 0 % 0 % The significant unobservable input used in the fair value measurement of the Company’s Level 3 warrant liabilities is volatility. A significant increase (decrease) in volatility could result in a significantly higher (lower) fair value measurement. The following table sets forth the establishment of the Company’s Level 3 liabilities, as well as a summary of the changes in the fair value and other adjustments (in thousands): (Dollars in thousands) Common Stock Warrant Liability - March 2018 Purchase Agreement Common Stock Warrant Liability - June 2018 Offering Common Stock Warrant Liability - June 2019 Offering Common Stock Warrant Liability - September 2019 Offering Common Stock Warrant Liability - January 2021 Offering Contingent Liabilities Total Balance as of December 31, 2019 $ 4,579 $ 5,444 $ 1,993 $ 2,920 $ — $ 2,000 $ 16,936 Change in fair value and other adjustments ( 2,277 ) ( 1,426 ) ( 1,161 ) ( 1,706 ) — — $ ( 6,570 ) Exercise of warrants ( 1,641 ) ( 4,018 ) — — — — $ ( 5,659 ) ISI acquisition contingent consideration — — — — — 280 $ 280 Balance as of December 31, 2020 $ 661 $ — $ 832 $ 1,214 $ — $ 2,280 $ 4,987 Initial recognition — — — — $ 9,631 — $ 9,631 Change in fair value and other adjustments ( 654 ) — ( 662 ) ( 991 ) ( 6,638 ) ( 210 ) $ ( 9,155 ) Balance as of December 31, 2021 $ 7 $ — $ 170 $ 223 $ 2,993 $ 2,070 $ 5,463 51 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 7. Industrial Seed Innovations Acquisition In August 2020, the Company acquired by merger Industrial Seed Innovations (“ISI”), an Oregon-based industrial hemp breeding and seed company. As a result of the acquisition, the Company acquired ISI’s commercial and genetic assets, including seed varieties, germplasm library and intellectual property. ISI’s Rogue, Umpqua and Santiam seed varieties are now part of Arcadia’s portfolio, alongside the Company’s GoodHemp line of hemp seeds. The acquisition was recorded as a business combination, in accordance with ASC Topic 805. The purchase price consideration for the acquisition totaled an estimated $ 1,212,000 , of which $ 500,000 in cash and $ 432,000 , in the form of 132,626 shares of the Company’s common stock, was paid during the month of August 2020. The remaining amount of $ 280,000 was eligible to be recognized in two annual installments, each of up to 132,626 shares of the Company’s common stock, subject to the achievement of revenue milestones in 2021 and 2022, and is recorded as a contingent liability at fair value in the consolidated balance sheets as of December 31, 2021. A change in fair value of contingent consideration of $ 210,000 was recognized for the year ended December 31, 2021 as the annual revenue milestone was not met for this year. The cash consideration paid for the acquisition was funded by cash on hand. Acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred costs related to the ISI acquisition of approximately $ 67,000 included in selling, general and administrative expenses in the Company's condensed consolidated statements of operations and comprehensive loss for the year ended December 31, 2020. The pro forma impact of the acquisition to the historical financial results was determined not to be significant. The following table presents the allocation of the purchase price of ISI assets acquired, based on their fair values. Purchase Price Allocation Inventory $ 511 Intangible assets, net 400 Goodwill 408 Deferred tax liability ( 107 ) Total consideration allocated $ 1,212 A deferred tax liability arising from the difference between book purchase price allocation and tax basis has been assessed in the amount of $ 107,000 . Deferred tax liabilities are required to be recorded in purchase accounting independently of whether the acquiror has a valuation allowance on its own net deferred tax assets. As a result, the combined entity now has additional deferred tax liabilities available to reduce the amount of valuation allowance necessary. Future reversals of existing taxable temporary differences are an objective source of future taxable income. Accordingly, the purchase accounting deferred tax liabilities enabled the realization of a portion of the existing deferred tax assets, thus allowing for a reduction in the valuation allowance. The reduction in the valuation allowance is not accounted for as part of the purchase accounting but is recognized in the consolidated statements of operations and comprehensive loss as a discrete tax benefit in the income tax provision. The former shareholders of ISI remain responsible for ISI’s pre-acquisition liabilities. Pursuant to the acquisition agreement, the Company entered into a lease agreement with ISI for the use of land, equipment, greenhouses and buildings. The lease was effective upon the execution of the definitive acquisition agreement and had a term of 3 years with the option to renew for three additional 3-year terms. The lease was terminated effective December 31, 2021, as no further hemp seed production is deemed necessary as the inventory balance on hand is deemed sufficient. Note 8. Arcadia Wellness Acquisition On May 17, 2021, the Company’s wholly owned subsidiary Arcadia Wellness, acquired the assets of Eko, Lief, and Zola. The acquisition included consumer brands of bath and body care products such as Soul Spring, the CBD-infused botanical therapy brand, Saavy Naturals, a line of natural body care products and Provault, a 52 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) CBD-infused sports performance formula. Also included in the purchase was Zola, a coconut water sourced from Thailand. The acquisition was recorded as a business combination, in accordance with ASC Topic 805. The purchase price consideration for the acquisition totaled an estimated $ 6.1 million, of which $ 4.0 million in cash and $ 2.1 million in the form of 827,401 shares of the Company’s common stock, was paid during the month of May 2021. The cash consideration paid for the acquisition was funded by cash on hand. Acquisition costs are not included as components of consideration transferred and instead are accounted for as expenses in the period in which the costs are incurred. The Company incurred costs related to the Arcadia Wellness acquisition of approximately $ 850,000 included in selling, general and administrative expenses in the Company's consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. The Company performed a preliminary allocation of purchase price as of the acquisition date based on management's estimates of fair value. The Company believes its estimates and assumptions are reasonable; however, the initial estimated purchase price allocation is subject to change as the Company finalizes its determination relating to the valuation of the assets acquired, finalization of key assumptions, approaches and judgments with respect to intangible assets acquired. Accordingly, future adjustments may impact the initial estimated amount of goodwill and other allocated amounts represented in the table below. The final determination of the fair value of the assets acquired will be completed as soon as the necessary information is available, but no later than one year from the acquisition date. The following table presents the allocation of the purchase price of the assets acquired, based on their fair values at December 31, 2021. Purchase Price Allocation Inventory $ 840 Prepaid and other current assets 62 Fixed assets 308 Deposits 82 Customer list 360 Trade names and trademarks 2,900 Formulations 260 Goodwill 1,240 Total consideration allocated $ 6,052 The former shareholders of Eko, Lief, and Zola remain responsible for their pre-acquisition liabilities. In connection with the acquisition , the Company entered into a lease agreement for the use of offices, production equipment acquired, and storage warehouses. The lease was effective on May 17, 2021 and has a term of 3 years . For the period from May 17 to December 31, 2021, the Company recognized approximately $ 4.3 million of revenue and $ 7.5 million of net loss relating to Arcadia Wellness, which included charges for the amortization and impairment of acquired intangible assets. Acquired intangible assets of $ 3.5 million include trade names and trademarks of $ 2.9 million (indefinite useful life), customer list of $ 360,000 ( fifteen-year useful life) and formulations of $ 260,000 ( ten-year useful life). The total weighted average amortization period for the acquired intangibles is 12.9 years. The acquisition produced $ 1.2 million of goodwill. The goodwill is attributable to a combination of Arcadia Wellness’s expectation regarding a more meaningful engagement by the customers due to the scale of the combined Company, and other synergies. Goodwill will be tested for impairment at least annually (more frequently if certain indicators are present). Goodwill arising from the Arcadia Wellness acquisition is not deductible for tax purposes. 53 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Supplemental Pro-Forma Results of Operations (Unaudited) The following unaudited pro-forma condensed consolidated results of operations for the years ended December 31, 2021 and 2020, have been prepared as if the acquisition of Arcadia Wellness had occurred on January 1, 2020 and includes adjustments for amortization of intangibles, and the addition to basic and diluted weighted average number of shares outstanding. For the year ended December 31, 2021 (Pro forma) 2020 (Pro forma) Total revenues $ 9,062 $ 14,684 Net loss ( 17,854 ) ( 8,152 ) Net loss attributable to common stockholders $ ( 16,380 ) $ ( 6,781 ) Weighted average shares - Basic and diluted 21,590,895 10,786,418 Net loss per share attributable to common stockholders: Basic and diluted $ ( 0.76 ) $ ( 0.63 ) Note 9. Intangible assets, net The Company’s intangible assets, net as of December 31, 2021 and 2020, consist of the following: December 31, 2021 December 31, 2020 Gross Carrying Amount Accumulated Amortization and Impairment (1) Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Amortized intangible assets Intellectual property $ 570 $ 419 $ 151 $ 310 $ 27 $ 283 Customer lists 400 355 45 40 3 37 Total amortizable intangible assets $ 970 $ 774 $ 196 $ 350 $ 30 $ 320 Indefinite-lived intangible assets Brands and trademarks $ 2,950 $ 2,662 $ 288 $ 50 $ — $ 50 Total intangible asset, net $ 3,920 $ 3,436 $ 484 $ 400 $ 30 $ 370 (1) During the year ended December 31, 2021, the Company estimated an overall decrease in the sales forecast for AW products, due to an inventory item rationalization, in addition to a decrease in the sales forecast of ISI seeds, related to the saturated hemp seed market. As a result, Arcadia performed a quantitative intangible assets impairment test. The Company used a discounted cash flow approach to develop the fair value of our acquired intellectual property, customer lists, brands and trademarks. As a result of this assessment, Arcadia recorded an impairment of intangible assets in the amount of $ 3.3 million in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. Intellectual property and customer lists will be amortized based on their useful lives ranging between 4 and 15 years. As of December 31, 2021, future amortization of intellectual property and customer lists is as follows: Year Ending December 31, 2022 $ 53 2023 53 2024 53 2025 4 2026 4 Thereafter 28 Total $ 196 54 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 10. Consolidated Joint Venture On August 9, 2019, the Company and Legacy Ventures Hawaii, LLC, a Nevada limited liability company (“Legacy”), formed Archipelago Ventures Hawaii, LLC, a Delaware limited liability company and entered into a Limited Liability Company Operating Agreement (the “Operating Agreement”). The Company and Legacy formed Archipelago to develop, extract and commercialize hemp-derived products from industrial hemp grown in Hawaii. Pursuant to the Operating Agreement, a joint operating committee consisting of two individuals appointed by the Company and two individuals appointed by Legacy will manage Archipelago. As of December 31, 2021, the Company and Legacy hold 50.75 % and 49.25 % interests in Archipelago, respectively, and have made capital contributions to Archipelago of $ 3,108,000 and $ 3,016,000 , respectively, as determined by the joint operating committee. The Operating Agreement includes indemnification rights, non-competition obligations, and certain rights and obligations in connection with the transfer of membership interests, including rights of first refusal. The Company consolidates Archipelago in the consolidated financial statements after eliminating intercompany transactions. Net loss attributable to non-controlling interest of $ 1,474,000 and $ 1,371,000 is recorded as an adjustment to net loss to arrive at net loss attributable to common stockholders for the years ended December 31, 2021 and 2020, respectively. Legacy’s equity interests are presented as non-controlling interests on the consolidated balance sheets. Refer to Note 2 for basis of presentation. In October 2021, Arcadia and Legacy mutually agreed to wind down the cultivation activities of Archipelago, due to regulatory challenges and a saturated hemp market. Note 11. Verdeca-BIOX Transactions In February 2012, the Company formed Verdeca, which was equally owned with Bioceres. Verdeca was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies. On November 12, 2020, the Company entered into a Master Transaction Agreement with BIOX pursuant to which (i) the Company sold all of its memberships interests it owned in Verdeca to BIOX, and (ii) the Company and BIOX entered into a license agreement for certain intellectual property rights, including rights to the Company’s HB4 soybean trait and its GoodWheat portfolio of specialty wheat products in South and Central America. Prior to the transaction, Verdeca was equally owned by the Company and a wholly-owned subsidiary of BIOX. In consideration for the sale of the membership interests in Verdeca and entering into the license agreement, on November 12, 2020, BIOX paid the Company $ 5,000,000 in cash and issued the Company 1,875,000 shares of BIOX common stock. BIOX also paid the Company an additional $ 1,000,000 for transaction expenses and fees and is obligated to pay $ 2,000,000 in four equal quarterly payments with the first payment commencing within thirty days of either BIOX reaching commercial plantings of at least 200,000 hectares of Haab 4 soybeans (“HB4”) or China approving the HB4 soybean trait for “food and feed”. In addition to the above payments, BIOX is also obligated to pay the Company quarterly royalty payments equal to six percent ( 6 %) of the net revenues BIOX or its affiliates receive from HB4 soybean sales and twenty five percent ( 25 %) of the net revenues BIOX or its affiliates receive from sales of licensed wheat products; provided that total royalty payments for HB4 soybeans shall not exceed $ 10,000,000 . The total amount of fixed consideration agreed upon as of the date of the transaction was $ 16,968,750 . The fixed consideration was allocated based on estimates of the stand-alone selling prices. A fixed consideration in the amount of $ 10,288,000 , including $ 6,650,000 of corporate securities received, has been allocated to the sale of the membership interest in Verdeca and resulted in a gain of $ 8,814,000 recorded on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2020. Inventory with a carrying value of $ 1,474,000 was derecognized in connection with the sale of the membership interest in Verdeca. A fixed consideration in the amount of $ 6,680,000 , including $ 4,318,000 of corporate securities received, has been allocated to the sale of intellectual property rights and has been recorded as license revenues on the consolidated statements of operations and comprehensive loss for the year ended December 31, 2020. As of December 31, 2020, the Company had $ 800,000 recorded within accounts receivable on its consolidated balance sheets related to this transaction, which were collected during the year ended December 31, 2021, but no additional proceeds were received. Any future proceeds from the agreement will be allocated in the same proportion. All of the shares of BIOX were sold in June 2021 and generated a one-time impact on liquidity in the amount of $ 22.2 million of gross proceeds. See Note 6. 55 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 12. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands): As of December 31, 2021 2020 Accounts payable - trade $ 1,411 $ 726 Payroll and benefits 1,606 1,489 Inventory 72 965 Research and development — 45 Royalty fees due to unrelated parties 51 276 Consulting 79 153 Rent and utilities 127 78 Audit and tax fees 72 57 Legal 58 152 Other 162 164 Total accounts payable and accrued expenses $ 3,638 $ 4,105 Note 13. Collaborative Arrangements In August 2017 , the Company entered into a collaborative arrangement for the research, development and commercialization of an improved wheat quality trait in North America. This collaborative arrangement is a contractual agreement with Corteva AgriScience (“Corteva”) and involves a joint operating activity where both Arcadia and Corteva are active participants in the activities of the collaboration. Arcadia and Corteva participate in the research and development, and Arcadia has the primary responsibility for the intellectual property strategy while Corteva will generally lead the marketing and commercialization efforts. Both parties are exposed to significant risks and rewards of the collaboration and the agreement includes both cost sharing and profit sharing. The activities are performed with no guarantee of either technological or commercial success. The Company accounts for research and development (“R&D”) costs in accordance ASC 730, Research and Development , which states R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results are achieved. Note 14. Equity Financing Private Placements In January 2021, the Company issued in a private placement offering (the “January 2021 Private Placement”) pursuant to a securities purchase agreement (“January 2021 Purchase Agreement”) (i) 7,876,784 shares of its common stock, and (ii) warrants to purchase up to 3,938,392 shares of common stock at an exercise price of $ 3.13 per share (the “January 2021 Warrants”) and raised total gross proceeds of $ 25.1 million. The January 2021 Warrants are exercisable at any time at the option of the holder and expire 5.5 years from the date of issuance. In connection with the January 2021 Private Placement, the Company granted to a placement agent warrants to purchase a total of 393,839 shares of Common Stock (the “January 2021 Placement Agent Warrants”) that have an exercise price per share equal to $ 3.99 and a term of 5.5 years from the date of issuance. The common stock warrants are classified as a liability within Level 3 due to a contingent cash payment feature. The Company utilized a Black Scholes Merton model on January 28, 2021 with the following assumptions: volatility of 123.8 percent, stock price of $ 2.88 and risk-free rate of 0.5 %. The estimated fair value of the common stock warrant liability was subsequently remeasured at December 31, 2021 with the changes recorded on the Company’s consolidated statements of operations and comprehensive loss. See Note 6. The January 2021 Placement Agent Warrants were issued for services performed by the placement agent as part of the January 2021 Private Placement and were treated as offering costs. The value of the January 2021 Placement Agent Warrants was determined to be $ 942,000 using the Black-Scholes Model assumptions detailed in Note 6. The Company incurred additional offering costs totaling $ 1.9 million that consist of direct incremental legal, advisory, accounting and filing fees relating to the January 2021 Private Placement. The offering costs, inclusive of the January 2021 Placement Agent Warrants, totaled $ 2.8 million and allocated to the common stock warrant liability and the common stock using their relative fair values. A total of $ 769,000 was allocated to the common 56 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) stock warrant liability and expensed and the remaining $ 2.0 million was allocated to the common stock and offset to additional paid in capital. In March 2018, the Company issued in a private placement offering (the “March 2018 Private Placement”) pursuant to a securities purchase agreement (“March 2018 Purchase Agreement”) (i) 300,752 shares of its common stock and (ii) warrants to purchase up to 300,752 shares of common stock at an initial exercise price equal to $ 45.75 (the “March 2018 Warrants”) and raised total gross proceeds of $ 10.0 million. The March 2018 Warrants are exercisable at any time at the option of the holder and expire five years from the date of issuance. In connection with the March 2018 Private Placement, the Company granted to a placement agent warrants to purchase a total of 15,038 shares of Common Stock (the “March 2018 Placement Agent Warrants”) that have an exercise price per share equal to $ 41.5625 and a term of five years from the date of issuance. The number of shares of common stock and the number and exercise price of the March 2018 Warrants issued in the March 2018 Private Placement were subject to adjustments as provided in the March 2018 Purchase Agreement. Following the adjustments as provided in the March 2018 Purchase Agreement, the number of shares issued to the purchasers was 1,201,634 , the total number of shares issuable upon exercise of the March 2018 Warrants was 1,282,832 and the per share exercise price of the March 2018 Warrants was $ 10.7258 . Registered Direct Offerings On May 11, 2018, the Company filed a shelf Registration Statement on Form S-3 with the SEC which was declared effective on June 8, 2018 (“Shelf Registration Statement”). This shelf registration process allows the Company to sell any combination of common stock, preferred stock, warrants and units consisting of such securities in one or more offerings from time to time having aggregate offering prices of up to $ 50 million. This registration statement expired on its three-year anniversary, June 8, 2021. In December 2020, the Company entered into a securities purchase agreement (the “December 2020 Purchase Agreement”) pursuant to which it sold (i) 2,618,658 registered shares of its common stock pursuant to the Shelf Registration Statement and (ii) unregistered warrants to purchase 2,618,658 shares of its common stock (the “December 2020 Warrants”) in a private placement, for total gross proceeds of $ 8.0 million (the “December 2020 Registered Direct Offering”). The December 2020 Registered Direct Offering closed on December 22, 2020 . The December 2020 Warrants have an exercise price of $ 3.00 per share, became exercisable upon issuance and expire 5.5 years after the date of issuance. In connection with the December 2020 Registered Direct Offering, the Company granted to a placement agent warrants to purchase a total of 130,933 shares of common stock (“December 2020 Placement Agent Warrants”) that have an exercise price per share equal to $ 3.8188 and a term of five years . See Note 15. In September 2019, the Company entered into a securities purchase agreement (the “September 2019 Purchase Agreement”) pursuant to which it sold (i) 1,318,828 registered shares of its common stock pursuant to the Shelf Registration Statement and (ii) unregistered warrants to purchase 659,414 shares of its common stock (the “September 2019 Warrants”) in a private placement, for total gross proceeds of $ 10.0 million (the “September 2019 Registered Direct Offering”). The September 2019 Registered Direct Offering closed on September 5, 2019 . The September 2019 Warrants have an exercise price of $ 7.52 per share, became exercisable upon issuance and expire 5.5 years after the date of issuance. In connection with the September 2019 Registered Direct Offering, the Company granted to a placement agent warrants to purchase a total of 65,942 shares of common stock (“September 2019 Placement Agent Warrants”) that have an exercise price per share equal to $ 9.4781 and a term of five years . In June 2019, the Company entered into a securities purchase agreement (the “June 2019 Purchase Agreement”) pursuant to which it sold (i) 1,489,575 registered shares of its common stock pursuant to the Shelf Registration Statement and (ii) unregistered warrants to purchase 1,489,575 shares of its common stock (the “June 2019 Warrants”) in a private placement, for total gross proceeds of $ 7.5 million (the “June 2019 Registered Direct Offering”). The June 2019 Registered Direct Offering closed on June 14, 2019 . The June 2019 Warrants have an exercise price of $ 5.00 per share, became exercisable upon issuance and expire 5.5 years after the date of issuance. In connection with the June 2019 Registered Direct Offering, the Company granted to a placement agent warrants to purchase a total of 74,479 shares of common stock (“June 2019 Placement Agent Warrants”) that have an exercise price per share equal to $ 6.2938 and a term of five years . In June 2018, the Company entered into a securities purchase agreement (the “June 2018 Purchase Agreement”) pursuant to which it sold (i) 1,392,345 registered shares of its common stock pursuant to the Shelf Registration Statement and (ii) unregistered warrants to purchase 1,392,345 shares of its common stock (the “June 57 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 2018 Warrants”) in a private placement, for total gross proceeds of $ 14.0 million (the “June 2018 Registered Direct Offering”). The June 2018 Registered Direct Offering closed on June 14, 2018 . The June 2018 Warrants have an exercise price of $ 9.94 per share, became exercisable upon issuance and expire 5.5 years after the date of issuance. In connection with the June 2018 Registered Direct Offering, the Company granted to a placement agent warrants to purchase a total of 69,617 shares of common stock (“June 2018 Placement Agent Warrants”) that have an exercise price per share equal to $ 12.568 and a term of five years . Note 15. Warrants Common Stock Warrant transactions In July 2020, an existing accredited investor exercised its March 2018 Warrants (the “July 2020 Warrant Exercise Transaction”) to purchase up to an aggregate of 641,416 shares of the Company’s common stock at a reduced exercise price of $ 3.975 per share for gross proceeds of $ 2.6 million. As consideration for the exercise of these March 2018 Warrants, the Company issued new unregistered warrants to purchase up to 641,416 shares of common stock (the “July 2020 Warrants”) at an exercise price of $ 3.85 per share with an exercise period of 5.5 years from the date of issuance. The July 2020 Warrants were valued at $ 2.1 million, which was calculated using the Black-Scholes Model with the following assumptions: volatility of 126 percent, stock price of $ 3.73 , and risk-free rate of 0.35 %. In connection with the July 2020 Warrant Exercise Transaction, the Company granted to a placement agent warrants to purchase a total of 32,071 shares of common stock (the “July 2020 Placement Agent Warrants”) that have an exercise price per share equal to $ 4.969 and a term of 5.5 years. The value of the July 2020 Placement Agent Warrants was determined to be $ 101,000 using the Black-Scholes Model. The Company recognized a loss on extinguishment of warrant liability in the amount of $ 682,000 associated with this transaction, during the quarter ended September 30, 2020. In May 2020, several existing accredited investors exercised the June 2018 Warrants (the “May 2020 Warrant Exercise Transaction”) to purchase up to an aggregate of 1,392,345 shares of the Company’s common stock at a reduced exercise price of $ 4.90 per share for gross proceeds of $ 6.8 million. As consideration for the exercise of the June 2018 Warrants, the Company issued new unregistered warrants to purchase up to 1,392,345 shares of common stock (the “May 2020 Warrants”) at an exercise price of $ 4.775 per share with an exercise period of five years from the date of issuance. The May 2020 Warrants were valued at $ 4.4 million, which was calculated using the Black-Scholes Model with the following assumptions: volatility of 128 percent, stock price of $ 3.81 , and risk-free rate of 0.38 %. In connection with the May 2020 Warrant Exercise Transaction, the Company granted to a placement agent warrants to purchase a total of 69,617 shares of common stock (the “May 2020 Placement Agent Warrants”) that have an exercise price per share equal to $ 6.125 and a term of five years . The value of the May 2020 Placement Agent Warrants was determined to be $ 215,000 using the Black-Scholes Model. The Company recognized a gain on extinguishment of warrant liability in the amount of $ 47,000 associated with this transaction, during the quarter ended June 30, 2020. Equity Classified Common Stock Warrants In connection with professional services agreements with non-affiliated third parties, during the years ended December 31, 2021 and 2020, the Company issued service and performance warrants (“Service and Performance Warrants”). 58 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) As of December 31, 2021, the Company issued the following warrants to purchase shares of its common stock. These warrants are exercisable any time at the option of the holder until their expiration date. Issuance Date Term Exercise Price Per Share Warrants Exercised during the Year Ended December 31, 2020 Warrants Outstanding at December 31, 2020 Warrants Exercised during the Year Ended December 31, 2021 Warrants Outstanding at December 31, 2021 January 2021 Placement Agent Warrants January 2021 5.5 years $ 3.99 — — — 393,839 January 2021 Service and Performance Warrants January 2021 2 years $ 3.08 — — — 7,500 December 2020 Warrants December 2020 5.5 years $ 3.00 — 2,618,658 — 2,618,658 December 2020 Placement Agent Warrants December 2020 5 years $ 3.82 — 130,933 — 130,933 July 2020 Warrants July 2020 5.5 years $ 3.85 — 641,416 — 641,416 July 2020 Placement Agent Warrants July 2020 5.5 years $ 4.97 — 32,071 — 32,071 May 2020 Warrants May 2020 5 years $ 4.78 — 1,392,345 — 1,392,345 May 2020 Placement Agent Warrants May 2020 5 years $ 6.13 — 69,617 — 69,617 March 2020 Service and Performance Warrants March 2020 3 years $ 2.50 — 18,350 — 18,350 February 12, 2020 Service and Performance Warrants February 2020 2 years $ 4.71 — 150,000 — 150,000 February 3, 2020 Service and Performance Warrants February 2020 2 years $ 4.91 — 10,000 — 10,000 September 2019 Placement Agent Warrants September 2019 5 years $ 9.48 — 65,942 — 65,942 August 2019 Service and Performance Warrants August 2019 2 years $ 1.92 — 20,000 ( 20,000 ) — July 2019 Service and Performance Warrants July 2019 2 years $ 2.19 — 10,000 ( 10,000 ) — June 2019 Placement Agent Warrants June 2019 5 years $ 6.29 — 74,479 — 74,479 April 2019 Service and Performance Warrants April 2019 5 years $ 6.18 — 145,154 — 145,154 June 2018 Placement Agent Warrants June 2018 5 years $ 12.57 — 69,617 — 69,617 March 2018 Placement Agent Warrants March 2018 5 years $ 41.56 — 15,038 — 15,038 Total — 5,463,620 ( 30,000 ) 5,834,959 59 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Liability Classified Common Stock Warrants Certain warrants contain a contingent cash payment feature and therefore were accounted for as a liability at the date of issuance and are adjusted to fair value at each balance sheet date. The change in fair value of the warrant liability is recorded as change in fair value of common stock warrant liabilities in the consolidated statements of operations and comprehensive loss. The key terms and activity of the liability classified common stock warrants are summarized as follows: Issuance Date Term Exercise Price Per Share Warrants Exercised during the Year Ended December 31, 2020 Warrants Outstanding at December 31, 2020 Warrants Exercised during the Year Ended December 31, 2021 Warrants Outstanding at December 31, 2021 January 2021 Warrants January 2021 5.5 years $ 3.13 — — — 3,938,392 September 2019 Warrants September 2019 5.5 years $ 7.52 — 659,414 — 659,414 June 2019 Warrants June 2019 5.5 years $ 5.00 — 435,830 — 435,830 June 2018 Warrants June 2018 5.5 years $ 9.94 1,392,345 — — — March 2018 Warrants March 2018 5 years $ 10.73 641,416 641,416 — 641,416 Total 2,033,761 1,736,660 — 5,675,052 See Note 6 for the Black-Scholes option-pricing model and weighted-average assumptions used to estimate the fair value of the warrant liabilities. Note 16. Stock-Based Compensation and Employee Stock Purchase Program Stock Incentive Plans The Company has two equity incentive plans: the 2006 Stock Plan (“2006 Plan”) and the 2015 Omnibus Equity Incentive Plan (“2015 Plan”). In 2006, the Company adopted the 2006 Plan, which provided for the granting of stock options to executives, employees, and other service providers under terms and provisions established by the Board of Directors. The Company granted non-statutory stock options (“NSOs”) under the 2006 Plan until May 2015, when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding and were issued under the 2006 Plan. The 2015 Plan became effective upon the Company’s IPO in May 2015 and all shares that were reserved, but not issued, under the 2006 Plan were assumed by the 2015 Plan. Upon effectiveness, the 2015 Plan had 154,387 shares of common stock reserved for future issuance, which included 10,637 that were transferred to and assumed by the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares available for grant. In addition, shares subject to awards under the 2006 Plan that are forfeited or canceled will be added to the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options (“ISOs”), NSOs, restricted stock awards, stock units, stock appreciation rights, and other forms of equity compensation, all of which may be granted to employees, officers, non-employee directors, and consultants. The exercise price for ISOs and NSOs will be granted at a price per share not less than the fair value of our common stock at the date of grant. Options granted generally vest over a four-year period; however, the options granted in the third quarter of 2018 vest over two-year period, vesting monthly on a pro-rated basis. Options granted, once vested, are generally exercisable for up to 10 years, after grant to the extent vested. In June 2019, the shareholders approved an amendment to the Company’s 2015 Plan for a one-time increase to the number of shares of common stock that may be issued under the 2015 Plan by 120,000 shares. On May 17, 2021, upon completion of the Arcadia Wellness transaction, the Company granted 248,000 inducement stock option pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. On May 28, 2021, the Company filed a registration statement on Form S-8 to register the issuance of shares upon exercise of these inducement stock options. The inducement options grants have been issued outside of the 2015 Plan, but the options are subject to the terms and conditions of the 2015 Plan. As of December 31, 2021, a total of 1,596,209 shares of common stock were reserved for issuance under the 2015 Plan, of which 250,254 shares of common stock are available for future grant. As of 60 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) December 31, 2021, a total of 8,240 and 1,345,955 options are outstanding under the 2006 and 2015 Plans, respectively. As of December 31, 2021 a total of 68,000 inducement options are outstanding. The following is a summary of stock option information and weighted average exercise prices under the Company’s stock incentive plans (in thousands, except share data and price per share): Shares Subject to Outstanding Options Weighted- Average Exercise Price Per Share Aggregate Intrinsic Value Outstanding — Balance at December 31, 2019 661,701 $ 21.60 $ 305 Options granted 502,494 4.28 — Options exercised — — — Options forfeited ( 174,508 ) 5.91 — Options expired ( 99,928 ) 25.56 — Outstanding — Balance at December 31, 2020 889,759 14.46 $ 240 Options granted 1,227,042 2.76 — Options exercised — — — Options forfeited ( 440,166 ) 3.09 $ 1,086 Options expired ( 254,440 ) 29.02 — Outstanding — Balance at December 31, 2021 1,422,195 5.28 — Vested and expected to vest — December 31, 2021 1,322,111 5.47 — Exercisable —December 31, 2021 743,109 $ 7.54 — Aggregate intrinsic value represents the difference between the exercise price of the options and the estimated fair value of the Company’s common stock determined by our Board of Directors for each of the respective periods. The intrinsic value of options exercisable was $ 0 for both years ended December 31, 2021 and 2020. As of December 31, 2021, there was $ 1.1 million of unrecognized compensation cost related to unvested stock-based compensation grants that will be recognized over the weighted-average remaining recognition period of 3.00 years. On December 14, 2021, Matt Plavan provided notice to the Company of his resignation as Arcadia’s president, chief executive officer and director, effective as of December 31, 2021. On December 19, 2021, Arcadia and Mr. Plavan entered into a Separation and Release Agreement (the “Separation Agreement”) which provided that the vesting of all unvested options previously issued to Mr. Plavan accelerated pursuant to the terms of the Separation Agreement. In addition, the Separation Agreement extends the post-termination exercise period of the accelerated options from 90 days to up to two and one-half years . The stock compensation expense related to the modification of Mr. Plavan’s stock options was $ 154,000 and recognized in selling, general and administrative expenses during the year ended December 31, 2021. In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine. Expected Term— The expected term is the estimated period of time outstanding for stock options granted and was estimated based on a simplified method allowed by the SEC, and defines the term as the average of the contractual term of the options and the weighted-average vesting period for all open employee awards. Expected Volatility— The historical volatility data was computed using the daily closing prices for the Company’s shares during the equivalent period of the calculated expected term of the stock-based awards. Risk-Free Interest Rate— The risk-free interest rate is based on the interest rate of U.S. Treasuries of comparable maturities on the date the options were granted. Expected Dividend— The expected dividend yield is based on the Company’s expectation of future dividend payouts to common stockholders. 61 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) The fair value of stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumption: Year Ended December 31, Assumptions 2021 2020 Expected term (years) 6.31 6.48 Expected volatility 121 % 134 % Risk-free interest rate 0.86 % 1.01 % Expected dividend yield — — The weighted-average, estimated grant date fair value of employee stock options granted during the years ended December 31, 2021 and 2020 was $ 2.41 and $ 3.80 , respectively. The Company recognized $ 1.5 million and $ 2.0 million of compensation expense for stock options awards for the years ended December 31, 2021 and 2020, respectively. Employee Stock Purchase Plan The Company’s 2015 Employee Stock Purchase Plan (“ESPP”) became effective on May 14, 2015. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount of up to 15 % of their eligible compensation through payroll deductions, subject to any plan limitations. After the first offering period, which began on May 14, 2015 and ended on February 1, 2016 , the ESPP provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85 % of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last day of the offering period. As of December 31, 2021 , the number of shares of common stock reserved for future issuance under the ESPP is 111,722 . The ESPP provides for automatic annual increases in the shares available for purchase beginning on January 1, 2016. As of December 31, 2021 , 50,245 shares had been issued under the ESPP. The Company recorded $ 14,000 and $ 47,000 of ESPP related compensation expense for the years ended December 31, 2021 and 2020 , respectively. Note 17. Commitments and Contingencies Leases The Company leases office and laboratory space, greenhouse space, grain storage bins, warehouse space, farmland, and equipment under operating lease agreements having initial lease terms ranging from one to five years , including certain renewal options available to the Company at market rates. The Company also leases land for field trials on a short-term basis. See Note 18. Legal Matters From time to time, in the ordinary course of business, the Company may become involved in certain legal proceedings. The Company currently is not a party to any material litigation or other material legal proceedings. Contingent Liability Related to the Anawah Acquisition On June 15, 2005 , the Company completed its agreement and plan of merger and reorganization with Anawah, Inc. (“Anawah”), to purchase the Anawah’s food and agricultural research company through a non-cash stock purchase. Pursuant to the merger with Anawah, and in accordance with the ASC 805 - Business Combinations, the Company incurred a contingent liability not to exceed $ 5.0 million. This liability represents amounts to be paid to Anawah’s previous stockholders for cash collected on revenue recognized by the Company upon commercial sale of certain specific products developed using technology acquired in the purchase. As of December 31, 2010, the Company ceased activities relating to three of the six Anawah product programs thus, the contingent liability was reduced to $ 3.0 million. During the third quarter of 2016, one of the programs previously accrued for was abandoned and another program previously abandoned was reactivated. During the fourth quarter of 2019, the Company determined that one of the technologies was no longer active and decided to abandon the previously accrued program. As of December 31, 2021, the Company continues to pursue a total of two development programs using this technology and believes that the contingent liability is probable. As a result, $ 2.0 million remains on the consolidated balance sheet as an other noncurrent liability. 62 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Contingent Liability Related to the ISI Acquisition In August 2020, the Company acquired by merger Industrial Seed Innovations (ISI). A portion of the purchase price consideration for the acquisition in the amount of $280,000 will be recognized in two annual installments, each of up to 132,626 shares of the Company’s common stock, subject to the achievement of revenue milestones in 2021 and 2022. The contingent consideration of $ 280,000 was measured and recorded at fair value. As of December 31, 2021, the full amount of the contingent consideration is included in other noncurrent liabilities as no installments will become due within 12 months from the consolidated balance sheets date. During the year ended December 31, 2021 as a result of a remeasurement of the contingent consideration, a $ 210,000 decrease in the related liability was recorded as a change in fair value of contingent consideration on the consolidated statements of operations and comprehensive loss. Contracts The Company has entered into contract research agreements with unrelated parties that require the Company to pay certain funding commitments. The initial terms of these agreements range from one to three years in duration and in certain cases are cancelable. The Company licenses certain technologies via executed agreements (“In-Licensing Agreements”) that are used to develop and advance the Company’s own technologies. The Company has entered into various In-Licensing Agreements with related and unrelated parties that require the Company to pay certain license fees, royalties, and/or milestone fees. In addition, certain royalty payments ranging from 2 % to 15 % of net revenue amounts as defined in the In-Licensing Agreements are or will be due. Royalties due to both related and unrelated parties accrued as of December 31, 2021 and 2020 were $ 115,000 and $ 356,000 , respectively. Accrued royalties are included within accounts payable and accrued expenses on the consolidated balance sheets. Milestone payments are contingent upon the successful development or implementation of various technologies. Payments for milestones yet to be achieved totaled $ 2.0 million for both the years ended December 31, 2021 and 2020, respectively. The timing of the payments is not determinable at this time pending research and development currently in progress; however, no payments were made during the years ended December 31, 2021 and 2020. The Company could be adversely affected by certain actions by the government as it relates to government contract revenue received in prior years. Government agencies, such as the Defense Contract Audit Agency routinely audit and investigate government contractors. These agencies review a contractor’s performance under its agreements; cost structure; and compliance with applicable laws, regulations and standards. The agencies also review the adequacy of, and a contractor’s compliance with, its internal control systems and policies, including the contractor’s purchasing, property, estimating, compensation and management information systems. While the Company’s management anticipates no adverse result from an audit, should any costs be found to be improperly allocated to a government agreement, such costs will not be reimbursed, or if already reimbursed, may need to be refunded. If an audit uncovers improper or illegal activities, civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments or fines, and suspension or prohibition from doing business with the government could occur. In addition, serious reputational harm or significant adverse financial effects could occur if allegations of impropriety were made against the Company. There currently are routine audits in process relating to government grant revenues. Note 18. Leases Operating Leases As of December 31, 2021, the Company leases office space in Davis, CA, Chatsworth, CA, and Chesterfield, MO, as well as additional buildings, land and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these short-term leases on a straight-line basis. The Company subleases a portion of the Davis office lease to a third party. During the year ended December 31, 2021, the Company entered into two leases for office space in Chesterfield, MO, and for office space and 63 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) production in Chatsworth, CA, both with a lease term of 35 months following the commencement date and no renewal option . The leases commenced in April and May of 2021, respectively. There are no other leases that have not yet commenced as of December 31, 2021. Some leases (the Davis office, warehouse, greenhouses and a copy machine) include one or more options to renew, with renewal terms that can extend the lease term from one to six years . The exercise of lease renewal options is at the Company’s sole discretion. During the year ended December 31, 2020, the Company entered into a lease amendment that provided for additional office space in Davis, CA, and extended the term through April 2025, with one option to renew for an additional five-year term. The Company initially expected to exercise its options to renew, and in accordance with ASC 842, Leases , accounted for the amendment and expected renewal as a lease modification and remeasured the operating lease liability. During the year ended December 31, 2021, the Company re-assessed its long-term strategy regarding office spaces, and determined that the expectation to exercise its option to renew for an additional five-year term after April 2025 is no longer reasonable. In accordance with ASC 842, the Company accounted for the change that resulted in a decrease of $ 2.8 million for the operating lease liability and of $ 2.6 million for the right of use asset. The Company’s lease agreements do not contain any material variable lease payments, material residual value guarantees or material restrictive covenants. Leases consisted of the following (in thousands): Leases Classification December 31, 2021 December 31, 2020 Assets Operating lease assets Right of use asset $ 3,081 $ 5,826 Total leased assets $ 3,081 $ 5,826 Liabilities Current - Operating Operating lease liability - current $ 1,074 $ 717 Noncurrent - Operating Operating lease liability - noncurrent 2,220 5,389 Total leased liabilities $ 3,294 $ 6,106 Lease Cost Classification For the Year Ended December 31, 2021 For the Year Ended December 31, 2020 Operating lease cost SG&A and R&D Expenses $ 1,352 $ 1,042 Short term lease cost (1) SG&A and R&D Expenses 133 305 Sublease income (2) SG&A and R&D Expenses ( 63 ) ( 45 ) Net lease cost $ 1,422 $ 1,302 (1) Short term lease cost consists of field trial lease agreements with a lease term of 12 months or less. (2) Sublease income is recorded as a reduction to lease expense. Lease Term and Discount Rate December 31, 2021 December 31, 2020 Weighted-average remaining lease term (years) 2.7 5.0 Weighted-average discount rate 6 % 6 % 64 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) The maturities of the operating lease liabilities as of December 31, 2021 are as follows (in thousands): Years Ending December 31, Amounts 2022 $ 1,217 2023 1,237 2024 973 2025 168 2026 and thereafter — Total operating lease payments $ 3,595 Less: imputed interest $ 301 Total current and noncurrent operating lease liabilities $ 3,294 Note 19. Debt No maturities of current and noncurrent debt are due as of December 31, 2021 . Maturities of current and noncurrent debt as of December 31, 2020 were $ 1.1 million, and $ 2.1 million, respectively. Vehicle Loans The Company entered into notes payable agreements to finance the purchase of company vehicles. During the year ended December 31, 2021, the Company paid all notes payable related to company vehicles in full. Paycheck Protection Program Note On April 16, 2020, the Company borrowed $ 1.1 million through MidFirst Bank, a federally chartered savings association (the "Lender"), and entered into a promissory note for the same amount under the Paycheck Protection Program (“PPP”) that was established under the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) of 2020. During 2021, the Company applied for full PPP loan forgiveness, and in August 2021, the lender notified Arcadia that the SBA had forgiven the original loan in full. During the year ended December 31, 2021, the amount forgiven has been recorded as gain on extinguishment of PPP loan on the consolidated statements of operations and comprehensive loss, as the Company has been legally released from being the primary obligor in accordance with ASC 405-20, Liabilities – Extinguishment of Liabilities . Promissory Note On June 26, 2020 , the Company executed a promissory note (the “Note") in the amount of $ 2.0 million, payable to MidFirst Bank, a federally chartered savings association (the "Lender"). The Note was issued in accordance with the terms of a Loan Agreement dated as of May 18, 2020 entered into by the Company and the Lender (the “Loan Agreement”) in which the Lender agreed to make advances to the Company from time to time, at any amount up to but not to exceed $ 2.0 million. Pursuant to the Loan Agreement, the Note accrued interest, adjusted monthly, at a rate equal to the greater of (i) 3.25 % and (ii) the sum of (a) the quotient of the LIBOR Index divided by (one minus the reserve requirement set by the Federal Reserve), and (b) 2.50 %. The Company was required to make monthly interest payments on the Note to the Lender and pay the full principal amount plus any accrued but unpaid interest outstanding under the Note no later than May 18, 2023 . The Company and the Lender also entered into a Pledge and Security Agreement dated as of May 18, 2020 whereby the Company agreed to secure the Note by granting a security interest to the Lender for the Company’s deposit account held with and controlled by the Lender. On February 26, 2021, the Company repaid the full balance of $ 2.0 million, and on March 31, 2021, the line of credit was closed. As of December 31, 2021, there was no outstanding balance of the Note. Due to the lender’s control of the deposit account, a balance of $ 2.0 million was included in restricted cash on the consolidated balance sheets as of December 31, 2020. 65 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 20. Income Taxes The components of loss before income taxes are as follows (in thousands): Year Ended December 31, 2021 2020 Domestic $ ( 16,006 ) $ ( 6,150 ) Foreign ( 126 ) — Loss before income taxes $ ( 16,132 ) $ ( 6,150 ) The total income tax (expense) benefit for the years ended December 31, 2021 and 2020 was $( 2,000 ) and $ 124,000 , respectively, and is comprised of current state taxes and foreign taxes withheld by governmental agencies outside of the United States, as follows (in thousands): Year Ended December 31, 2021 2020 Current: Federal $ — $ — State ( 2 ) 28 Foreign — ( 10 ) Total current tax (expense) benefit ( 2 ) 18 Deferred: Federal — 84 State — 22 Foreign — — Total deferred tax (expense) benefit — 106 Total tax (expense) benefit $ ( 2 ) $ 124 The Company operates in only one federal jurisdiction, the United States. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2021 2020 Expected income tax provision at the federal statutory rate 21.0 % 21.0 % State taxes, net of federal benefits ( 20.1 )% 9.4 % Impact of section 382 study ( 10.4 )% — Change in valuation allowance ( 0.4 )% ( 43.8 )% Transaction costs ( 1.0 )% ( 2.2 )% Derivative liabilities 11.7 % 22.4 % Non-Controlling Interest ( 1.9 )% ( 4.7 )% Gain on debt extinguishment 1.5 % — withholding taxes — ( 0.2 )% Other ( 0.4 )% — Income tax provision — 1.9 % 66 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, net operating loss carryforwards (“NOLs”) and other tax credits. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands): As of December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 14,586 $ 15,478 Unearned revenue 1 2 Stock-based compensation 3,677 3,881 Accrued payroll and benefits 3 236 Research and development credits 16 16 Fixed asset basis difference 73 84 Inventory reserve 422 491 Charitable contributions 2 3 Income from partnerships 163 — Lease liability 752 1,622 Contingent consideration 456 531 Allowance for bad debt 27 — Amortized intangibles 660 — Goodwill 366 — Total deferred tax assets 21,204 22,344 Deferred tax liabilities: Right of use asset ( 699 ) ( 1,548 ) Amortizable intangibles — ( 98 ) Income from partnerships — ( 13 ) Other — ( 174 ) Total deferred tax liabilities ( 699 ) ( 1,833 ) Less valuation allowance ( 20,505 ) ( 20,511 ) Net deferred tax assets $ — $ — Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred tax assets have been offset by a valuation allowance. The net valuation allowance decreased by $ 6,000 during the year ended December 31, 2021 and increased by $ 1.9 million during the year ended December 31, 2020. At December 31, 2021 , the Company had federal and state NOLs aggregating approximately $ 64.2 million and $ 23.9 million, respectively. At December 31, 2021, the utilization of a portion of the federal NOLs is subject to an annual limitation under Section 382 of the Internal Revenue Code (IRC). Of the $ 208.1 million of federal NOLs available, approximately $ 144.0 million are expected to expire utilized due to ownership changes as defined in IRC Section 382. The Company is currently conducting additional analysis regarding the valuation of the Company at the time of the ownership changes to assess what, if any, portion of the $ 144.0 million limitation may be restored, but the NOL deferred tax asset as recorded currently reflects the full limitation. If not utilized, the federal and state NOLs will begin to expire in 2022 and 2024, respectively. IRC Section 382 may also limit NOLs generated in future years. The Company is currently conducting additional analysis regarding the valuation of the Company at the time of the ownership change to assess what, if any, portion of the limitation may be reversed. The Company’s ownership shift analysis was performed through December 31, 2021. The Company evaluates deferred tax assets, including the benefit from NOLs, to determine if a valuation allowance is required. Such evaluation is based on consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency, and severity of current and cumulative losses; forecasts of future profitability; the length of statutory carryforward periods; the Company’s experience with operating losses; and tax-planning alternatives. The significant piece of objective negative evidence evaluated was the cumulative loss 67 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) incurred through the year ended December 31, 2021 . Given this evidence and the expectation to incur operating losses in the foreseeable future, a full valuation allowance has been recorded against the net deferred tax asset. The Company will continue to maintain a full valuation allowance against the entire amount of its net deferred tax asset, until such time as the Company has determined that the weight of the objectively verifiable positive evidence exceeds that of the negative evidence and it is likely that the Company will be able to utilize all of its net deferred tax asset relating to its federal and state NOL carryforwards. Although the Company has established a full valuation allowance on its net deferred tax asset, for Federal tax losses before 2018 and for all state tax losses, it has not forfeited the right to carryforward tax losses up to 20 years and apply such tax losses against taxable income in such years, thereby reducing its future tax obligations. Federal tax losses generated in 2018 and later do not expire. The Company is subject to taxation in the United States and various state jurisdictions. As of December 31, 2021 , the Company’s tax years for 2002 through 2021 are generally subject to examination by the tax authorities. The years are open back to 2002 to the extent the NOLs being carried forward were generated then. As of December 31, 2021, the Company had the following unrecognized tax benefits (in thousands): Year Ended December 31, 2021 2020 Unrecognized tax benefit beginning balance $ 17 $ — Increases for tax positions taken in prior years — 2 Decreases for tax positions taken in prior years — — Increases for tax positions taken in current years — 15 Settlements — — Unrecognized tax benefit ending balance $ 17 $ 17 The Company is currently not under audit for federal or state purposes. The Company does not anticipate its total unrecognized tax benefits as of December 31, 2021 will significantly change due to settlement of examination or the expiration of statute of limitations during the next 12 months. The Company is currently unaware of any uncertain tax positions that could result in significant additional payments, accruals or other material deviation in this estimate over the next 12 months. Note 21. Retirement Benefits The Company has a 401(k) retirement plan (the “Plan”) available for participation by all regular full-time employees who have completed three months of service with the Company. The Company established the Plan in 2008. The Plan provides for a discretionary matching contribution equal to 50 % of the amount of the employee’s salary deduction, not to exceed 3 % of the salary per employee. Highly compensated employees are excluded from receiving any discretionary matching contribution. Employees’ rights to employer contributions vest on the one-year anniversary of their date of employment. The Company has the option to make discretionary matching contributions. The Company did no t make discretionary matching contributions during the years ended December 31, 2021 and 2020 . 68 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 22. Segment and Geographic Information Management has determined that it has one business activity and operates in one segment as it only reports financial information on an aggregate and consolidated basis to its Chief Executive Officer, who is the Company’s chief operating decision maker. Revenues based on the location of the customers, are as follows (in thousands): Year Ended December 31, 2021 2020 United States $ 6,003 $ 761 Argentina 26 6,681 India 7 100 Africa — 106 Canada 503 354 Spain 225 — United Kingdom 16 — Austria — 32 Total $ 6,780 $ 8,034 Note 23. Net Loss per Share Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period and excludes any dilutive effects of stock-based awards and warrants. Diluted net loss per share attributable to common stockholders is computed giving effect to all potentially dilutive common shares, including common stock issuable upon exercise of stock options and warrants. As the Company had net losses for the years ended December 31, 2021 and 2020, all potentially dilutive common shares were determined to be anti-dilutive. Securities that were not included in the diluted per share calculations because they would be anti-dilutive were as follows (in shares): Year Ended December 31, 2021 2020 Options to purchase common stock 1,422,195 889,759 Warrants to purchase common stock 11,510,011 7,200,280 Total 12,932,206 8,090,039 Note 24. Related Party Transactions The Company’s related parties include Moral Compass Corporation (“MCC”) and the John Sperling Foundation (“JSF”). The rights to the intellectual property owned by Blue Horse Labs, Inc. (“BHL”) were assigned to its sole shareholder, the John Sperling Revocable Trust (“JSRT”) due to BHL’s dissolution and then subsequently to the JSF. The JSF is deemed a related party of the Company because MCC, the Company’s largest stockholder, and the JSF share common officers and directors. Transactions with related parties are reflected in the consolidated financial statements under amounts due to related parties. Outlined below are details of agreements between the Company and its related parties: JSF receives a single digit royalty from the Company when revenue has been collected on product sales or for license payments from third parties that involve certain intellectual property developed under research funding originally from BHL. Royalty fees due to JSF were $ 64,000 and $ 80,000 as of December 31, 2021 and December 31, 2020, respectively, and are included in the consolidated balance sheets as amounts due to related parties. 69 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) The Company currently leases land on the island of Molokai, Hawaii from an entity owned by Kevin Comcowich, the Chair of the Company’s Board of Directors, and his wife. The Company has grown hemp on this land to support the operations of its joint venture Archipelago Ventures Hawaii. The original lease was executed in February 2019, covers 10 acres of land, has a term of two years and provides for rent payments of $ 1,200 per acre per year. During the quarter ended March 31, 2020, the Company engaged a third-party contractor to construct a fence on the property to adhere to the rules of the hemp pilot program. Out of pocket costs to build this fence were approximately $ 126,400 . Mr. Comcowich supplied materials to the contractor and received payments from the contractor totaling approximately $ 44,000 . In March and April 2020, the Company entered into two lease amendments for two additional 10 -acre parcels and two additional 15 -acre parcels , at the same lease rate of $ 1,200 per acre per year, and with a term of two years . The Company made lease payments in the amount of $ 84,000 and $ 84,000 for the years ended December 31, 2021 and 2020, respectively. Mr. Comcowich served as the Company's interim chief executive officer from January 1, 2022 to February 1, 2022, and received $ 34,000 in total compensation for his services in this role. Note 25. Subsequent Events The Company has reviewed and evaluated subsequent events occurred after December 31, 2021 through the date the consolidated financial statements were available to be issued. 70 Table of Contents Item 9. Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure. None.