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Arcadia Biosciences(RKDA) - 2020 Q4 - Annual Report

PART I Item 1. Business Arcadia Biosciences, Inc. leads in science-based crop improvements for wheat, soy, and hemp, commercializing innovations like GoodWheat™ and GoodHemp™ through sales, licensing, and royalties to enhance farm economics and product value Overview - Arcadia Biosciences specializes in developing high-value crop improvements for wheat, soy, and hemp, aiming to enhance farm economics and product value in food, health, and industrial applications19 - The company's commercial strategy focuses on meeting consumer nutrition, health, and wellness demands by delivering superior functional benefits directly from the farm, building a portfolio of high-value traits and varieties20 - The global wheat flour market was valued at $181 billion in 2019 and is projected to reach $220 billion by 2027, with wheat accounting for approximately one-quarter of FDA recommended calories in the U.S., indicating significant market opportunity for nutritional improvements21 - The legalization of hemp in the U.S. (2018 Farm Bill) has created a substantial agricultural and financial opportunity, with U.S. consumer spending on CBD projected to grow from $14 billion in 2020 to $26 billion by 2025222324 Arcadia GoodWheat™ - Arcadia launched its GoodWheat brand in 2018, offering a non-genetically modified (non-GM) portfolio of wheat products designed to provide superior functional benefits and meet consumer demand for healthier, 'clean label' ingredients26 - The GoodWheat brand includes high fiber Resistant Starch (RS) and Reduced Gluten wheat varieties, with new patents granted in 2019 for extended shelf life wheat, and over 15 global patents protecting its high fiber Resistant Starch wheat portfolio by 20202728 - An agreement with Bay State Milling Company and Arista Cereal Technologies was announced in August 2019 to commercialize resistant starch GoodWheat in North America and other key markets, starting in late 201929 Arcadia GoodHemp™ - Arcadia launched GoodHemp in December 2019 as its commercial brand for hemp seeds, transplants, flower, and extracts, aiming to provide genetically superior, federally compliant hemp varieties30 - The acquisition of Industrial Seed Innovations (ISI) in August 2020 added strong-performing hemp varieties like Umpqua and Rogue to Arcadia's GoodHemp catalog, with new commercial varieties expected annually30 - The U.S. hemp-based CBD market is projected to reach $16.8 billion by 2025, and the non-cannabinoid industrial hemp global market is estimated to exceed $26 billion by 2025, indicating significant growth potential for GoodHemp3132 Verdeca HB4® Soybean - Arcadia formed Verdeca LLC in 2012 with Bioceres, Inc. to develop next-generation soybean traits, including HB4® varieties that offer drought and herbicide tolerance33 - In November 2020, Arcadia sold its membership interest in Verdeca to Bioceres, receiving cash, shares of Bioceres stock, and a royalty stream of up to $10 million on HB4 soybean sales, plus an additional $2 million upon specific regulatory or commercial milestones34 Our Growth Strategy - Arcadia's growth strategy includes scaling GoodHemp seed sales and developing novel genetics, accelerating the commercialization of its health and nutrition trait portfolio (GoodWheat), and evaluating acquisitive growth opportunities for vertical integration35 - The company aims to invest in human resources and commercialization capabilities to become more consumer-facing and aligned with consumer food companies, refining its go-to-market and branding strategies35 Our Products and Product Development Pipeline - Arcadia leverages advanced plant breeding technologies and a research and development team with over 100 years of combined experience to improve plant-based ingredients' quality and nutritional value36 GoodWheat - GoodWheat aims to redesign wheat as a functional food, offering health benefits like increased dietary fiber and reduced glycemic index through high amylose content, important for diabetes management and healthy blood glucose levels37 - The company has programs to improve whole wheat flavor and shelf-life (in collaboration with Ardent Mills) and to reduce gluten while improving protein quality and amino acid profiles, all using non-GM TILLING platform384245 - High fiber resistant starch (RS) wheat flour has 12 to 20 times higher resistant starch and over eight times higher total dietary fiber than control wheat, performing comparably in bread and receiving high consumer preference in pasta40 - Arcadia's reduced gluten (RG) wheat variety also delivers impressively high fiber content (approx. 14 grams per serving) compared to traditional wheat (2-3 grams), providing additional value to health-conscious consumers45 Innovative hemp varieties - GoodHemp offers superior non-GMO hemp seed varieties like Umpqua (early maturing, CBD dominant) and Rogue (later maturing, ultra-high yielding) that improve plant quality and productivity while complying with federal low THC guidelines4647 - In February 2021, four GoodHemp varieties (Umpqua, Rogue, Santiam, Potomac) received AOSCA approval, validating their distinct, uniform, and genetically stable characteristics, enabling export to Canada48 Nutritional Oils - Arcadia developed a GLA safflower oil product with 65% GLA, the highest concentration in any plant oil, which is sold to manufacturers of dietary supplements, nutritional supplements, medical foods, and dog food in the U.S. and Canada49 - In November 2020, Arcadia extended an exclusive license for future GLA production and sales to Bioceres as part of a series of transactions49 Joint Ventures - Arcadia formed Verdeca LLC in 2012 with Bioceres to develop next-generation soybean traits, but sold its 50% membership interest to Bioceres in November 2020 for cash, stock, and a royalty stream51 - In August 2019, Arcadia formed Archipelago Ventures Hawaii, LLC with Legacy Ventures Hawaii to serve the Hawaiian, North American, and Asian hemp markets, creating a vertically integrated supply chain from seed to sale5254 Research and Development - Arcadia is shifting its R&D focus from new trait discovery to food-science innovation to leverage its existing superior wheat and hemp genetics for new food and wellness ingredients555657 - The company's R&D capabilities include controlled plant growth facilities for precise conditions, molecular analysis for rapid trait deployment, and extensive field trial operations across multiple U.S. states and globally585961 - The Analytical Services and Regulatory Science group provides data for product selection, validation, certification, and regulatory submissions, supporting both internal and collaborator products63 Intellectual Property - As of December 31, 2020, Arcadia owned or exclusively controlled 109 issued patents and 61 pending patent applications worldwide, including 24 U.S. issued patents and 10 U.S. patent applications66 - The company also held eight registered trademarks in the United States and six in other countries67 Key Collaborations - Arcadia collaborates with industry leaders like Ardent Mills to develop and commercialize wheat innovations, focusing on extending shelf life and improving the flavor of whole wheat products using non-GM trait technology69707172 - A strategic collaboration with Corteva Agriscience aims to jointly develop and commercialize an improved wheat quality trait in North America, leveraging Arcadia's TILLING platform and Corteva's germplasm and commercial channels7374 - Bay State Milling Company became the exclusive commercial partner for Arcadia's high fiber wheat in North America under its HealthSense™ brand portfolio, while Arista Cereal Technologies received exclusive rights in Australia and Europe75 Competition - Arcadia faces intense competition in seed traits and agricultural biotechnology from specialty health and nutrition ingredient companies (e.g., Calyxt), large agricultural biotechnology, seed, and chemical companies (e.g., Corteva, Syngenta, Bayer), and other trait research and development companies767778 - In the hemp market, competitors include producers of feminized hemp seed such as Oregon CBD and Front Range Biosciences. For GoodWheat products, the company competes with consumer-packaged goods companies like Barilla and Banza in pasta and flour markets84 Employees - As of December 31, 2020, Arcadia had 58 full-time employees, including 11 dedicated to research and development, with four holding doctorate degrees8081 - Research and development expenses were $8.0 million in 2020 and $7.1 million in 2019, reflecting substantial investments in R&D80 Facilities - Arcadia's corporate headquarters in Davis, California, comprises 21,480 square feet for R&D, operations, commercial activities, and administration, under a lease expiring March 31, 203082 - Additional facilities include administrative offices in Phoenix, Arizona, and leased greenhouse space and farmland in Northern California, Oregon, Southern California, Idaho, and Hawaii for agricultural use82 - Arcadia Biosciences focuses on science-based crop improvements in wheat, soy, and hemp to enhance farm economics and product value, commercializing through various sales and licensing models193135 - The global wheat flour market was $181 billion in 2019, projected to reach $220 billion by 2027, presenting a significant opportunity for nutritional improvements like Arcadia's GoodWheat™21 - The U.S. consumer spending on CBD is projected to grow from $14 billion in 2020 to $26 billion in 2025, with the non-cannabinoid industrial hemp global market estimated to exceed $26 billion by 2025, highlighting the market opportunity for GoodHemp™2431 - In November 2020, Arcadia sold its membership interest in Verdeca to Bioceres, receiving cash, Bioceres stock, and a royalty stream of up to $10 million on HB4 soybean sales, plus an additional $2 million upon specific milestones3451 - Arcadia's growth strategy includes scaling GoodHemp seed sales and introducing novel genetics, accelerating the commercialization of its health and nutrition trait portfolio (GoodWheat), and evaluating acquisitive growth opportunities for vertical integration35 - The company holds over 15 global patents on its high fiber Resistant Starch wheat and has eight registered trademarks in the U.S. and six internationally, protecting its intellectual property286667 - As of December 31, 2020, Arcadia had 58 full-time employees, with 11 dedicated to research and development, and incurred R&D expenses of $8.0 million in 2020, up from $7.1 million in 20198081 Item 1A. Risk Factors Arcadia Biosciences faces significant risks across its hemp business, general operations, and common stock ownership, including complex regulations, a history of losses, intense competition, reliance on third parties, intellectual property uncertainties, and stock price volatility Risks Related to Our Hemp Business - Arcadia's hemp business is subject to a complex and evolving regulatory landscape, including federal and state laws governing production, monitoring, manufacturing, distribution, and testing for THC levels8687 - The USDA's Final Rule for hemp cultivation mandates disposal of 'hot' crops exceeding 0.3% THC, for which Arcadia would be responsible for disposal costs, potentially significant if many acres test positive91 - The legal hemp and cannabis industry has limited operating history, making it difficult to accurately assess future growth prospects due to factors like competition, market price fluctuations, and regulatory changes9296 - Negative public perception or confusion between legal hemp and federally illegal cannabis could adversely affect Arcadia's business, financial condition, and relationships with partners95 Risks Related to Our Business and Our Other Industries - Unfavorable global economic or political conditions, such as the COVID-19 pandemic, could disrupt business operations, hinder customer engagement, and impact the ability to raise capital97 - Arcadia has a history of significant net losses ($6.0 million in 2020, $28.9 million in 2019) and expects to continue incurring losses, with an accumulated deficit of $211.8 million as of December 31, 2020100 - The company may require additional financing and may not obtain it on favorable terms, potentially forcing delays or reductions in R&D activities and commercialization efforts102 - Competition in traits and seeds is intense and requires continuous technological development; failure to compete effectively could lead to price reductions, reduced margins, and inability to achieve market acceptance104 - Reliance on third parties for field trials and commercial production, as well as potential disagreements with collaborators, could lead to delays, increased costs, or rejection of data by regulatory agencies106108111 - The regulatory environment outside the United States for gene-editing and TILLING technology is uncertain and varies greatly, potentially limiting global market expansion118 - Ownership of Bioceres Crop Solutions Corp. (BIOX) shares could subject Arcadia to regulation under the Investment Company Act of 1940 if the value of these shares exceeds 40% of total assets, potentially forcing unfavorable disposal of shares130131 Risks Related to Ownership of Our Common Stock - Sales of a substantial number of Arcadia's common stock in the public market, or the perception of such sales, could cause the stock price to decline and impair the ability to raise capital151 - The market price of Arcadia's common stock has been volatile, ranging from $2.30 to $176.00 since its IPO in May 2015, and is subject to wide fluctuations due to various factors beyond operating performance154155 - Quarterly operating results are expected to vary significantly and unpredictably due to factors like customer concentration, timing of development activities, seasonality, and fixed costs, leading to potential stock price fluctuations156158160 - Arcadia does not anticipate paying any dividends for the foreseeable future, meaning investors may need to sell their stock to realize a return on investment161 - Arcadia's hemp business is subject to broad and evolving federal and state laws, including USDA mandates for testing and disposal of 'hot' crops exceeding 0.3% THC, which could incur significant costs868791 - The legal hemp and cannabis industry has limited operating history, making future growth prospects difficult to assess due to factors like competition, market price fluctuations, regulatory changes, and consumer behavior9296 - Arcadia has a history of significant net losses ($6.0 million in 2020, $28.9 million in 2019) and expects this to continue, potentially requiring additional financing which could dilute existing stockholders or impose restrictive debt covenants100102 - The company faces intense competition in seed traits and agricultural biotechnology, with larger competitors having substantially greater financial, marketing, R&D, and regulatory resources104 - Reliance on third parties for field trials and commercial production, as well as potential disagreements with collaborators over intellectual property and payments, could delay or prevent product commercialization106108111 - The value of Arcadia's common stock has been volatile, ranging from $2.30 to $176.00 through December 31, 2020, and is subject to fluctuations based on various internal and external factors154155 Item 1B. Unresolved Staff Comments This item is not applicable to the company - Not applicable162 Item 2. Properties Arcadia's corporate headquarters in Davis, California, encompasses 21,480 square feet for R&D, operations, and administration, leased until March 31, 2030. Additional administrative offices are in Phoenix, Arizona, and the company leases greenhouse space and farmland in various locations for agricultural use. Management believes current leased facilities are adequate and suitable alternatives would be available if needed - Corporate headquarters in Davis, California, consists of approximately 21,480 square feet of office, laboratory, and growth chamber space, leased until March 31, 2030163 - Additional administrative offices are in Phoenix, Arizona (2,976 sq ft, lease expires Dec 31, 2021), and the company leases greenhouse space and farmland in Northern California, Southern California, Idaho, and Hawaii for agricultural use163 - Management believes current leased facilities are adequate for present needs and that additional or alternative space would be available if required164 Item 3. Legal Proceedings Arcadia Biosciences is not currently a party to any material litigation or other material legal proceedings, though it may be subject to routine legal proceedings and claims in the ordinary course of business - Arcadia Biosciences is not currently involved in any material litigation or other material legal proceedings165 - The company may be subject to legal proceedings and claims in the ordinary course of business from time to time165 Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable166 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Arcadia Biosciences' common stock has been listed on the NASDAQ Stock Market under the symbol "RKDA" since May 15, 2015. As of March 19, 2021, there were 40 holders of record. The company has never declared or paid cash dividends and intends to retain all future earnings for business operations. Information on equity compensation plans is incorporated by reference to Part III, Item 12, and details on unregistered securities sales were previously reported. The company did not repurchase any equity securities in 2020 - Arcadia's common stock (RKDA) has been listed on the NASDAQ Stock Market since May 15, 2015169 - As of March 19, 2021, there were 40 holders of record for the company's common stock170 - The company has never declared or paid cash dividends on its capital stock and intends to retain all available funds and future earnings for business operations171 - Arcadia did not repurchase any of its equity securities during the year ended December 31, 2020174 Item 6. Selected Financial Data This item is not applicable to the company - Not applicable175 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Arcadia Biosciences leads in science-based crop productivity traits for hemp and wheat, monetizing innovations through sales, extracts, and licensing, with a strategic focus on GoodHemp and GoodWheat Special Note Regarding Forward-Looking Statements - This section contains forward-looking statements about future events, financial performance, growth strategies, industry trends, and the impact of COVID-19, which involve substantial risks and uncertainties177 - Readers are cautioned not to rely on these statements as predictions of future events, as actual results could differ materially due to factors discussed in the 'Risk Factors' section177 Overview - Arcadia Biosciences is a leader in science-based approaches to developing high-value crop productivity traits, primarily in hemp and wheat, to enhance farm economics and product value179 - The company's commercial strategy links consumer health demands with crop benefits, aiming to build a portfolio of high-value traits and varieties, particularly in the newly legalized hemp market180 - The 2018 Farm Bill federally legalized hemp, creating significant agricultural and financial opportunities, but also mandates testing and disposal of non-compliant 'hot' crops (over 0.3% THC), which resulted in over $2 billion in losses for growers in 2019181183 Arcadia GoodHemp - Arcadia launched GoodHemp in December 2019 as its commercial brand for genetically superior hemp seeds, transplants, flower, and extracts184 - The acquisition of Industrial Seed Innovations (ISI) in August 2020 significantly broadened Arcadia's hemp breeding platform, adding varieties like Rogue and Umpqua184 - The U.S. hemp CBD market is projected to reach $16.8 billion by 2025, and the non-cannabinoid industrial hemp global market is estimated to exceed $26 billion by 2025185 Archipelago Ventures Hawaii, LLC - In August 2019, Arcadia formed Archipelago Ventures Hawaii, LLC, a joint venture with Legacy Ventures Hawaii, to serve the Hawaiian, North American, and Asian hemp markets186 - Archipelago aims to create a vertically integrated seed-to-sale supply chain in Hawaii, focusing on reliable supply, high quality, and addressing the unique needs of the Hawaiian market187 Arcadia GoodWheat - Arcadia launched its non-GM GoodWheat brand in 2018 to enable food manufacturers to differentiate products with healthier, 'clean label' ingredients, leveraging increased nutrient density in grains188 - The GoodWheat portfolio includes high fiber Resistant Starch (RS) and Reduced Gluten wheat varieties, with over 15 global patents on high fiber RS wheat by 2020189190 - An agreement with Bay State Milling Company and Arista Cereal Technologies was announced in August 2020 to bring resistant starch GoodWheat to market in North America and other key regions starting in early 2021191 Verdeca HB4® Soybean - Verdeca, a joint venture with Bioceres formed in 2012, developed HB4® soybean varieties offering drought and herbicide tolerance, with 30 international patents and approvals in major soybean-producing countries193 - In November 2020, Arcadia sold its Verdeca membership interests to Bioceres and entered a license agreement for HB4® soybean trait and GoodWheat intellectual property rights in South/Central America, including milestone payments and royalties194 Impact of COVID-19 - The COVID-19 pandemic has adversely impacted Arcadia's targeted revenues, as hemp growers delayed seed purchases due to economic uncertainty and wheat consumer packaged goods companies focused on production over R&D195 - The company has preparedness plans to protect employees and continue operations, but the duration and broader economic effects of COVID-19 remain uncertain195 Components of Our Statements of Operations Data - Arcadia derives revenues from product sales (SONOVA, GoodWheat, GoodHemp), licensing agreements (up-front, annual, milestone fees), and royalties. The company is de-emphasizing contract research and government grant projects196197199201202 - Operating expenses include cost of product revenues (in-licensing, royalties, raw materials, inventory adjustments), research and development (employee costs, subcontracted research, field trials), gain on sale of Verdeca, and selling, general and administrative expenses204205207209 - Other income/expenses include interest expense, other income (net), changes in fair value of common stock warrant liabilities, loss on extinguishment of warrant liability, offering costs, and income tax benefit/provision210211212213214215 Results of Operations Comparison of Key Financial Data (2020 vs 2019) | Metric | Year Ended Dec 31, 2020 (in thousands) | Year Ended Dec 31, 2019 (in thousands) | Change (2020 vs 2019) | Percentage Change | | :----------------------------------- | :------------------------------------- | :------------------------------------- | :-------------------- | :------------------ | | Revenues: | | | | | | Product | $1,044 | $814 | $230 | 28% | | License | $6,801 | $67 | $6,734 | 10049% | | Royalty | $83 | $0 | $83 | N/A | | Contract research and government grants | $106 | $288 | $(182) | -63% | | Total Revenues | $8,034 | $1,169 | $6,865 | 587% | | Operating Expenses (Income): | | | | | | Cost of product revenues | $5,199 | $885 | $4,314 | 487% | | Research and development | $7,960 | $7,098 | $862 | 12% | | Gain on sale of Verdeca | $(8,814) | $0 | $(8,814) | N/A | | Change in fair value of contingent consideration | $0 | $(1,000) | $1,000 | -100% | | Selling, general and administrative | $16,467 | $13,567 | $2,900 | 21% | | Total Operating Expenses | $20,812 | $20,550 | $262 | 1% | | Loss from operations | $(12,778) | $(19,381) | $6,603 | -34% | | Interest expense | $(47) | $(5) | $(42) | 840% | | Other income, net | $740 | $466 | $274 | 59% | | Change in fair value of common stock warrant liabilities | $6,570 | $(9,243) | $15,813 | -171% | | Loss on extinguishment of warrant liability | $(635) | $0 | $(635) | N/A | | Offering costs | $0 | $(708) | $708 | -100% | | Net loss before income taxes | $(6,150) | $(28,871) | $22,721 | -79% | | Income tax benefit (provision) | $124 | $(2) | $126 | -6300% | | Net loss | $(6,026) | $(28,873) | $22,847 | -79% | | Net loss attributable to common stockholders | $(4,655) | $(28,805) | $24,150 | -84% | | Basic and diluted net loss per share | $(0.47) | $(4.53) | $4.06 | -90% | - Product revenues increased by 28% ($230,000) in 2020, primarily from additional pet food orders for SONOVA products218 - License revenues surged by $6.734 million in 2020, mainly due to licenses granted to Bioceres for intellectual property rights in connection with the November 2020 transaction219 - Cost of product revenues increased by $4.314 million (487%) in 2020, largely due to inventory write-downs for contracted hemp seed production ($1.6 million), Archipelago inventory ($1.3 million), third-party seeds ($850,000), and wheat inventory ($397,000)222 - Research and development expenses increased by $900,000 (12%) in 2020, driven by higher employee-related and external hemp-related costs, partially offset by reduced soybean activity223 - A gain of $8.814 million was recognized in 2020 from the sale of Arcadia's membership interests in the Verdeca joint venture to Bioceres224 - Selling, general, and administrative expenses rose by $2.9 million (21%) in 2020, mainly due to increased consulting fees, stock compensation, employee-related expenses, insurance premiums, rent, and marketing activities226 - Other income, net, increased by $274,000 (59%) in 2020, primarily due to an unrealized gain on corporate securities228 - A $6.6 million income was recorded from the change in fair value of common stock warrant liabilities in 2020, driven by a decrease in stock price and risk-free rates, and fewer warrants outstanding229 Seasonality - Arcadia's operations and commercial partners conduct field trials globally, which are seasonal and depend on crop growing seasons, potentially influencing milestone payments and product commercialization233 - Weather conditions and natural disasters can affect the timing and outcome of field trials, delaying payments and commercialization. Future sales of commercial products will also vary based on crop growing seasons and weather patterns233 - The overall level of seasonality is difficult to evaluate due to the company's early stage of development, limited commercialized products, and expansion into new markets234 Liquidity, Capital Resources and Going Concern - Arcadia has funded operations through IPO proceeds, private equity/debt placements, product sales, and license agreements, with a primary focus on developing and commercializing seed traits235 Liquidity and Capital Resources (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2019 | | :-------------------------- | :----------- | :----------- | | Cash and cash equivalents | $14,042 | $8,417 | | Restricted cash | $2,001 | $0 | | Short-term investments | $11,625 | $16,915 | | Net loss | $(6,026) | $(28,873) | | Net cash used in operations | $(30,218) | $(17,198) | | Accumulated deficit | $(211,825) | $(207,171) | - The company believes existing cash, restricted cash, cash equivalents, and short-term investments will be sufficient to meet anticipated cash requirements for at least the next 12 months239 - Arcadia may seek additional funds through debt or equity financings or partner arrangements; failure to secure adequate funding could force spending reductions, asset liquidation, or suspension of development programs240 Cash Flows Cash Flow Summary (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--------------------------------- | :---------------------- | :---------------------- | | Net cash (used in) provided by: | | | | Operating activities | $(30,218) | $(17,198) | | Investing activities | $17,284 | $(8,369) | | Financing activities | $20,560 | $21,986 | | Net (decrease) increase in cash and cash equivalents | $7,626 | $(3,581) | - Cash used in operating activities increased to $30.2 million in 2020, driven by net loss, working capital adjustments, gain on Verdeca sale, and inventory write-downs, partially offset by non-cash charges242 - Cash provided by investing activities was $17.3 million in 2020, primarily from proceeds from sales/maturities of investments ($18.3 million) and Verdeca sale ($3.2 million), offset by property/equipment purchases and acquisitions244 - Cash provided by financing activities was $20.6 million in 2020, including proceeds from warrant exercises ($9.4 million), stock/warrant issuance ($8.0 million), borrowings ($3.1 million), and non-controlling interest contributions ($1.6 million)246 Off-Balance Sheet Arrangements - Since its inception, Arcadia has not engaged in any off-balance sheet arrangements, including structured finance, special purpose entities, or variable interest entities, other than Verdeca (prior to its sale)248 Critical Accounting Polices and Estimates - Critical accounting policies and estimates include revenue recognition, determination of income tax provision, stock-based compensation, fair value of certain equity instruments, and net realizable value of inventory250 - Revenue from product sales is recognized upon shipment, license fees upon agreement execution or when probable of no reversal, and royalty revenue when amounts earned can be reasonably determined253254255256 - Inventories are valued at the lower of cost or net realizable value, with write-downs based on estimates of future demand and market conditions. Stock-based compensation is recognized using the Black-Scholes option-pricing model258259 - Income taxes are accounted for using the asset and liability method, with a valuation allowance provided when deferred tax assets are not likely to be realized267 - Arcadia Biosciences focuses on developing high-value crop productivity traits in hemp and wheat, aiming to monetize these through various sales and licensing methods179 - The company's total revenues increased significantly from $1.169 million in 2019 to $8.034 million in 2020, primarily due to a substantial increase in license revenues217 - Net loss improved from $28.873 million in 2019 to $6.026 million in 2020, driven by a gain on the sale of Verdeca and a favorable change in the fair value of common stock warrant liabilities217 - Cash used in operating activities increased to $30.2 million in 2020 from $17.2 million in 2019, partly due to inventory write-downs and increased operating expenses235242 - The company believes its existing cash, restricted cash, cash equivalents, and short-term investments are sufficient for at least the next 12 months, supplemented by recent financings239 Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable269 Item 8. Financial Statements and Supplementary Data This section presents Arcadia Biosciences' audited consolidated financial statements for 2020 and 2019, prepared under U.S. GAAP, including balance sheets, statements of operations, equity, cash flows, and detailed notes Report of Independent Registered Public Accounting Firm - Deloitte & Touche LLP issued an unqualified opinion on Arcadia Biosciences' consolidated financial statements for the years ended December 31, 2020 and 2019, stating they present fairly the financial position and results of operations in conformity with U.S. GAAP275 - The critical audit matter identified was the GoodWheat and GoodHemp inventory valuation, due to significant judgments required in forecasting product demand, marketability, and salability, which could impact write-downs279280281 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | As of Dec 31, 2020 | As of Dec 31, 2019 | | :--------------------------------- | :----------------- | :----------------- | | Assets: | | | | Cash and cash equivalents | $14,042 | $8,417 | | Short-term investments | $11,625 | $16,915 | | Total current assets | $31,696 | $28,440 | | Total assets | $47,348 | $32,574 | | Liabilities: | | | | Total current liabilities | $6,314 | $5,708 | | Common stock warrant liabilities | $2,708 | $14,936 | | Total liabilities | $18,796 | $24,248 | | Stockholders' Equity: | | | | Total Arcadia Biosciences stockholders' equity | $27,725 | $7,705 | | Total stockholders' equity | $28,552 | $8,326 | - Total assets increased by $14.774 million (45.4%) from $32.574 million in 2019 to $47.348 million in 2020285 - Total liabilities decreased by $5.452 million (22.5%) from $24.248 million in 2019 to $18.796 million in 2020, largely due to a significant reduction in common stock warrant liabilities285 - Total stockholders' equity increased by $20.226 million (243%) from $8.326 million in 2019 to $28.552 million in 2020285 Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :----------------------------------- | :---------------------- | :---------------------- | | Total revenues | $8,034 | $1,169 | | Total operating expenses | $20,812 | $20,550 | | Loss from operations | $(12,778) | $(19,381) | | Net loss before income taxes | $(6,150) | $(28,871) | | Net loss | $(6,026) | $(28,873) | | Net loss attributable to common stockholders | $(4,655) | $(28,805) | | Basic and diluted net loss per share | $(0.47) | $(4.53) | | Weighted-average shares outstanding | 9,959,018 | 6,363,112 | - Total revenues increased by 587% to $8.034 million in 2020 from $1.169 million in 2019, primarily driven by license revenues287 - Net loss significantly improved to $(6.026) million in 2020 from $(28.873) million in 2019, largely due to a gain on the sale of Verdeca and a favorable change in warrant liabilities287 - Basic and diluted net loss per share improved to $(0.47) in 2020 from $(4.53) in 2019287 Consolidated Statement of Stockholders' Equity Consolidated Statement of Stockholders' Equity Highlights (in thousands, except share data) | Metric | As of Dec 31, 2020 | As of Dec 31, 2019 | | :--------------------------------- | :----------------- | :----------------- | | Common Stock Shares | 13,450,861 | 8,646,149 | | Common Stock Amount | $54 | $49 | | Additional Paid-In Capital | $239,496 | $214,826 | | Accumulated Deficit | $(211,825) | $(207,171) | | Total Stockholders' Equity | $28,552 | $8,326 | - Total stockholders' equity increased from $8.326 million in 2019 to $28.552 million in 2020, driven by equity issuances and warrant exercises290 - Issuances of common stock and warrants related to the December 2020 Offering contributed $8.0 million to additional paid-in capital290 - Stock-based compensation recognized was $2.042 million in 2020 and $2.287 million in 2019290292 - Net loss attributable to common stockholders was $(4.655) million in 2020, an improvement from $(28.805) million in 2019290292 Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2020 | Year Ended Dec 31, 2019 | | :--------------------------------- | :---------------------- | :---------------------- | | Net cash used in operating activities | $(30,218) | $(17,198) | | Net cash provided by (used in) investing activities | $17,284 | $(8,369) | | Net cash provided by financing activities | $20,560 | $21,986 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $7,626 | $(3,581) | | Cash, cash equivalents and restricted cash — end of period | $16,043 | $8,417 | - Net cash used in operating activities increased to $30.2 million in 2020, primarily due to net loss, working capital adjustments, and inventory write-downs, partially offset by non-cash adjustments like the gain on Verdeca sale294242 - Net cash provided by investing activities was $17.3 million in 2020, a significant shift from $8.4 million used in 2019, mainly driven by proceeds from sales/maturities of investments and the sale of Verdeca294244 - Net cash provided by financing activities was $20.6 million in 2020, including proceeds from warrant exercises ($9.4 million), issuance of stock and warrants ($8.0 million), and borrowings ($3.1 million)294246 Notes to Consolidated Financial Statements Note 1. Description of Business - Arcadia Biosciences, Inc. was incorporated in Arizona in 2002, reincorporated in Delaware in 2015, and is headquartered in Davis, California, with additional facilities in other states298 - The company develops high-value crop productivity traits in hemp, wheat, and soybean using gene-editing and advanced breeding, monetizing through seed/grain sales, extracts, licensing, and royalties299 - Arcadia formed Verdeca LLC in 2012 with Bioceres, Inc. but sold its membership interest in November 2020. It also formed Archipelago Ventures Hawaii, LLC in August 2019 with Legacy Ventures Hawaii to grow, extract, and sell hemp products300301 - As of December 31, 2020, the company had an accumulated deficit of $211.8 million and net cash used in operations of $30.2 million, but believes existing cash and investments are sufficient for at least through March 2022302 Note 2. Summary of Significant Accounting Policies - The consolidated financial statements include the accounts of Arcadia, Verdeca (until sale), and Archipelago, prepared in conformity with U.S. GAAP, with intercompany transactions eliminated307 - Significant estimates and assumptions include income tax provision, stock-based compensation, fair value of equity instruments, and net realizable value of inventory, which could be impacted by COVID-19311312 - Revenue recognition policies vary by type: product revenues upon shipment, license fees upon execution or when probable of no reversal, royalty revenues when amounts earned are determinable, and contract research/government grants over time using the input method342343344345347348 - Inventory is valued at the lower of cost or net realizable value, with write-downs for deterioration, obsolescence, or excess/slow-moving items. Stock-based compensation is recognized using the Black-Scholes option-pricing model364365337 - Customer concentration: In 2020, three customers represented 57%, 21%, and 12% of accounts receivable, and one customer represented 83% of total revenues336 Note 3. Recent Accounting Pronouncements - Arcadia adopted ASU No. 2016-02 (Leases) on January 1, 2019, requiring recognition of right-of-use assets and lease liabilities for operating leases354 - The company adopted ASU No. 2016-15 (Statement of Cash Flows) on January 1, 2019, with no material impact, and ASU No. 2018-13 (Fair Value Measurement) on January 1, 2020, expanding disclosures for Level 3 fair value measurements357358 - Arcadia is currently evaluating the impact of ASU No. 2016-13 (Credit Losses) and ASU No. 2019-12 (Income Taxes), effective for fiscal years beginning after December 15, 2022, and December 15, 2020, respectively356360 Note 4. Inventory - Inventories are tracked on a lot-identified basis and stated at the lower of cost or net realizable value, with adjustments made for physical deterioration, obsolescence, or excess/slow-moving items364 - Arcadia recorded inventory write-downs of $4.3 million in 2020 (vs. $304,000 in 2019) for wheat inventories, hemp seed inventories, and prepaid production costs, based on estimates of future demand and market conditions364 Inventories, Net (in thousands) | Category | Dec 31, 2020 | Dec 31, 2019 | | :--------------- | :----------- | :----------- | | Raw materials | $966 | $67 | | Goods in process | $1,921 | $188 | | Finished goods | $4,410 | $1,903 | | Total Inventories | $7,297 | $2,158 | Note 5. Property and Equipment, Net Property and Equipment, Net (in thousands) | Category | As of Dec 31, 2020 | As of Dec 31, 2019 | | :-------------------------- | :----------------- | :----------------- | | Laboratory equipment | $2,951 | $2,443 | | Software and computer equipment | $591 | $502 | | Machinery and equipment | $2,046 | $989 | | Furniture and fixtures | $181 | $90 | | Vehicles | $428 | $395 | | Leasehold improvements | $2,229 | $2,023 | | Property and equipment, gross | $8,426 | $6,442 | | Less accumulated depreciation and amortization | $(4,887) | $(4,643) | | Property and equipment, net | $3,539 | $1,799 | - Property and equipment, net, increased by $1.740 million (96.7%) from $1.799 million in 2019 to $3.539 million in 2020366 - Depreciation expense was $632,000 in 2020, up from $194,000 in 2019366 - Construction in progress, not yet depreciated, was $239,000 in 2020 and $1.014 million in 2019367 Note 6. Investments and Fair Value Instruments - Arcadia classifies investments in corporate securities of Bioceres Crop Solutions Corp. (BIOX) as short-term investments, carried at fair value based on market prices, with realized and unrealized gains/losses recognized in other income370317 Investment Securities Portfolio (in thousands) | Category | Amortized Cost (2020) | Fair Value (2020) | Amortized Cost (2019) | Fair Value (2019) | | :---------------------- | :-------------------- | :---------------- | :-------------------- | :---------------- | | Money market funds | $12,082 | $12,082 | $6,864 | $6,864 | | Corporate securities | $10,969 | $11,625 | $3,300 | $3,300 | | Commercial paper | $0 | $0 | $13,019 | $13,019 | | Treasury bills | $0 | $0 | $1,495 | $1,496 | | Total Assets at Fair Value | $23,051 | $23,707 | $24,678 | $24,679 | - The fair value of investments is categorized into Level 1 (quoted prices in active markets) and Level 2 (observable inputs other than Level 1). In 2020, all investments were Level 1, while in 2019, $16.319 million were Level 2372374 - Level 3 liabilities include contingent liabilities from the Anawah and Industrial Seed Innovations acquisitions, and warrant liabilities, measured using unobservable inputs like the company's intent to pursue specific products and volatility375376377 Note 7. Industrial Seed Innovations Acquisition - On August 21, 2020, Arcadia acquired Industrial Seed Innovations (ISI), an Oregon-based hemp breeding and seed company, gaining commercial and genetic assets including seed varieties, germplasm library, and intellectual property381 - The purchase price was an estimated $1.212 million, consisting of $500,000 cash, $432,000 in common stock, and a $280,000 contingent liability for future revenue milestones382 ISI Purchase Price Allocation (in thousands) | Asset | Allocation | | :-------------------------- | :----------- | | Inventory | $511 | | Intangible assets, net | $400 | | Goodwill | $408 | | Deferred tax liability | $(107) | | Total consideration allocated | $1,212 | - The acquisition established a breeding R&D facility in the Pacific Northwest and enabled a $107,000 reduction in the valuation allowance for deferred tax assets381387 Note 8. Consolidated Joint Venture - On August 9, 2019, Arcadia formed Archipelago Ventures Hawaii, LLC with Legacy Ventures Hawaii to develop, extract, and commercialize hemp-derived products in Hawaii390 - As of December 31, 2020, Arcadia held a 50.75% interest in Archipelago, with capital contributions of $2.336 million, and consolidates Archipelago in its financial statements391392 - Net loss attributable to non-controlling interest was $1.371 million in 2020 and $68,000 in 2019392 Note 9. Verdeca-BIOX Transactions - In November 2020, Arcadia sold its membership interests in Verdeca to Bioceres Crop Solutions Corp. (BIOX) and entered a license agreement for HB4® soybean trait and GoodWheat intellectual property rights in South/Central America394396 - Consideration included $5.0 million cash, 1,875,000 shares of BIOX common stock, and future payments of $1.0 million for transaction expenses and $2.0 million upon specific regulatory/commercial milestones396 - Arcadia recognized an $8.814 million gain on the sale of Verdeca and $6.680 million in license revenues from the intellectual property rights sale in 2020396 - BIOX will also pay quarterly royalties of 6% on HB4 soybean sales (up to $10 million) and 25% on licensed wheat product sales396 Note 10. Accounts Payable and Accrued Expenses Accounts Payable and Accrued Expenses (in thousands) | Category | As of Dec 31, 2020 | As of Dec 31, 2019 | | :-------------------------- | :----------------- | :----------------- | | Accounts payable - trade | $726 | $492 | | Payroll and benefits | $1,489 | $1,290 | | Inventory | $965 | $1,143 | | Research and development | $45 | $629 | | Royalty fees due to unrelated parties | $276 | $226 | | Consulting | $153 | $397 | | Rent and utilities | $78 | $23 | | Audit and tax fees | $57 | $113 | | Legal | $152 | $138 | | Other | $164 | $234 | | Total | $4,105 | $4,685 | - Total accounts payable and accrued expenses decreased by $580,000 (12.4%) from $4.685 million in 2019 to $4.105 million in 2020398 - Notable changes include an increase in payroll and benefits ($199,000) and a decrease in research and development accruals ($584,000) and consulting fees ($244,000)398 Note 11. Collaborative Arrangements - In August 2017, Arcadia entered a collaborative arrangement with Corteva Agriscience for research, development, and commercialization of an improved wheat quality trait in North America401 - Both companies are active participants, sharing R&D costs and profits, with Arcadia responsible for intellectual property strategy and Corteva leading marketing and commercialization401 - R&D costs are expensed as incurred, with internal costs expensed immediately and third-party costs expensed upon performance or milestone achievement402 Note 12. Equity Financing - In March 2018, Arcadia raised $10.0 million gross proceeds through a private placement of common stock and warrants (March 2018 Warrants), which were later adjusted403404 - The company conducted registered direct offerings in June 2018 ($14.0 million), June 2019 ($7.5 million), September 2019 ($10.0 million), and December 2020 ($8.0 million), issuing common stock and unregistered warrants406407410411 - Placement agent warrants were also issued in connection with these offerings, with varying exercise prices and terms406409410411 Note 13. Warrants - In May 2020, investors exercised June 2018 Warrants for $6.8 million, and Arcadia issued new May 2020 Warrants (valued at $4.4 million) and placement agent warrants, resulting in a $47,000 gain on extinguishment of warrant liability412 - In July 2020, an investor exercised March 2018 Warrants for $2.6 million, leading to the issuance of new July 2020 Warrants (valued at $2.1 million) and placement agent warrants, and a $682,000 loss on extinguishment of warrant liability413 Equity Classified Common Stock Warrants Outstanding (Dec 31, 2020) | Warrant Type | Exercise Price Per Share | Warrants Outstanding | | :--------------------------------- | :----------------------- | :------------------- | | December 2020 Warrants | $3.00 | 2,618,658 | | December 2020 Placement Agent Warrants | $3.82 | 130,933 | | July 2020 Warrants | $3.85 | 641,416 | | July 2020 Placement Agent Warrants | $4.97 | 32,071 | | May 2020 Warrants | $4.78 | 1,392,345 | | May 2020 Placement Agent Warrants | $6.13 | 69,617 | | March 2020 Service and Performance Warrants | $2.50 | 18,350 | | February 12, 2020 Service and Performance Warrants | $4.71 | 150,000 | | February 3, 2020 Service and Performance Warrants | $4.91 | 10,000 | | September 2019 Placement Agent Warrants | $9.48 | 65,942 | | August 2019 Service and Performance Warrants | $1.92 | 20,000 | | July 2019 Service and Performance Warrants | $2.19 | 10,000 | | June 2019 Placement Agent Warrants | $6.29 | 74,479 | | April 2019 Service and Performance Warrants | $6.18 | 145,154 | | June 2018 Placement Agent Warrants | $12.57 | 69,617 | | March 2018 Placement Agent Warrants | $41.56 | 15,038 | | Total | | 5,463,620 | Liability Classified Common Stock Warrants Outstanding (Dec 31, 2020) | Warrant Type | Exercise Price Per Share | Warrants Outstanding | | :-------------------------- | :----------------------- | :------------------- | | September 2019 Warrants | $7.52 | 659,414 | | June 2019 Warrants | $5.00 | 435,830 | | March 2018 Warrants | $10.73 | 641,416 | | Total | | 1,736,660 | - The change in fair value of common stock warrant liabilities resulted in income of $6.570 million in 2020, compared to a loss of $9.243 million in 2019287 Note 14. Stock-Based Compensation and Employee Stock Purchase Program - Arcadia has two equity incentive plans: the 2006 Stock Plan (terminated for future awards in 2015) and the 2015 Omnibus Equity Incentive Plan (effective May 2015), which allows for various equity compensation grants421422 - As of December 31, 2020, 1,047,243 shares were reserved under the 2015 Plan, with 157,484 shares available for future grant. A total of 889,759 options were outstanding423426 Stock Option Activity (shares) | Activity | 2020 | 2019 | | :-------------------------- | :----------- | :----------- | | Outstanding — Balance at Dec 31 | 889,759 | 661,701 | | Options granted | 502,494 | 208,571 | | Options forfeited | (174,508) | (30,132) | | Options expired | (99,928) | (46,236) | | Exercisable — Dec 31 | 502,973 | N/A | | Weighted-average exercise price (outstanding) | $14.46 | $21.60 | | Weighted-average exercise price (exercisable) | $22.20 | N/A | - Unrecognized compensation cost related to unvested stock-based grants was $0.7 million as of December 31, 2020, to be recognized over a weighted-average period of 2.77 years427 - The 2015 Employee Stock Purchase Plan (ESPP) allows eligible employees to purchase common stock at a discount, with 35,056 shares issued under the plan as of December 31, 2020435 Note 15. Commitments and Contingencies - Arcadia leases office, laboratory, greenhouse, warehouse space, farmland, and equipment under operating lease agreements438 - A contingent liability of $2.0 million remains on the balance sheet as of December 31, 2020, related to the 2005 Anawah acquisition, for specific product development programs440 - A contingent liability of $280,000 from the August 2020 ISI acquisition is recorded as other noncurrent liabilities, payable in two annual installments subject to revenue milestones441 - The company has in-licensing agreements requiring license fees, royalties (accrued $356,000 in 2020), and milestone fees ($2.0 million unachieved as of Dec 31, 2020)443446447 - Arcadia is subject to routine audits by government agencies for contract revenue; improper allocation of costs could lead to penalties or reputational harm448 Note 16. Leases - Arcadia leases various properties including office, laboratory, greenhouse, and farmland. Leases with terms of 12 months or less are not recorded on the balance sheet449 - In 2020, the company entered into several lease amendments and new agreements, resulting in an additional $3.8 million operating lease liability and right-of-use asset for office space, and other increases for land, greenhouses, and equipment449 Lease Liabilitie