Arcadia Biosciences, Inc. 10-K

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. 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 food and beverage 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, has laid the foundation for our path forward. We have used non-genetically modified advanced breeding techniques to develop these proprietary innovations which we are now commercializing through the sales of seed and grain, food ingredients and products, trait licensing and royalty agreements. The acquisition of the assets of Live Zola, LLC ("Zola") added coconut water to our portfolio of products. Our commercial strategy is to satisfy consumer nutrition 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 Zola brand allows us to broaden our reach within the beverage sector. It is also estimated by the U.S. Department of Agriculture (“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 represents. 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™ (“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. Our Growth Strategy We believe there are significant opportunities to grow our business by executing the following elements of our strategy: 20 Table of Contents • Accelerate the monetization of our GoodWheat™ wheat trait portfolio. Our proprietary intellectual property ("IP") with multiple non-GMO wheat traits have clear functional benefits, and we will continue to build partnerships across the wheat value chain. We have launched GoodWheat into multiple categories where our wheat provides a compelling point-of-difference and we will continue to evaluate ways to extract value throughout the supply chain. • Evaluate scale M&A opportunities. We intend to evaluate potential mergers, acquisitions and other strategic opportunities that will allow us to scale the GoodWheat value proposition more quickly. We believe there is a significant opportunity to integrate our wheat IP and GoodWheat brand into larger businesses and drive shareholder value. • Scale Zola through retail expansion. Based on our research, consumers prefer the clean, crisp taste of Zola to that of other leading coconut water brands. As a result, we plan to continue to invest in trial-driving activities and expand distribution of our Zola coconut water brand through mass market retailers and grocery store chains. Arcadia Wellness, LLC In May 2021, our wholly owned subsidiary Arcadia Wellness, LLC (“Arcadia Wellness” or “AW”), acquired the businesses of Eko, Lief, and Zola. The acquisition included Saavy Naturals™, a line of natural body care products, Soul Spring™, a CBD-infused botanical therapy brand in the natural category, and ProVault™, a THC-free CBD sports performance formula made with natural ingredients, providing effective support and recovery for athletes (collectively "body care brands"). Also included in the purchase is Zola, a coconut water sourced exclusively with sustainably grown coconuts from Thailand. On July 8, 2022, the Company entered into an agreement to license Saavy Naturals to Radiance Beauty and Wellness, Inc. ("Radiance Beauty"). In July 2023, management made the decision to exit the remaining body care brands, Soul Spring and ProVault, as a result of continued pressure on the CBD market due to regulatory uncertainty. Body care operations ceased as of September 30, 2023. Our Product Portfolio Most Americans suffer from a significant fiber deficiency. The recommended daily value of fiber is 25g for women and children, and 38g for men according to the May 2021 Food and Health Survey by the International Food Information Council. However, less than 10 percent of women and less than 3 percent of men get enough fiber in their daily diets. Our GoodWheat portfolio of better-for-you products addresses these needs as they are naturally higher in fiber and protein than traditional wheat without sacrificing on taste or texture. GoodWheat™ Pasta In June 2022, we launched our GoodWheat pasta in five varieties – penne, spaghetti, fettuccine, elbows and rotini – in select retailers nationwide and on Amazon. Our pasta delivers 4 times the fiber of traditional wheat pasta with 9g of protein per serving and no sacrifice on taste. In fact, our research shows that GoodWheat pasta scores at parity on taste with leading wheat pasta competitors and significantly outscores market leading vegetable-based pastas. Made with only our USA farm grown wheat, GoodWheat pasta meets consumers’ preference for clean labels and transparent sourcing. And, in December of 2022, GoodWheat received the American Heart Association’s Heart-Check mark on all of our pasta products. With its high fiber, lower sodium and zero saturated fat, GoodWheat meets the criteria for a heart-healthy pasta and provides consumers with a better-for-you option that delivers superior nutrition with the taste and texture of traditional pasta. 21 Table of Contents GoodWheat™ Pancakes and Waffle Mixes In August 2023, we launched our GoodWheat into the breakfast category with new, better-for-you pancake and waffle mixes as well as single-serve Quikcakes™. Our new mixes are made with simple ingredients and Arcadia’s proprietary wheat grain, which is naturally higher in fiber and protein than traditional wheat. GoodWheat pancake and waffle mixes are sold in resealable, multi-serve pouches, with each serving delivering 8 times the fiber of traditional pancake mix and 5 grams of protein. Our multi-serve mixes will be available in 3 classic varieties, including Buttermilk, Chocolate Chocolate Chip and Apple Cinnamon. GoodWheat Quikcakes are an innovative, single-serve instant pancake that is a great option for busy mornings – you simply pour one packet into a bowl, add water and microwave for 90 seconds. Quikcakes have 11 times the fiber of traditional single-serve pancake mixes and contain 7 grams of protein per serving. Quikcakes are available in 3 flavors, including Buttermilk, Chocolate Chocolate Chip and Confetti. GoodWheat™ Mac and Cheese In November 2023, we announced the third GoodWheat category, Mac and Cheese. Our Mac and Cheese is made with real cheese and contains no artificial flavors, dyes or preservatives and are available in three varieties: Classic Cheddar, White Cheddar and Three Cheese. GoodWheat Mac and Cheese packs in the most fiber of any brand in the category, 4 times more than the leading brand. In fact, one serving of GoodWheat Mac and Cheese has the same fiber as two servings of oatmeal, or two and a half servings of broccoli! And, just like our pasta and pancake mixes, GoodWheat Mac and Cheese is higher in protein than the leading brand, with 12 grams of protein per serving. Zola Coconut Water Zola is a pure, natural, 100% coconut water with a crisp, clean taste that’s lightly sweet and refreshing. Naturally hydrating and never from concentrate, Zola is Non-GMO Project Verified and only contains 60 calories per serving. In taste tests, Zola beats competitors 2 to 1 and is the best-tasting way to rehydrate, reset and reenergize. Discontinued Operations As mentioned above, the Company exited the body care brands and ceased its operations as of September 30, 2023. In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets and the results of the discontinued operations as a separate component of loss on the consolidated statements of operations and comprehensive loss for all periods presented. See Note 1 to the consolidated financial statements for further information on discontinued operations. Components of Our Statements of Operations Data Revenues We derive our revenues from product sales, royalties and license fees. Product revenues Product revenues consist primarily of sales of GoodWheat, Zola and GLA products. 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. Revenues fluctuate depending on the timing of shipments of product to our customers and are reported net of estimated chargebacks, returns and losses. Royalty Revenues Royalty revenues consist of amounts earned from the sale of commercial products that incorporate the Company's traits by third parties. Royalty revenues consist of a minimum annual royalty, offset by amounts earned from the sale of products. The Company recognizes the minimum annual royalty on a straight-line basis over the year, and recognizes royalty revenue resulting from the sale of products when the third parties transfer control of the product 22 Table of Contents to their customers, which generally occurs upon shipment. Royalty revenues can fluctuate depending on the timing of shipments of product by the third parties to their customers. License revenues License revenues 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 license revenues are likely to fluctuate significantly from period to period. Operating Expenses Cost of revenues Cost of revenues primarily relates to the sale of GoodWheat and Zola 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 ("R&D") Research and development expenses consist of costs incurred in the development and testing of our products and other products in development incorporating our traits. These expenses currently consist primarily of fees paid to product formulation consultants and are expensed as incurred. Additionally, the Company is required from time to time to make certain milestone payments in connection with the development of technologies in-licensed from third parties. The Company's research and development expenses may fluctuate from period to period. Gain on sale of Verdeca The gain on sale of Verdeca is the gain recognized for the sale of the Company's membership interests in the Verdeca joint venture to our partner Bioceres in November 2020. Impairment of Intangible Assets Impairments of intangible assets are recorded when the fair value of intangible assets drops below its carrying amount. 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 the Company's contingent consideration. Gain on sale of property and equipment, net Gain on sale of fixed assets includes gains from the sale of tangible assets sold above their net book value. 23 Table of Contents Impairment of property and equipment 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. Impairment of right-of-use ("ROU") assets Impairment of ROU assets includes losses from right-of-use assets due to impairment or recoverability test charges to write down the ROU asset to their fair value or recoverability value. 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. Interest income Interest income consists of interest income on our cash and cash equivalents and investments. Other income, net Other income, net consists of miscellaneous income. Valuation loss on March 2023 PIPE Valuation loss on March 2023 PIPE includes the fair value in excess of gross proceeds and the increase in fair value related to the re-pricing of existing warrants. Change in the estimated fair value of common stock warrant and option liabilities Change in the estimated fair value of common stock warrant and option liabilities is comprised of the fair value remeasurement of the liabilities associated with our financing transactions. Issuance and offering costs allocated to liability classified options Issuance and offering costs generally include placement agent, legal, advisory, accounting and filing fees related to financing transactions. Income tax expense 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, 2023 and 2022. 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. Net loss from discontinued operations Net loss from discontinued operations represents results of operations related to the discontinued body care brands. See Note 1 to the consolidated financial statements for further information on discontinued operations. 24 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 Year Ended December 31, $ Change % Change 2023 2022 (in thousands) Revenues: Product $ 5,313 $ 6,422 $ (1,109 ) -17 % License 17 879 (862 ) -98 % Royalty — 117 (117 ) -100 % Total revenues 5,330 7,418 (2,088 ) -28 % Operating expenses (income): Cost of revenues 3,300 6,101 (2,801 ) -46 % Research and development 1,387 1,509 (122 ) -8 % Gain on sale of Verdeca — (1,138 ) 1,138 100 % Impairment of intangible assets — 141 (141 ) -100 % Change in fair value of contingent consideration — (70 ) 70 -100 % Gain on sale of property and equipment (40 ) (314 ) 274 -87 % Impairment of property and equipment — 160 (160 ) -100 % Impairment of ROU asset 113 — 113 100 % Selling, general and administrative 14,508 15,036 (528 ) -4 % Total operating expenses 19,268 21,425 (2,157 ) -10 % Loss from operations (13,938 ) (14,007 ) 69 0 % Interest income 695 289 406 140 % Other income, net 48 9 39 433 % Valuation loss on March 2023 PIPE (6,076 ) — (6,076 ) -100 % Change in fair value of common stock warrant and option liabilities 6,544 3,209 3,335 104 % Issuance and offering costs allocated to liability classified options (430 ) (314 ) (116 ) 37 % Net loss from continuing operations before income taxes (13,157 ) (10,814 ) (2,343 ) 22 % Income tax expense (8 ) (14 ) 6 -43 % Net loss from continuing operations (13,165 ) (10,828 ) (2,337 ) 22 % Net loss from discontinued operations (821 ) (4,784 ) 3,963 -83 % Net loss (13,986 ) (15,612 ) 1,626 -10 % Net loss attributable to non-controlling interest (5 ) (236 ) 231 -98 % Net loss attributable to common stockholders $ (13,981 ) $ (15,376 ) $ 1,395 -9 % 25 Table of Contents Revenues Product revenues accounted for 100% and 87% of our total revenues in 2023 and 2022, respectively. The $1.1 million, or 17%, decrease in product revenues in 2023 compared to 2022 was primarily driven by 2022 GoodWheat grain sales. License revenues accounted for 0% and 12% of our total revenues in 2023 and 2022, respectively. During the year ended December 31, 2022, the Company recognized one-time license revenue of $862,000 related to the Verdeca-Bioceres licensing agreement discussed below. Royalty revenues accounted for 0% and 2% of our total revenues in 2023 and 2022, respectively. The $117,000 of royalty revenues for the year ended December 31, 2022 represents the proportionate share of contracted minimum annual royalty fees that expired in 2022. Operating expenses (income) Cost of revenues Cost of revenues decreased by $2.8 million, or 46%, in 2023 compared to 2022. Cost of revenues during the year ended December 31, 2022 included GoodWheat grain sold at cost and higher inventory write-downs. Gross profit, calculated as total revenues less cost of revenues, was $2.0 million and $1.3 million during the years ended December 31, 2023 and 2022, respectively. The increase in gross profit in 2023 is primarily due to the absence of sales of GoodWheat grain sold at cost in 2022. Research and development Research and development expenses decreased by $0.1 million, or 8%, in 2023 compared to 2022. The decrease was primarily driven by the Company's continued focus on commercialization, which has led to lower employee-related expenses and related activity costs. Gain on sale of Verdeca In February 2012, the Company partnered with Bioceres to form Verdeca, which we equally owned. Verdeca was formed to develop and deregulate soybean varieties using both partners’ agricultural technologies. In November 2020, Arcadia sold its membership interest in Verdeca to Bioceres in a transaction in which Arcadia received cash, shares of Bioceres stock and a royalty stream of up to $10.0 million on sales of Haab 4 ("HB4") soybean. An additional $2.0 million in cash is to be paid to Arcadia upon Verdeca achieving commercial plantings of at least 200,000 hectares of HB4 or China approving the HB4 soybean trait for “food and feed”. During the year ended December 31, 2022, the Company recognized a gain on sale of Verdeca of $1.1 million related to the regulatory approval of the Haab 4 soybeans. Impairment of intangible assets During the year ended December 31, 2022, the Company recognized impairments of intangible assets of $141,000 related to the Industrial Seed Innovations ("ISI") intangible assets. See Note 13 to the consolidated financial statements. There was no such impairment of intangible assets recognized during the year ended December 31, 2023. 26 Table of Contents Change in fair value of contingent consideration During the year ended December 31, 2022, the Company recognized a decrease in the fair value of the ISI contingent consideration liability due to its remeasurement. See Note 13 to the consolidated financial statements. There was no such change in fair value recognized during the year ended December 31, 2023. Gain on sale of property and equipment During the years ended December 31, 2023 and 2022, the Company sold property and equipment for net proceeds exceeding book value by $40,000 and $314,000, respectively. Impairment of property and equipment, net During the year ended December 31, 2022, the Company recognized $160,000 of impairments of property and equipment related to Archipelago. There was no impairment of property and equipment recognized during the year ended December 31, 2023. Impairment of ROU assets During the year ended December 31, 2023, the Company recognized $113,000 of impairment related to ROU assets. There was no impairment of ROU assets recognized during the year ended December 31, 2022. Selling, General, and Administrative Selling, general, and administrative expenses decreased by $0.5 million, or 4%, in 2023 compared to 2022 primarily driven by a decrease in employee compensation. Interest income During the year ended December 31, 2023, the Company recognized interest income of $695,000 from investments as compared to $289,000 in 2022. Other income, net During the year ended December 31, 2023, the Company recognized other income of $48,000 as compared to $9,000 in 2022. Valuation loss on March 2023 PIPE During the year ended December 31, 2023, the Company recognized a $6.1 million valuation loss related to the March 2023 PIPE financing transaction. The valuation loss includes the fair value in excess of gross proceeds and the increase in fair value related to the re-pricing of existing warrants. Change in the estimated fair value of common stock warrant and option liabilities The change in the estimated fair value of common stock warrant and option liabilities was $6.5 million during the year ended December 31, 2023 related to the change in the estimated fair value of the liability classified preferred investment options issued in connection with the March 2023 PIPE and August 2022 Registered Direct Offering financing transactions. The change in the estimated fair value of common stock warrant and option liabilities was $3.2 million during the year ended December 31, 2022 related to the change in the estimated fair value of the liability classified preferred investment options issued in connection with the August 2022 Registered Direct Offering financing transaction. 27 Table of Contents Issuance and offering costs Issuance and offering costs were $430,000 during the year ended December 31, 2023 and were related to the liability classified options issued in the March 2023 PIPE financing transaction. Issuance and offering costs were $314,000 during the year ended December 31, 2022 related to the August 2022 Registered Direct Offering financing transaction. Income tax expense The income tax provision resulted in an expense of $8,000 and $14,000 during the years ended December 31, 2023 and 2022, respectively. Net loss from discontinued operations Net loss from discontinued operations was $821,000 and $4.8 million during the years ended December 31, 2023 and 2022, respectively. See Note 1 to the consolidated financial statements for further information on discontinued operations. 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. 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 and Capital Resources 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. Our principal use of cash is to fund our operations, which are primarily focused on commercializing our products. Our contractual obligations are primarily related to our operating leases for facilities, land and equipment. Refer to Note 14 to the consolidated financial statements for details of our leasing arrangements. As of December 31, 2023, we had cash and cash equivalents of $6.5 million and short-term investments of $5.1 million. For the years ended December 31, 2023 and 2022, the Company had net losses of $14.0 million and $15.6 million, respectively, and net cash used in operations of $15.3 million and $14.0 million, respectively. Going Concern We believe that our existing cash and cash equivalents and short-term investments will not be sufficient to meet our anticipated cash requirements for at least the next 12 months from the issuance date of our 2023 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 require additional funds and are not able to secure adequate additional funding, we may be forced to reduce our spending, 28 Table of Contents extend payment terms with our suppliers, liquidate assets, or suspend or curtail planned product launches. Any of these actions could materially harm our business, results of operations and financial condition. Liquidity The following table summarizes total current assets, current liabilities and working capital for the dates indicated (in thousands): As of December 31, 2023 2022 Current assets $ 14,972 $ 25,398 Current liabilities 3,590 4,209 Working capital surplus $ 11,382 $ 21,189 Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 Net cash (used in) provided by: Operating activities $ (15,294 ) $ (13,977 ) Investing activities (4,344 ) 1,417 Financing activities 5,512 4,519 Net decrease in cash and cash equivalents $ (14,126 ) $ (8,041 ) Cash flows from operating activities Cash used in operating activities for the year ended December 31, 2023 was $15.3 million. With respect to our net loss of $14.0 million, non-cash charges, including $430,000 of issuance and offering costs, $6.1 million of valuation loss recognized for the March 2023 PIPE, $717,000 of stock-based compensation, $697,000 of lease amortization, $287,000 of depreciation, $444,000 of write-downs of inventory and $113,000 of impairment of ROU assets, were offset by the change in fair value of common stock warrant and option liabilities of $6.5 million, adjustments in our working capital accounts of $2.7 million, a gain on disposal of property and equipment of $40,000, and operating lease payments of $764,000. Cash used in operating activities for the year ended December 31, 2022 was $14.0 million. With respect to our net loss of $15.6 million, non-cash charges including $1.1 million of stock-based compensation, $884,000 of lease amortization, $2.5 million of write-downs of inventory, $530,000 of impairment of property and equipment, $314,000 of issuance and offering costs, $404,000 of impairment of intangible assets, $439,000 of depreciation, and $1.0 million adjustments in our working capital accounts were offset by $3.2 million for the change in fair value of common stock warrant and option liabilities, gain on sale of Verdeca of $1.1 million, $314,000 of net gain on disposal of property and equipment, and operating lease payments of $932,000. Cash flows from investing activities Cash used in investing activities for the year ended December 31, 2023 consisted of proceeds of $115,000 from the sale of property and equipment, proceeds of $569,000 from the sale of Verdeca, and proceeds of $2.5 million from the sale of investments, offset by $5,000 of purchases of property and equipment and $7.5 million of purchases of investments. Cash provided by investing activities for the year ended December 31, 2022 of $1.4 million primarily consisted of $920,000 of proceeds from sales of property and equipment, $569,000 proceeds from sale of Verdeca, partially offset by $72,000 of purchases of property and equipment. 29 Table of Contents Cash flows from financing activities Cash provided by financing activities for the year ended December 31, 2023 consisted of gross proceeds of $6.0 million from the March 2023 PIPE financing transaction and proceeds from the purchase of ESPP shares of $12,000, which were offset by payments of transaction costs related to the March 2023 PIPE financing transaction of $497,000. Cash provided by financing activities for the year ended December 31, 2022 of $4.5 million consisted of proceeds from the issuance of common stock relating to the August 2022 RDO financing transaction of $5.0 million gross proceeds and proceeds from the purchase of ESPP shares of $7,000, which were offset by payments of transaction costs related to the August 2022 RDO financing transaction of $488,000. 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. 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, and net realizable value of inventory. 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 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. 30 Table of Contents 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. Net realizable value of inventory 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 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 38 Notes to Consolidated Financial Statements 39 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 evaluated 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. /s/ Deloitte & Touche LLP Tempe, Arizona March 28, 2024 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, 2023 2022 Assets Current assets: Cash and cash equivalents $ 6,518 $ 20,644 Short-term investments 5,124 — Accounts receivable and other receivables, net of allowance for doubtful accounts of $ 0 and $ 3 as of December 31, 2023 and 2022, respectively 514 1,221 Inventories, net — current 1,958 2,321 Assets held for sale 51 87 Prepaid expenses and other current assets 807 795 Current assets of discontinued operations — 330 Total current assets 14,972 25,398 Property and equipment, net 384 680 Right of use assets 792 1,848 Inventories, net — noncurrent 3,354 767 Intangible assets, net 39 40 Other noncurrent assets 164 165 Noncurrent assets of discontinued operations — 24 Total assets $ 19,705 $ 28,922 Liabilities and stockholders’ equity Current liabilities: Accounts payable and accrued expenses $ 2,410 $ 2,855 Amounts due to related parties 58 48 Operating lease liability — current 852 1,010 Other current liabilities 270 270 Current liabilities of discontinued operations — 26 Total current liabilities 3,590 4,209 Operating lease liability — noncurrent 155 1,007 Common stock warrant and option liabilities 1,257 806 Other noncurrent liabilities 2,000 2,000 Total liabilities 7,002 8,022 Commitments and contingencies (Note 13) Stockholders’ equity: Common stock, $ 0.001 par value— 150,000,000 shares authorized as of December 31, 2023 and December 31, 2022; 1,285,337 and 616,079 shares issued and outstanding as of December 31, 2023 and December 31, 2022, respectively. 65 65 Additional paid-in capital 284,515 278,827 Accumulated other comprehensive income 101 — Accumulated deficit ( 271,840 ) ( 257,859 ) Total Arcadia Biosciences stockholders’ equity 12,841 21,033 Non-controlling interest ( 138 ) ( 133 ) Total stockholders' equity 12,703 20,900 Total liabilities and stockholders’ equity $ 19,705 $ 28,922 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, 2023 2022 Revenues: Product $ 5,313 $ 6,422 License 17 879 Royalty — 117 Total revenues 5,330 7,418 Operating expenses (income): Cost of revenues 3,300 6,101 Research and development 1,387 1,509 Gain on sale of Verdeca — ( 1,138 ) Impairment of intangible assets — 141 Change in fair value of contingent consideration — ( 70 ) Gain on sale of property and equipment ( 40 ) ( 314 ) Impairment of property and equipment — 160 Impairment of ROU asset 113 — Selling, general and administrative 14,508 15,036 Total operating expenses 19,268 21,425 Loss from operations ( 13,938 ) ( 14,007 ) Interest income 695 289 Other income, net 48 9 Valuation loss on March 2023 PIPE ( 6,076 ) — Change in fair value of common stock warrant and option liabilities 6,544 3,209 Issuance and offering costs allocated to liability classified options ( 430 ) ( 314 ) Net loss from continuing operations before income taxes ( 13,157 ) ( 10,814 ) Income tax expense ( 8 ) ( 14 ) Net loss from continuing operations ( 13,165 ) ( 10,828 ) Net loss from discontinued operations ( 821 ) ( 4,784 ) Net loss ( 13,986 ) ( 15,612 ) Net loss attributable to non-controlling interest ( 5 ) ( 236 ) Net loss attributable to common stockholders $ ( 13,981 ) $ ( 15,376 ) Net loss per share attributable to common stockholders: Basic and diluted from continuing operations $ ( 10.64 ) $ ( 17.67 ) Basic and diluted from discontinued operations $ ( 0.66 ) $ ( 7.98 ) Weighted-average number of shares used in per share calculations: Basic and diluted 1,236,934 599,389 Other comprehensive income, net of tax Unrealized gains on available-for-sale securities $ 101 $ — Other comprehensive income $ 101 $ — Comprehensive loss attributable to common stockholders $ ( 13,880 ) $ ( 15,376 ) 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 Accumulated Other Comprehensive Income Non-controlling Interest Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 554,609 $ 63 $ 257,515 $ ( 226,485 ) $ — $ 103 $ 31,196 Reclassification upon adoption of ASU 2020-06 — — 19,390 ( 15,998 ) — — 3,392 Issuance of shares related to August 2022 Offering 61,250 2 1,174 — — — 1,176 Offering costs related to August 2022 Offering — — ( 365 ) — — — ( 365 ) Issuance of shares related to employee stock purchase plan 220 — 7 — — — 7 Stock-based compensation — — 1,106 — — — 1,106 Net loss — — — ( 15,376 ) — ( 236 ) ( 15,612 ) Balance at December 31, 2022 616,079 $ 65 $ 278,827 $ ( 257,859 ) $ — $ ( 133 ) $ 20,900 Issuance of shares related to March 2023 PIPE 165,500 — 4,740 — — — 4,740 Modification of warrants related to March 2023 PIPE — — 219 — — — 219 Issuance of shares related to August 2022 pre-funded warrants exercise 56,813 — — — — — — Issuance of shares related to March 2023 pre-funded warrants exercise 425,834 — — — — — — Issuance of shares related to employee stock purchase plan 1,993 — 12 — — — 12 Issuance of shares related to reverse stock split 19,118 — — — — — — Stock-based compensation — — 717 — — — 717 Unrealized gains on available-for-sale securities — — — — 101 — 101 Net loss — — — ( 13,981 ) — ( 5 ) ( 13,986 ) Balance at December 31, 2023 1,285,337 $ 65 $ 284,515 $ ( 271,840 ) $ 101 $ ( 138 ) $ 12,703 The accompanying notes are an integral part of these consolidated financial statements. 37 Table of Contents Arcadia Biosciences, Inc. Consolidated Statem ents of Cash Flows (In thousands) Year Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 13,986 ) $ ( 15,612 ) Adjustments to reconcile net loss to cash used in operating activities: Change in fair value of common stock warrant and option liabilities ( 6,544 ) ( 3,209 ) Change in fair value of contingent consideration — ( 70 ) Issuance and offering costs allocated to liability classified options 430 314 Valuation loss on March 2023 PIPE 6,076 — Depreciation 287 439 Amortization of intangible assets — 40 Lease amortization 697 884 Impairment of intangible assets — 404 Gain on disposal of equipment ( 40 ) ( 314 ) Stock-based compensation 717 1,106 Bad debt expense 20 60 Gain on sale of Verdeca — ( 1,138 ) Write-down of inventories 444 2,471 Impairment of property and equipment — 530 Impairment of ROU asset 113 — Changes in operating assets and liabilities: Accounts receivable and other receivables 184 592 Inventories ( 2,419 ) 1,118 Prepaid expenses and other current assets 1 91 Other noncurrent assets 2 16 Accounts payable and accrued expenses ( 522 ) ( 757 ) Amounts due to related parties 10 ( 16 ) Other current liabilities — 6 Operating lease payments ( 764 ) ( 932 ) Net cash used in operating activities ( 15,294 ) ( 13,977 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 115 920 Proceeds from sale of Verdeca — earn-out received 569 569 Proceeds from sale of investments 2,502 — Purchases of property and equipment ( 5 ) ( 72 ) Purchases of investments ( 7,525 ) — Net cash (used in) provided by investing activities ( 4,344 ) 1,417 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, pre-funded warrants and preferred investment options from March 2023 PIPE 5,997 — Payments of offering costs relating to March 2023 PIPE ( 497 ) — Proceeds from issuance of common stock, pre-funded warrants and preferred investment options from August 2022 Offering — 5,000 Payments of offering costs relating to August 2022 Offering — ( 488 ) Proceeds from ESPP purchases 12 7 Net cash provided by financing activities 5,512 4,519 Net decrease in cash and cash equivalents ( 14,126 ) ( 8,041 ) Cash and cash equivalents — beginning of period 20,644 28,685 Cash and cash equivalents — end of period $ 6,518 $ 20,644 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ — $ 1 NONCASH TRANSACTIONS: Common stock warrant liabilities reclassified to equity upon adoption of ASU 2020-06 $ — $ 3,392 Common stock options issued to placement agent and included in offering costs related to August 2022 RDO securities purchase agreement $ — $ 191 Common stock options issued to placement agent and included in offering costs related to March 2023 PIPE $ 212 $ — Right of use assets obtained in exchange for new operating lease liabilities $ — $ 114 Proceeds from sale of property and equipment in accounts receivable and other receivables $ 8 $ 19 Proceeds from sale of Verdeca in accounts receivable and other receivables $ — $ 569 Warrant and option modifications included in Valuation loss on March 2023 PIPE $ 404 $ — The accompanying notes are an integral part of these consolidated financial statements. 38 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements Note 1. Description of Business Organization Arcadia Biosciences, Inc. (the "Company," "Arcadia" or "management"), was incorporated in Arizona in 2002 and maintains its headquarters in Dallas, Texas, with additional office space in Davis and Sacramento, California, and additional facilities in American Falls, Idaho. The Company was reincorporated in Delaware in March 2015 . The Company is a producer and marketer of innovative, plant-based food and beverage products. Its history as a leader in science-based approaches to developing high-value crop improvements, as well as nutritionally enhanced food ingredients, 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 acquisition of the assets of Live Zola, LLC (“Zola”) added coconut water to the Company's portfolio of products. In May 2021, the Company's wholly owned subsidiary Arcadia Wellness, LLC (“Arcadia Wellness” or “AW”), acquired the businesses of Eko, Lief, and Zola. The acquisition included Saavy Naturals™, a line of natural body care products, Soul Spring™, a CBD-infused botanical therapy brand in the natural category, and ProVault™, a THC-free CBD sports performance formula made with natural ingredients, providing effective support and recovery for athletes (collectively "body care brands"). Also included in the purchase is Zola, a coconut water sourced exclusively with sustainably grown coconuts from Thailand. On July 8, 2022, the Company entered into an agreement to license Saavy Naturals to Radiance Beauty and Wellness, Inc. ("Radiance Beauty"). In July 2023, management made the decision to exit the remaining body care brands, Soul Spring and ProVault, as a result of continued pressure on the CBD market due to regulatory uncertainty. Body care operations ceased as of September 30, 2023. In August 2019, the Company entered into a joint venture agreement with Legacy Ventures Hawaii, LLC (“Legacy,” see Note 6) 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. 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. In November 2020, Arcadia sold its membership interest in Verdeca to Bioceres in a transaction in which Arcadia received cash, shares of Bioceres stock and a royalty stream of up to $ 10.0 million on sales of Haab 4 soybeans (“HB4”). An additional $ 2.0 million in cash is to be paid to Arcadia upon Verdeca of achieving commercial plantings of at least 200,000 hectares of HB4 or China approving the HB4 soybean trait for “food and feed”. During 2022, Bioceres received China's approval of the HB4 soybean trait and as a result, Arcadia recorded license revenue of $ 862,000 and a gain on sale of Verdeca of $ 1.1 million on the consolidated statements of operations and comprehensive loss. The Company received the full payment of $ 2.0 million as of December 31, 2023. Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Reverse Stock Split In February 2023, the Company’s board of directors approved a reverse split of 40:1 on the Company’s issued and outstanding common stock. On F ebruary 15, 2023, the Company’s stockholders approved the certificate of amendment to the Company’s certificate of incorporation, which the Company filed on February 27, 2023 with the Secretary of State of Delaware to effect the reverse split on March 1, 2023. As a result of the reverse stock split, 19,118 additional shares of common stock were issued in lieu of fractional shares. All issued and outstanding common stock, options to purchase common stock and per share amounts contained in the consolidated financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented. 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, 2023, the Company had an accumulated deficit of $ 271.8 million, cash and cash equivalents of $ 6.5 million and short-term investments of $ 5.1 million. For the years ended December 31, 2023 and 2022, the Company had net losses of $ 14.0 million and $ 15.6 million, respectively, and net cash used in operations of $ 15.3 million and $ 14.0 million, respectively. The Company believes that its existing cash and cash equivalents and short-term investments 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 the Company requires 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 product launches. Any of these actions could materially harm the business, results of operations and financial condition. Discontinued Operations In July 2023, management made the decision to exit its body care brands as a result of continued pressure on the CBD market due to regulatory uncertainty. Body care operations ceased as of September 30, 2023. In accordance with the provisions of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the consolidated balance sheets and the results of the discontinued operations as a separate component of loss on the consolidated statements of operations and comprehensive loss for all periods presented. 40 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Major classes of line items constituting the balance sheet of discontinued operations: (In thousands) December 31, 2023 December 31, 2022 Assets Accounts receivable and other receivables $ — $ 66 Inventories, net — current — 250 Prepaid expenses and other current assets — 14 Property and equipment, net — 24 Total assets $ — $ 354 Liabilities Accounts payable and accrued expenses $ — $ 26 Total liabilities $ — $ 26 Major classes of line items constituting net loss from discontinued operations: Year Ended December 31, 2023 2022 (In thousands) Product revenue $ 357 $ 2,537 Cost of revenues ( 314 ) ( 3,700 ) Impairment of intangible assets — ( 263 ) Impairment of property and equipment — ( 371 ) Selling, general and administrative ( 864 ) ( 3,011 ) Other income, net — 24 Net loss from discontinued operations $ ( 821 ) $ ( 4,784 ) The following table presents significant non-cash items of discontinued operations: Year Ended December 31, (In thousands) 2023 2022 Depreciation $ 24 $ 88 Impairment of intangible assets $ — $ 263 Write-down of inventories $ — $ 1,369 Impairment of property and equipment $ — $ 371 Accounts receivable and other receivables $ 66 $ 588 Inventories $ 250 $ ( 251 ) Prepaid expenses and other current assets $ 14 $ 132 Accounts payable and accrued expenses $ ( 26 ) $ ( 415 ) There were no other significant operating or investing non-cash items for the years ended December 31, 2023 and 2022. 41 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of the Company 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 $ 5,000 and $ 236,000 is recorded as an adjustment to net loss to arrive at net loss attributable to common stockholders for the years ended December 31, 2023 and 2022, respectively. The non-controlling partner’s equity interests are presented as non-controlling interests on the consolidated balance sheets as of December 31, 2023 and 2022. Reclassifications Certain previously reported financial information has been reclassified to conform to the current year presentation. For a discussion of the reclassification of the financial presentation of our former body care brands reported as discontinued operations, see “Discontinued Operations” section above. Unless otherwise noted, amounts and disclosures throughout these notes to consolidated financial statements relate solely to continuing operations and exclude all discontinued operations. 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 revenue recognition, the provision for income taxes, net realizable value of inventory, and fair value of the preferred investment option and contingent liabilities. 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. 42 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Investments in debt and equity securities Investments in debt and equity securities are carried at fair value and classified as short-term investments. Unrealized gains and losses are included in accumulated other comprehensive income, which is reflected as a separate component of stockholder’s equity in the consolidated balance sheets. Gains and losses are recognized when realized 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, 2023 and 2022, there was no impairment of the Company’s investments. Accounts receivable and other receivables Accounts receivable represents amounts owed to the Company from product sales, licenses, and royalties. Other receivables represent amounts owed to the Company for miscellaneous non-trade activities including the sale of property and equipment. 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 $ 0 and $ 3,000 amounts reserved for doubtful accounts at December 31, 2023 and 2022, respectively, and the allowance activity during each of the years ended December 31, 2023 and 2022, was immaterial. Inventory Inventory costs are tracked on a lot-identified basis and are included as cost of 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. Zola Coconut water : Inventories mainly consist of coconut water imported from Thailand, freight-in, supplies, and labor. 43 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 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 products and Zola Coconut water. 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 products, seed and grain. Raw materials inventories consist primarily of GoodWheat seeds and in-transit Zola Coconut Water. Finished goods inventories consist primarily of GoodWheat products and Zola Coconut Water that are available for sale, as well as GoodWheat grain. 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. 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. 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 44 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 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, 2023 2022 Customer A — 57 Customer B 19 — Customers representing greater than 10% of total revenues were as follows (in percentages): For Year Ended December 31, 2023 2022 Customer B 10 — Customer C — 13 Customer D 15 — 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 12 for additional information. Amounts recognized in the consolidated statements of operations and comprehensive loss were as follows (in thousands): Year Ended December 31, 2023 2022 Research and development $ 3 $ 75 Selling, general and administrative 714 1,031 Total stock-based compensation $ 717 $ 1,106 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 45 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 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 and royalty fees. Product revenues Product revenues consist primarily of GoodWheat, Zola and GLA products. 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. The Company's 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 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 consist of amounts earned from the sale of commercial products that incorporate the Company's traits by third parties. Royalty revenues consist of a minimum annual royalty, offset by amounts earned from the sale of products. The Company recognizes the minimum annual royalty on a straight-line basis over the year, and the Company recognizes royalty revenue resulting from the sale of products when the third parties transfer control of the 46 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) product to their customers, which generally occurs upon shipment. Royalty revenues can fluctuate depending on the timing of shipments of product by the third parties to their customers. Unearned revenue The Company defers revenue to the extent that cash received in conjunction with a license agreement is not yet earned in accordance with the Company policies. Cost of revenues Cost of revenues primarily relates to the sale of GoodWheat and Zola 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 development and testing of the Company's products and other products in development incorporating the Company's traits. These expenses currently consist primarily of fees paid to product formulation consultants and are expensed as incurred. Additionally, the Company is required from time to time to make certain milestone payments in connection with the development of technologies in-licensed from third parties. The Company's research and development expenses may fluctuate from period to period. Change in the estimated fair value of common stock warrant and option liabilities Change in the estimated fair value of common stock warrant and option liabilities is comprised of the fair value remeasurement of liability classified common stock warrants and options. See Note 10. Note 3. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 adopted A SU No. 2016-13 on January 1, 2023 with an immaterial impact on the Company’s disclosures. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280) — Improvements to Reportable Segment Disclosures. The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The new guidance is effective retrospectively for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this update on our segment disclosures in Note 17. 47 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures. The amendments in this update require additional income tax disclosures primarily related to the rate reconciliation and income taxes paid. The new guidance is effective either prospectively or retrospectively, for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of this update on our income tax disclosures. Note 4. Inventory Inventory costs are tracked on a lot-identified basis and are included as cost of 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. The write-downs to inventory are included in cost of revenues and are based upon estimates about future demand from the Company’s customers and distributors and market conditions. The Company recorded inventory write-downs of $ 444,000 related to packaging materials, hemp seed and GoodWheat during the year ended December 31, 2023. The Company recorded write-downs of wheat, hemp seed and CBD oil inventories, as well as body care products of $ 2.5 million for the year ended December 31, 2022. Of inventory write-downs during the year ended December 31, 2022, $ 394,000 was related to the Radiance Beauty licensing agreement. If there are significant changes in demand and market conditions, substantial future write-downs of inventory may be required, which would materially increase the Company’s expenses in the period the write down is taken and materially affect the Company’s operating results. Inventories, net consist of the following (in thousands): December 31, 2023 December 31, 2022 Raw materials $ 484 $ 610 Goods in process 55 — Finished goods 4,773 2,478 Inventories $ 5,312 $ 3,088 Note 5. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): As of December 31, 2023 2022 Laboratory equipment $ 273 $ 679 Software and computer equipment 349 383 Machinery and equipment 440 450 Furniture and fixtures 39 83 Vehicles 202 306 Leasehold improvements 1,590 1,590 Property and equipment, gross 2,893 3,491 Less accumulated depreciation and amortization ( 2,509 ) ( 2,811 ) Property and equipment, net $ 384 $ 680 Depreciation expense was $ 287,000 and $ 439,000 for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2022, there was $ 10,000 of construction in progress included in property and equipment that had not been placed into service and was not subject to depreciation. As of December 31, 2023, there was no construction in progress included in property and equipment. 48 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Property and equipment are considered assets held for sale when management approves and commits to a plan to dispose of a property or group of properties. The property and equipment held for sale prior to the sale date is separately presented, within current assets, on the consolidated balance sheet as assets held for sale. Property and equipment related to Archipelago, in the amount of $ 51,000 and $ 87,000 have been classified as assets held for sale, and are recorded at fair value as of December 31, 2023 and 2022, respectively. The fair value has been estimated using publicly available prices for some of the assets, and business partners' estimates for assets with prices not readily available, due to the relatively small size of the industry in which they can be used. During the year ended December 31, 2023, the Company sold property and equipment and realized a gain on sale of $ 40,000 recorded on the consolidated statements of operations and comprehensive loss, with proceed s of $ 115,000 . During the year ended December 31, 2022, management initiated the sale of property and equipment related to the Davis laboratory, Archipelago and Body Care. The Company completed the sale of such property and equipment with a net gain on sale of property and equipment in the amount of $ 314,000 recorded on the consolidated statements of operations and comprehensive loss during the year ended December 31, 2022. The proceeds related to the sale of property and equipment during the year ended December 31, 2022 were $ 920,000 . During the year ended December 31, 2022, the Company recorded write-downs of property and equipment of $ 530,000 , of which $ 320,000 was related to the Radiance Beauty licensing agreement. There were no such write-downs of property and equipment during the year ended December 31, 2023. 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 gains and losses are included in accumulated other comprehensive income, which is reflected as a separate component of stockholder’s equity in the consolidated balance sheets. Gains and losses are recognized when realized 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 31, 2023 and 2022: (Dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value December 31, 2023 Cash equivalents: Money market funds $ 4,925 $ — $ — $ 4,925 Short-term investments: Treasury bills 5,023 101 — 5,124 Total Assets at Fair Value $ 9,948 $ 101 $ — $ 10,049 (Dollars in thousands) Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value December 31, 2022 Cash equivalents: Money market funds $ 18,620 $ — $ — $ 18,620 Total Assets at Fair Value $ 18,620 $ — $ — $ 18,620 49 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 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, 2023 and 2022. Fair Value Measurement The fair value of the investment securities at December 31, 2023 were as follows: Fair Value Measurements at December 31, 2023 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets at Fair Value Cash equivalents: Money market funds $ 4,925 $ — $ — $ 4,925 Short-term investments: Treasury bills 5,124 — — 5,124 Total Assets at Fair Value $ 10,049 $ — $ — $ 10,049 The fair value of the investment securities at December 31, 2022 were as follows: Fair Value Measurements at December 31, 2022 (Dollars in thousands) Level 1 Level 2 Level 3 Total Assets at Fair Value Cash equivalents: Money market funds $ 18,620 $ — $ — $ 18,620 Total Assets at Fair Value $ 18,620 $ — $ — $ 18,620 The Company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2023 or 2022. The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable and other receivables, accounts payable and accrued liabilities. For short-term investments, accounts receivable and other receivables, accounts payable and accrued liabilities, the carrying amounts of these financial instruments as of December 31, 2023 and December 31, 2022 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, Inc. ("Anawah") acquisition as described in Note 13, as well as preferred investment options related to the March 2023 Private Placement and August 2022 Registered Direct offerings discussed in Note 10. The contingent liability related to the Anawah acquisition was measured and recorded on a recurring basis as of December 31, 2023 and 2022, 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 preferred investment option liabilities were measured and recorded on a recurring basis using the Black-Scholes Model with the following assumptions at December 31, 2023 and 2022: March 2023 Options - Series A & March 2023 Placement Agent Options March 2023 Options - Series B August 2022 Options & August 2022 Placement Agent Options December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Remaining term (in years) 4.16 — 0.61 — 3.67 4.67 Expected volatility 91.7 % — 78.7 % — 90.5 % 106.2 % Risk-free interest rate 3.9 % — 5.2 % — 4.0 % 4.0 % Expected dividend yield 0 % — 0 % — 0 % 0 % 50 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 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) March 2023 Options - Series A March 2023 Options - Series B March 2023 Placement Agent Options August 2022 Options August 2022 Placement Agent Options Contingent Liabilities Total Balance as of December 31, 2022 $ — $ — $ — $ 767 $ 39 $ 2,000 $ 2,806 Initial recognition 4,324 2,274 212 — — — 6,810 Change in fair value and other adjustments ( 3,316 ) ( 2,233 ) ( 166 ) ( 608 ) ( 36 ) — ( 6,359 ) Balance as of December 31, 2023 $ 1,008 $ 41 $ 46 $ 159 $ 3 $ 2,000 $ 3,257 Assets classified as held for sale are recorded at fair value as of December 31, 2023 and 2022. The Company has classified the fair value measurements as a Level 3 measurement in the fair value hierarchy as the fair value has been estimated using publicly available prices for some of the assets, and business partners' estimates for assets with prices not readily available, due to the relatively small size of the industry in which they can be used. 51 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 7. Consolidated Joint Venture In 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, 2023, the Company and Legacy hold 50.75 % and 49.25 % interests in Archipelago, respectively, and have made capital contributions to Archipelago of $ 3.1 million and $ 3.0 million, 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 $ 5,000 and $ 236,000 was recorded as an adjustment to net loss to arrive at net loss attributable to common stockholders for the years ended December 31, 2023 and 2022, 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 8. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of the following (in thousands): As of December 31, 2023 2022 Accounts payable - trade $ 801 $ 905 Payroll and benefits 1,303 1,373 Inventory — 69 Royalty fees due to unrelated parties 4 6 Consulting — 8 Rent and utilities — 28 Audit and tax fees 218 99 Legal 40 69 Other 44 298 Total accounts payable and accrued expenses $ 2,410 $ 2,855 Note 9. 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. 52 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 10. Equity Financing March 2023 Private Placement In March 2023, the Company issued in a private placement offering (the “March 2023 Private Placement”) pursuant to a securities purchase agreement (“March 2023 Purchase Agreement”) (i) 165,500 shares of its common stock, (ii) pre-funded common stock purchase warrants (the “March 2023 Pre-Funded Warrants”) to purchase up to 500,834 shares of common stock, at an exercise price of $ 0.0001 per share, (iii) Series A preferred investment options (the “March 2023 Options - Series A") to purchase up to a total of 666,334 shares of common stock, at an exercise price of $ 9.00 per share, and (iv) Series B preferred investment options (the “March 2023 Options - Series B”, and together with the March 2023 Options - Series A, the "March 2023 Options") to purchase up to a total of 666,334 shares of common stock, at an exercise price of $ 9.00 per share, and raised total gross proceeds of $ 6.0 million. The March 2023 Private Placement closed on March 6, 2023. The March 2023 Pre-Funded Warrants became exercisable upon issuance and are exercisable until exercised in full. The March 2023 Options - Series A are exercisable at any time at the option of the holder and expire 5 years from the date of issuance. The March 2023 Options - Series B are exercisable at any time at the option of the holder and expire 1.5 years from the date of issuance. During the year ended December 31, 2023, 425,834 Pre-Funded Warrants were exercised. In connection with the March 2023 Private Placement, the Company entered into preferred investment option amendment agreements (the “Option Amendment Agreements”) with certain investors. Under the Option Amendment Agreements, the Company agreed to amend certain existing warrants and preferred investment options to purchase up to a total of 178,132 shares of common stock that were previously issued to the investors in September 2019, May 2020, July 2020, December 2020, January 2021 and August 2022, with exercise prices of $ 300.80 , $ 191.00 , $ 154.00 , $ 120.00 , $ 125.20 and $ 37.35 per share, respectively (the “Existing Warrants”). Under the Option Amendment Agreements, the Company agreed to lower the exercise price of the Existing Warrants to $ 9.00 per share. In addition, the Company granted to a placement agent preferred investment options to purchase a total of 33,317 shares of Common Stock (the “March 2023 Placement Agent Options”) that have an exercise price per share equal to $ 11.25 and a term of 5 years from the date of issuance. The re-pricing of the Existing Warrants resulted in an increase in fair value of $ 404,000 , of which $ 185,000 of the increase in fair value was related to the August 2022 liability classified options. The increase in fair value related to the re-pricing of Existing Warrants was recognized in Valuation Loss on March 2023 PIPE on the consolidated statements of operations and comprehensive loss. The March 2023 Options and March 2023 Placement Agent Options are classified as liabilities within Level 3 due to certain early settlement provisions that preclude them from equity classification. The Company utilized the Black-Scholes Model on March 6, 2023 with the following assumptions for the Series A Investment Options: volatility of 128.55 %, stock price of $ 7.61 and risk-free rate of 4.27 %. The following assumptions were utilized for the Series B Investment Options: volatility of 103.33 %, stock price of $ 7.61 and risk-free rate of 4.97 %. The estimated fair value of the liability classified March 2023 Options issued was $ 6.6 million. The estimated fair value of the common stock option liabilities was subsequently remeasured at December 31, 2023 with the changes recorded on the Company’s consolidated statements of operations and comprehensive loss. The estimated fair value of the common stock issued and March 2023 Pre-Funded Warrants was $ 5.1 million. The total estimated fair value of the common stock issued, March 2023 Pre-Funded Warrants and March 2023 Options as of March 6, 2023 exceeded the gross proceeds of the March 2023 Private Placement by $ 5.7 million and this amount was recognized in Valuation Loss on March 2023 PIPE on the consolidated statements of operations and comprehensive loss. The March 2023 Placement Agent Options were issued for services performed by the placement agent as part of the March 2023 Private Placement and were treated as offering costs. The value of the March 2023 Placement Agent Options was determined to be $ 212,000 , calculated using the Black-Scholes Model. The Company incurred additional offering costs totaling $ 548,000 that consist of direct incremental legal, advisory, accounting and filing fees relating to the March 2023 Private Placement. A total of $ 430,000 was allocated to the common stock option liabilities and expensed while the remaining $ 330,000 was allocated to the common stock and March 2023 Pre-Funded Warrants and offset to additional paid in capital. August 2022 Registered Direct Offering 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 (“2018 Shelf Registration Statement”). On April 21, 2022, the Company filed a shelf 53 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Registration Statement on Form S-3 with the SEC which was declared effective on May 12, 2022 (“2022 Shelf Registration Statement”). Each of the 2018 Shelf Registration Statement and the 2022 Shelf Registration Statement 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 $ 50.0 million. The Company ceased being able to use the 2018 Shelf Registration Statement after June 8, 2021, the three-year anniversary of its effective date. The 2022 Shelf Registration Statement may no longer be used after May 12, 2025, the three-year anniversary of its effective date. In August 2022, the Company entered into a securities purchase agreement (the “August 2022 Purchase Agreement”) pursuant to which it sold (i) 61,250 registered shares of its common stock, pursuant to the 2022 Shelf Registration Statement, (ii) pre-funded common stock purchase warrants (the “August 2022 Pre-Funded Warrants”) to purchase up to 56,813 shares of common stock, at an exercise price of $ 0.004 per share, which the August 2022 Pre-Funded Warrants were registered under the 2022 Shelf Registration Statement, and (iii) unregistered preferred investment options (the "August 2022 Options") to purchase up to 118,063 shares of common stock, at an exercise price of $ 37.35 per share, for total gross proceeds of $ 5.0 million (the “August 2022 Registered Direct Offering”). The August 2022 Registered Direct Offering closed on August 16, 2022 . The August 2022 Pre-Funded Warrants became exercisable upon issuance and were fully exercised during the year ended December 31, 2023. The August 2022 Options became exercisable upon issuance and expire 5 years after the date of issuance. In connection with the August 2022 Registered Direct Offering, the Company granted to a placement agent preferred investment options ("August 2022 Placement Agent Options") to purchase a total of 5,904 shares of common stock that have an exercise price per share equal to $ 52.80 and a term of five years . The August 2022 Options and August 2022 Placement Agent Options are classified as liabilities within Level 3 due to certain early settlement provisions that preclude them from equity classification. The Company utilized the Black-Scholes Model on August 16, 2022 with the following assumptions: volatility of 128.46 %, stock price of $ 37.60 , risk-free rate of 2.97 % and a term of 5 years. The estimated fair value of the common stock option liabilities was subsequently remeasured at December 31, 2023 with the changes recorded on the Company’s consolidated statements of operations and comprehensive loss. The August 2022 Placement Agent Options were issued for services performed by the placement agent as part of the August 2022 Registered Direct Offering and were treated as offering costs. The value of the August 2022 Placement Agent Options was determined to be $ 191,000 , calculated using the Black-Scholes Model. The Company incurred additional offering costs totaling $ 488,000 that consist of direct incremental legal, advisory, accounting and filing fees relating to the August 2022 Registered Direct Offering. The offering costs, inclusive of the August 2022 Placement Agent Options, totaled $ 679,000 and were allocated to the common stock option liabilities, the common stock and August 2022 Pre-Funded Warrants using their relative fair values. A total of $ 314,000 was allocated to the common stock option liabilities and expensed while the remaining $ 365,000 was allocated to the common stock and August 2022 Pre-Funded Warrants and offset to additional paid in capital. 54 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 11. Warrants and Options Equity Classified Common Stock Warrants The Company issued the following warrants to purchase shares of its common stock, which are outstanding as of December 31, 2023 and 2022, respectively. These warrants are exercisable any time at the option of the holder until their expiration date. Issuance Date Term Exercise Price Per Share Exercised during the Year Ended December 31, 2022 Outstanding at December 31, 2022 Exercised during the Year Ended December 31, 2023 Outstanding at December 31, 2023 March 2023 Pre-Funded Warrants March 2023 perpetual $ — — — ( 425,834 ) 75,000 December 2022 Service and Performance Warrants (1) December 2022 5 years $ 11.20 — 1,000 — 1,000 October 2022 Service and Performance Warrants (1) October 2022 5 years $ 16.00 — 1,000 — 1,000 August 2022 Pre-Funded Warrants August 2022 perpetual $ — — 56,813 ( 56,813 ) — January 2021 Placement Agent Warrants January 2021 5.5 years $ 159.60 — 9,846 — 9,846 January 2021 Service and Performance Warrants (1)(3) January 2021 2 years $ 123.20 — 188 — — December 2020 Warrants (4) December 2020 5.5 years $ 9.0 0 — 16,367 — 16,367 December 2020 Warrants December 2020 5.5 years $ 120.00 — 49,100 — 49,100 December 2020 Placement Agent Warrants December 2020 5 years $ 152.80 — 3,274 — 3,274 July 2020 Warrants (4) July 2020 5.5 years $ 9.00 — 16,036 — 16,036 July 2020 Placement Agent Warrants July 2020 5.5 years $ 198.80 — 802 — 802 May 2020 Warrants (4) May 2020 5 years $ 9.00 — 9,946 — 9,946 May 2020 Warrants May 2020 5 years $ 191.20 — 24,863 — 24,863 May 2020 Placement Agent Warrants May 2020 5 years $ 245.20 — 1,741 — 1,741 March 2020 Service and Performance Warrants (1)(3) March 2020 3 years $ 100.00 — 459 — — September 2019 Placement Agent Warrants September 2019 5 years $ 379.20 — 1,649 — 1,649 June 2019 Placement Agent Warrants June 2019 5 years $ 251.60 — 1,862 — 1,862 April 2019 Service and Performance Warrants (1) April 2019 5 years $ 247.20 — 3,629 — 3,629 June 2018 Placement Agent Warrants (3) June 2018 5 years $ 502.80 — 1,741 — — March 2018 Placement Agent Warrants (3) March 2018 5 years $ 1,662.40 — 376 — — January 2021 Warrants (2)(4) January 2021 5.5 years $ 9.00 — 7,831 — 7,831 January 2021 Warrants (2) January 2021 5.5 years $ 125.20 — 90,629 — 90,629 September 2019 Warrants (2)(4) September 2019 5.5 years $ 9.00 — 9,892 — 9,892 September 2019 Warrants (2) September 2019 5.5 years $ 300.80 — 6,594 — 6,594 June 2019 Warrants (2) June 2019 5.5 years $ 200.00 — 10,896 — 10,896 March 2018 Warrants (2)(3) March 2018 5 years $ 429.20 — 16,036 — — Total — 342,570 ( 482,647 ) 341,957 (1) The Company issued service and performance warrants (“Service and Performance Warrants”) in connection with professional services agreements with non-affiliated third party entities. (2) Certain warrants contain a contingent cash payment feature and therefore were accounted for as a liability at the date of issuance and were adjusted to fair value at each balance sheet date. Upon adoption of ASU No. 2020-06 on January 1, 2022, all of the common stock warrant liabilities have been reclassified to equity classified common stock warrants, due to the elimination of the contingent cash payments as criteria for liability classification. (3) These warrants expired in the during the year ended December 31, 2023 . (4) These warrants were repriced as part of the March 2023 Private Placement offering. 55 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Liability Classified Preferred Investment Options The preferred investment options issued in connection with the March 2023 Private Placement and August 2022 Registered Direct offerings contain certain early settlement provisions that preclude them from equity classification and therefore were accounted for as liabilities at the date of issuance and are adjusted to fair value at each balance sheet date. The change in fair value of the options liabilities is recorded as change in fair value of common stock warrant and option liabilities in the consolidated statements of operations and comprehensive loss. The key terms and activity of the liability classified preferred investment options are summarized as follows: Issuance Date Term Exercise Price Per Share Exercised during the Year Ended December 31, 2022 Outstanding at December 31, 2022 Exercised during the Year Ended December 31, 2023 Outstanding at December 31, 2023 March 2023 Options - Series A March 2023 5 years $ 9.00 — — — 666,334 March 2023 Options - Series B March 2023 1.5 years $ 9.00 — — — 666,334 March 2023 Placement Agent Options March 2023 5 years $ 11.25 — — — 33,317 August 2022 Options (1) August 2022 5 years $ 9.00 — 118,063 — 118,063 August 2022 Placement Agent Options August 2022 5 years $ 52.80 — 5,904 — 5,904 Total — 123,967 — 1,489,952 See Note 6 for the Black-Scholes option-pricing model and weighted-average assumptions used to estimate the fair value of the preferred investment options liabilities. Note 12. 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 3,860 shares of common stock reserved for future issuance, which included 259 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, there might be alternative vesting schedules, as approved by the Board. 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 3,000 shares. On February 2, 2022, Stanley Jacot, Jr. was hired as the new president and chief executive officer of the Company. The Company granted Mr. Jacot an inducement stock option to purchase 7,902 shares of the Company’s common stock pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. The Company has filed a registration statement on Form S-8 to register the 56 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) issuance of shares upon exercise of this inducement stock option. The inducement options grants have been issued outside of the 2015 Plan, but are subject to the terms and conditions of the 2015 Plan. As of December 31, 2023, a total of 86,835 shares of common stock were reserved for issuance under the 2015 Plan, of which 15,226 shares of common stock are available for future grant. As of December 31, 2023, a total of 102 and 71,609 options were outstanding under the 2006 and 2015 Plans, respectively. As of December 31, 2022, a total of 103 and 51,421 options were outstanding under the 2006 and 2015 Plans, respectively. A total of 8,366 and 8,477 inducement options were outstanding as of December 31, 2023 and 2022, respectively. 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, 2021 35,554 $ 211.20 $ — Options granted 33,408 44.00 11,880 Options exercised — — — Options forfeited ( 6,658 ) 91.60 — Options expired ( 2,302 ) 644.80 — Outstanding — Balance at December 31, 2022 60,002 114.80 — Options granted 26,021 6.38 — Options exercised — — — Options forfeited ( 5,644 ) 29.58 39,062 Options expired ( 301 ) 121.05 — Outstanding — Balance at December 31, 2023 80,078 85.30 — Vested and expected to vest — December 31, 2023 74,608 89.85 — Exercisable —December 31, 2023 41,735 $ 139.82 $ — 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 its Board of Directors for each of the respective periods. As of December 31, 2023, there was $ 623,000 of unrecognized compensation cost related to unvested stock-based compensation grants that will be recognized over the weighted-average remaining recognition period of 2.1 years. 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. The fair value of stock option awards was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumption: 57 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Year Ended December 31, Assumptions 2023 2022 Expected term (years) 7.06 6.40 Expected volatility 124 % 122 % Risk-free interest rate 3.61 % 2.61 % Expected dividend yield — — The weighted-average, estimated grant date fair value of employee stock options granted during the years ended December 31, 2023 and 2022 was $ 5.72 and $ 38.50 , respectively. The Company recognized $ 717,000 and $ 1.1 million of compensation expense for stock options awards for the years ended December 31, 2023 and 2022, 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, 2023 , the number of shares of common stock reserved for future issuance under the ESPP were 7,265 . The ESPP provides for automatic annual increases in the shares available for purchase beginning on January 1, 2016. As of December 31, 2023 , 3,468 shares had been issued under the ESPP. The Company recorded $6 ,000 and $ 4,000 of ESPP related compensation expense for the years ended December 31, 2023 and 2022 , respectively. 58 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 13. Commitments and Contingencies Leases The Company leases office and laboratory 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. See Note 14. 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 In June 2005 , the Company completed its agreement and plan of merger and reorganization with 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. During 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 2016, one of the programs previously accrued for was abandoned and another program previously abandoned was reactivated. During 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, 2023, the Company continues to pursue or are otherwise liable for 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. Contingent Liability Related to the ISI Acquisition In August 2020, the Company acquired by merger ISI. A portion of the purchase price consideration for the acquisition in the amount of $ 280,000 was to be recognized in two annual installments, each of up to 3,316 shares of the Company’s common stock, subject to the achievement of revenue milestones in 2021 and 2022. The contingent consideration was measured and recorded at fair value. The contingent consideration liability was remeasured quarterly with changes in fair value recorded in the consolidated statements of operations and comprehensive loss. During 2022, the contingent consideration liability was fully written down as the probability of achievement of the 2022 revenue milestone was remote. 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. 59 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) 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 14. Leases Operating Leases As of December 31, 2023, the Company leases office space in Dallas, Texas, Davis and Sacramento, California, 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 the Davis office to third parties. In 2022, the Company terminated its lease for office space in Chesterfield, MO effective September 30, 2022. The original lease term was scheduled to expire in May 2024 . As a result, the Company paid $ 47,000 in early termination fees. In addition, the Company subleased the facility in Chatsworth, CA to Radiance Beauty as part of the licensing agreement beginning November 1, 2022 for the remainder of the lease term. During 2022, the Company entered into an agreement to lease office space in Dallas, Texas. The new lease commenced in July 2022. Some leases (the Dallas and Davis offices and a warehouse) 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. 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, 2023 December 31, 2022 Assets Operating lease assets Right of use asset $ 792 $ 1,848 Total leased assets $ 792 $ 1,848 Liabilities Current - Operating Operating lease liability - current $ 852 $ 1,010 Noncurrent - Operating Operating lease liability - noncurrent 155 1,007 Total leased liabilities $ 1,007 $ 2,017 60 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Lease Cost Classification For the Year Ended December 31, 2023 For the Year Ended December 31, 2022 Operating lease cost SG&A and R&D Expenses $ 763 $ 1,028 Short term lease cost SG&A and R&D Expenses 13 6 Sublease income (1) SG&A and R&D Expenses ( 450 ) ( 384 ) Net lease cost $ 326 $ 650 (1) Sublease income is recorded as a reduction to lease expense. Lease Term and Discount Rate December 31, 2023 December 31, 2022 Weighted-average remaining lease term (years) 2.3 2.4 Weighted-average discount rate 6 % 6 % The maturities of the operating lease liabilities as of December 31, 2023 are as follows (in thousands): Years Ending December 31, Amounts 2024 $ 886 2025 156 Total operating lease payments $ 1,042 Less: imputed interest 35 Total current and noncurrent operating lease liabilities $ 1,007 Note 15. Income Taxes The components of loss before income taxes are as follows (in thousands): Year Ended December 31, 2023 2022 Domestic $ ( 13,978 ) $ ( 15,598 ) Foreign — — Loss before income taxes $ ( 13,978 ) $ ( 15,598 ) 61 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) The total income tax provision for the years ended December 31, 2023 and 2022 was expense of $ 8,000 and $ 14,000 , 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, 2023 2022 Current: Federal $ — $ — State ( 7 ) ( 13 ) Foreign ( 1 ) ( 1 ) Total current tax (expense) ( 8 ) ( 14 ) Deferred: Federal — — State — — Foreign — — Total deferred tax (expense) — — Total tax (expense) $ ( 8 ) $ ( 14 ) 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, 2023 2022 Expected income tax provision at the federal statutory rate 21.0 % 21.0 % State taxes, net of federal benefits 5.0 % 16.0 % Change in valuation allowance ( 26.6 )% ( 40.9 )% Derivative liability 9.8 % 4.1 % PIPE Transactions ( 9.8 )% — Contingent Consideration Release — 0.1 % Non-controlling interest — ( 0.3 )% Other 0.5 % ( 0.1 )% Income tax provision ( 0.1 )% ( 0.1 )% 62 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, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 23,160 $ 19,654 Stock-based compensation 4,654 4,541 Accrued payroll and benefits 342 296 Research and development credits 16 16 Fixed asset basis difference 87 54 Inventory reserve 102 445 Charitable contributions 3 2 Income from partnerships 231 97 Lease liability 261 531 Other accounts receivable reserve 147 65 Amortized intangibles 755 819 Goodwill 358 393 Section 174 Capitalization 583 340 Total deferred tax assets 30,699 27,253 Deferred tax liabilities: Right of use asset ( 205 ) ( 486 ) Total deferred tax liabilities ( 205 ) ( 486 ) Less valuation allowance ( 30,494 ) ( 26,767 ) 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 increased by $ 3.7 million and $ 6.3 million during the years ended December 31, 2023 and 2022, respectively. At December 31, 2023 , the Company had federal and state NOLs aggregating approximately $ 94.1 million and $ 60.4 million, respectively. At December 31, 2023, 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 $ 230.5 million of federal NOLs available, approximately $ 136.4 million are expected to expire unutilized due to ownership changes as defined in IRC Section 382. If not utilized, the federal and state NOLs will begin to expire in 2024. IRC Section 382 may also limit NOLs generated after 2022 and in future years. 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 incurred through the year ended December 31, 2023 . 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. 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 63 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) subject to taxation in the United States and various state jurisdictions. As of December 31, 2023 , the Company’s tax years for 2004 through 2022 are generally subject to examination by the tax authorities. The years are open back to 2004 to the extent the NOLs being carried forward were generated then. The Company had the following unrecognized tax benefits (in thousands), none of which, if recognized, would impact the Company’s effective tax rate: Year Ended December 31, 2023 2022 Unrecognized tax benefit beginning balance $ 16 $ 17 Increases for tax positions taken in prior years — — Decreases for tax positions taken in prior years — ( 1 ) Increases for tax positions taken in current years — — Settlements — — Unrecognized tax benefit ending balance $ 16 $ 16 The Company does not anticipate its total unrecognized tax benefits as of December 31, 2023 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. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in the provision for income taxes. As of December 31, 2023, the Company has no t recognized any interest and penalties related to uncertain tax positions. In February 2023, the Company received notification from the Internal Revenue Service that our Archipelago joint venture was selected for audit for the 2021 tax year. The Company received a preliminary summary of examination changes during November 2023, is currently awaiting the Notice of Proposed Partnership Adjustment, and plans to accept the adjustments. Accordingly, the Company has adjusted the tax disclosures to capture the anticipated impact of the proposed adjustments. The Company is currently not under audit for state purposes. 64 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 16. 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, 2023 and 2022 . Note 17. 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, 2023 2022 United States $ 5,032 $ 6,298 Argentina — 862 India 7 7 Canada 291 194 Germany — 57 Total $ 5,330 $ 7,418 Note 18. 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, warrants and options. 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. Dilutive securities are not included in the computation of net loss per share when the impact would 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, 2023 2022 Options to purchase common stock 80,078 60,002 Warrants to purchase common stock 266,957 285,757 Preferred investment options 1,489,952 123,967 Total 1,836,987 469,726 65 Table of Contents Arcadia Biosciences, Inc. Notes to Consolidated Financial Statements. (Continued) Note 19. 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, one of the Company’s largest stockholders, and the JSF share common officers and directors. 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 $ 58,000 and $ 48,000 as of December 31, 2023 and December 31, 2022 , respectively, and are included in the consolidated balance sheets as amounts due to related parties. Note 20. Subsequent Events Management has evaluated subsequent events through March 28, 2024, the date that the financial statements were available to be issued. 66 Table of Contents Item 9. Changes in and Disagreements With Accou ntants on Accounting and Financial Disclosure. None.