Arcadia Biosciences, Inc.

The estimated fair value of the common stock warrant liabilities related to the March 2018 Purchase Agreement, the June 2018 Offering, the June 2019 Offering and the September 2019 Offering (the “warrant liabilities”) were remeasured at March 31, 2020 and December 31, 2019 utilizing the Black-Scholes Model, with the changes recorded on the Company’s condensed consolidated statements of operations and comprehensive income (loss). The Black-Scholes Model utilizes the following inputs to estimate fair value of an instrument: stock price, expected term, expected volatility, risk-free interest rate, and expected dividend yield. Volatility is considered by the Company to be a significant unobservable input and is calculated using a weighted average of historical stock prices of a combination of the Company and peer companies, due to the lack of sufficient historical data of the Company’s own stock price. A change in the mix or weighting of the peer companies could have resulted in a significantly lower (higher) fair value measurement as of March 31, 2020. Volatility rates used in the measurement of the warrant liabilities ranged from 122.5% to 130.0%, and the weighted average was 126.9%.

In July 2019, the Company issued warrants to purchase 10,000 shares of common stock to an independent contractor at an exercise price of $2.19 and in August 2019, the Company issued warrants to purchase 20,000 shares of common stock to two affiliated third-parties at an exercise price of $1.92. These warrants were determined to be equity instruments and were measured on the grant date using the Black Scholes Model. The warrants issued in July vest ratably over 12 months and expire two years from the date of issuance. As such, stock compensation expense associated with these warrants is recognized ratably over the 12-month service period. The August warrants vested on the issuance date of August 5, 2019 and expire two years from the date of issuance. As such, stock compensation expense associated with the warrants was recognized as vested on the issuance date. Stock compensation expense of $4,000 was recognized during the three months ended March 31, 2020 for the warrants issued in July 2019.

We currently lease land on the island of Molokai, Hawaii from an entity owned by Kevin Comcowich, the Chair of our Board of Directors, and his wife. We grow hemp on this land to support the operations of our joint venture Archipelago Ventures Hawaii. The original lease was executed in February 2019, covers 10 acres of land, has a term of two years and provides for rent payments of $1,200 per acre per year. We engaged a third-party contractor to construct a fence on the property to adhere to the rules of the hemp pilot program. Our out of pocket costs to build this fence were approximately $126,400. Mr. Comcowich supplied materials to the contractor and received payments from the contractor totaling approximately $44,000. In March 2020, we entered into a lease amendment for two additional 10-acre parcels, at the same lease rate of $1,200 per acre per year, and with a term of two years. A third amendment to include two additional 10-acre parcels, at the same lease rate of $1,200 per acre per year, and with a term of two years is currently under draft.

In April 2020, the Company borrowed $1.1 and entered into a promissory note for the same amount (the “Note”) under the Paycheck Protection Program (“PPP”) that was established under the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) of 2020. The Note provides for an interest rate of 1.00% per year, matures two years after the issuance date and is forgivable if

We are closely monitoring how the spread of the novel coronavirus is affecting our business operations and our employees. Our targeted revenues have been adversely impacted as hemp growers have been slower to make decisions to purchase hemp seeds due to economic uncertainty and wheat consumer packaged goods companies have been heavily focused on production over R&D evaluation as demand for staples like pasta and flour have increased. We have developed preparedness plans to help protect the safety of our employees while safely continuing business operations. Due to the spread of the outbreak in California and elsewhere where we have corporate offices, we have temporarily limited access to our offices until further notice and implemented a mandatory remote work policy for employees during this period.  As an agriculture company, our business is deemed essential and therefore is not subject to the various shelter-in-place orders mandated by the federal, state, and local governments.  Therefore, our laboratory and field personnel have continued to report to their physical place of work while exercising additional safety measures, including but not limited to, increased sanitation and cleaning protocols, utilizing personal protective equipment (“PPE”), rotating shifts, and maintaining safe social distancing to the highest extent possible. At this time, there is significant uncertainty relating to the trajectory of the novel coronavirus outbreak and impact of related responses. The continued spread of the outbreak may further impact our business, results of operations, and financial condition.

As discussed in Note 2, in April 2020, the FASB issued a staff question-and-answer (“Q&A”) document to respond to frequent asked questions about the accounting for lease concessions related to the effects of the COVID-19 pandemic. Under current GAAP, subsequent changes to lease payments that are not stipulated in the original lease contract are generally accounted for as lease modifications under Topic 842. The Q&A allows companies to make an accounting policy election to not evaluate lease concessions related to the effects of the COVID-19 pandemic as lease modifications. Entities that make this election then need to decide whether to apply the lease modification guidance in ASC 842 to the concession or account for the concession as if it were contemplated as part of the existing contract. The Company is currently evaluating its option to make this accounting policy election.