Good afternoon, and welcome to Arcadia Biosciences Second Quarter 2020 Earnings Conference Call. Today's presenters will be Matt Plavan, President and CEO; Randy Shultz, Chief Technology Officer; and Pam Haley, CFO of Arcadia. This call is being webcast, and you can refer to the company's press release at arcadiabio.com. Before we start, we would like to remind you that Arcadia Biosciences will be making forward-looking statements on this call based on current expectations and currently available information. However, since these statements are based on factors that involve risks and uncertainties, the company's actual performance and results may differ materially from those described or implied today. You can review the company's safe harbor language in their most recently filed 10-K and again on Page 4 of today's press release. With that, I'll now turn the call over to Matt Plavan, President and CEO.

Thank you everyone for joining us and welcome to our second quarter conference call. Since our last call I'm pleased to report that Arcadia achieved a number of key milestones amidst one of the most challenging economic periods in our company's history. First we are substantially expanding our GoodHemp seeds portfolio through the acquisition of industrial seed innovations and their very popular Umpqua and Rogue hemp varieties. Second as part of our global scale of efforts for our drought-tolerant herbicide resistant HB4 soybean we successfully harvested enough foundation seed to supply 90,000 acres of soybean production. And third, perhaps most importantly we announced several key good weed distribution arrangements in both B2B and B2C channels through which we expect to drive a strong revenue finish for 2020 and to scale nicely into 2021 and beyond. Now despite the very real impact the COVID-19 pandemic has had on the global economy we believe the overall impact of the pandemic on our GoodWheat business will be a net positive. The reason is that this pandemic has accelerated a new direct to consumer channel for our GoodWheat to serve a robust global demand for home delivery of quality healthy foods. We believe this new channel will meaningfully augment our existing B2B channels like our recently announced GoodMills agreement. Although it is true that we are 30 to 90 days behind in our original target dates for completion of definitive agreements with these partners due to the general delays in business productivity brought about by the pandemic because the terms of our arrangements are sufficiently established for the agreements we've signed we're actively preparing for and advancing into these channels in parallel with the finalization of our definitive agreements in order to begin generating revenues as soon as possible. So let me begin with…

Thank you Matt, and greetings to everyone on the call. As Matt alluded to these have been challenging but also extremely exciting times for Arcadia. On the R&D front the team has shown tremendous dedication and teamwork through this pandemic ensuring that essential deliverables are met and keeping the momentum going to develop and deploy our foundational technology platform architect which combines data science, genome editing, tilling and predictive breeding to rapidly prototype and advance our product concepts. Starting with hemp in the second quarter our R&D program advanced six new high CBD hemp varieties designed for the wellness market to late stage pre-commercial trials. Due to the proprietary nature of these varieties we deemed it critical to maintain control of seed production and were able to successfully produce over 5 million high quality feminized seeds at our Woodland California facility. This was important because it enabled us to evaluate variety performance in key growing regions across the U.S. this summer through our multi-state regional trial network and to get these exciting new varieties in the hands of early adopter farmers this year. Together the data that we generate from these trials will enable our commercial team to effectively place each variety across geographical regions going forward. We also established eight new discovery stage hemp projects that address key challenges spanning the three dominant hemp market segments; wellness, grain and industrial fiber. At this juncture I anticipate that at least two of these discovery projects will advance to pre-commercial in 2021 highlighting the disruptive nature of our architect platform and reducing the time it takes to drive novel product concepts to commercialization. As Matt mentioned we are in the process of completing the acquisition of ISI, a hemp breeding and seed sales company located in the Pacific northwest. This acquisition…

Thank you Randy. Revenue increased in second quarter 2020 from second quarter 2019 by 38% to $281,000 and increased second quarter 2020 year-to-date from second quarter 2019 year-to-date by 63% to $590,000. We recognized initial GoodWheat grain sales and royalty revenue during 2020 along with increased GLA product sales. Total operating expenses for the second quarter of 2020 was $7.2 million compared to $5.2 million in the second quarter of 2019 for an increase of $2 million. Second quarter 2020 year-to-date operating expenses totaled $13.3 million versus $9.6 million for second quarter 2019 year-to-date for an increase of $3.7 million. Cost of product revenues was the primary driver of the operating expense increase with $1.5 million recognized in the second quarter of 2020 compared to 89,000 in the second quarter of 2019 and $1.6 million second quarter 2020 year-to-date versus 148,000 second quarter 2019 year-to-date. Second quarter 2020 included a write-off in the amount of $1.4 million due to hemp seeds produced by a contracted grower that did not meet our quality specifications. The write-off included the forfeit of non-refundable amounts paid in advance that enabled the grower to make facility upgrades necessary to start production. R&D expense was consistent quarter-over-quarter and $781,000 higher second quarter year-to-date with $4.2 million recognized during the six month period of 2020 compared to $3.5 million during the six-month period of 2019. The 2020 year-to-date increase was primarily due to higher employee expenses and hemp related costs. SG&A expense was $3.7 million in second quarter 2020 and $3.1 million in second quarter 2019 for an increase of 600,000. Second quarter year-to-date totaled $7.4 million during 2020 and $$6 million during 2019 for an increase of $1.4 million. The increase in both periods was largely due to higher consulting expense and non-cash stock compensation expense…

Thanks Pam. In closing, the fundamentals of our business remain strong across each of the crop product areas we focus on including our hemp, wheat and soya initiatives. Swiftly and with agility we've realigned our organization and adapted our go-to-market approach to seize the silver linings of the COVID-19 pandemic as well as to mitigate the forward impact of the challenges that it has brought. The markets we are targeting for our innovations remain robust, prospects and we're confident we are on the right path to significant value creation to the execution of our plan and that there remains meaningful revenue potential on the balance of this year and strong prospects for high growth into 2021. We look forward to keeping you abreast of our continued advances. Thank you very much and I'll turn it over to our operator for questions.

Thank you. [Operator Instructions] Our first question will come from Raghuram Selvaraju with H.C. Wainwright. Please go ahead.

Hi thanks very much for taking my questions. Firstly, with respect to GoodMill, can you comment on how much of the European milling market GoodMill covers and whether your relationship with them is exclusive or not?

Actually they are the largest miller in Europe and exactly how much they mill at the top of my head I don't know but I can tell you the largest miller. Our relationship with them we haven't released the detail at this moment but suffice it to say with their footprint we would expect them to be a dominant distributor for us in Europe.

Overall, your relationships with the entities that you are working with on the wheat front, particularly the milling and consumer products companies being consummated on terms qualitatively speaking that you would consider to be in keeping with your previously stated strategy? In other words are these relationships providing economics that allow you to capture more of the value down the supply chain?

They are but I have to tell you that as you might imagine the direct to consumer opportunities will likely be more favorable margins for us and so I think we're going to keep a close eye on what the right balance is in terms of taking this product to the market.

As an aside to that do you anticipate there being a possibility of your effectively forward integrating or partially forward integrating down the e-commerce distribution channel?

That is certainly something we're evaluating.

Okay and then on the patent front I just wanted to better understand what the term of the patents are that pertain to the non-GMO herbicide tolerant wheat? When do they expire?

Okay. I'll to give you the exact date. These are newly applied for newly granted. They have a very long term life left. Probably 17 years.

Okay. Can you comment on what you expect the relative contribution of the hemp and wheat businesses to be on a percentage basis to the revenue mix for the balance of 2020 and then is there anything you can disclose around the financial terms of the industrial feed innovations asset acquisition? Thank you.

Yes. I'm reluctant to as I said with what's going on in the markets to be more specific than I have been on the revenue guidance but when you look at what I did say, I would be disappointed if we didn't convert all of the backlog that we have for hemp seed but I would also be disappointed if we weren't successful in a significant good strong start on selling our GoodWheat through these -- especially these direct-to-consumer channels. I think the partnership through GoodMills that that testing process takes a little bit longer but the advent of the direct to consumer and the demand that's there and the existing inventory that we have, I feel very good about it being a good competition between the two to see who drives the most revenue.

Is it reasonable to expect that because you have to work through this $3.7 million backlog, most likely the hemp business is going to be a proportionately larger contributor? Is that a fair statement for the second half of 2020?

I'm not ready to say that. Yes. Let's just see how it goes.

Okay. Thank you.

Thanks Ram.

Thank you. Our next question will come from Ben Klieve with National Securities. Please go ahead.

All right. Thanks for taking my questions everybody. So a few hear from me. First of all kind of building of some of the conversation just had on the wheat side, on these distribution agreements, I mean three separate agreements, I'm sure the structure is different for all three. Can you just kind of comment on and I know that it's not, I know that these aren't officially signed yet you're still working on the terms but I mean are each of these distribution agreements that you believe are going to have initial revenue say in within the next 12 months or are there kind of long evaluation processes with these that you're expecting so these may be kind of longer term maybe more longer term in nature?

The direct to consumers should be up and running nicely by year end, generating revenue by year end and the CPG B2B relationships, I would expect to be up and running no later than early ‘21.

Got it and then, so the GoodMills and the Corner Foods agreements are those both selling the commodity flour product or are either of those going to be selling CPG products in whatever form you may have?

Both will be premium and they will be high fiber. They will be reduced gluten and the formulations will depend upon what market they're selling into but we imagine that it will be pastas, baking mixes and pancake mixes and things of that nature. The testing that we did in China was pastas, flour and bake mixes. All of them marketed as premium GoodWheat products and that will be the same through GoodMills.

Got it. Okay. Pivoting over to hemp, I mean there is a lot to unpack that you both explain in your prepared remarks. I guess, I know there's an incredible amount of uncertainty it sounds like but what from a regulatory perspective, I mean is there an event, is there is that bill you referred to coming from the FDA last month, is there something from a regulatory front that you think is coming down the pike here in the relatively near term that's going to turn this market on relatively quickly and if so what are the specific things that we can look for from that perspective?

What we've seen is two potential pathways. The one that I just mentioned which is with the office of management budget which we don't know anything about the content of that one in particular but it is some sort of a regulatory framework and the other is there have been two attempts to through the COVID relief stimulus packages to regulate CBD in particular as a dietary supplement. Which people interpret that to mean fairly lose regulation just needing to be determined that it's generally safe but nothing like a pharmaceutical which is a fear that some have that CBD could be regulated as a drug because it has been regulated as a drug in GW farmers product but as Scott [indiscernible] indicated former FDA commissioner before he left when a lot of the questions were first circulating about CBD he made it very clear that the FDA has regulated a particular compound in the past as a drug as well as a dietary supplement. It just depends upon the concentration in the formulation. So there is two paths that we've seen that that have been an attempt to get CBD approved and establish a regulatory framework. So everybody is anticipating that one of those two pathways will break free. We hope it's this year. We hope it's relatively soon but we really don't know any more than that at the moment.

Yes. Okay. And then last question for me and I'll get back in queue, still on the hemp front. To what degree are the hemp growers that were in your backlog to what degree are they planting varieties for industrial use or for grain use and rather than a CBD variety that you may be providing? Is that a dynamic to consider or are they just simply waiting for approval so they can plant the CBD varieties? Are they planting some other crops? I mean what are these farmers doing rather than planting your varieties?

Well, I think it's a little of both. We are starting to see growers look to other outputs for their hemp grows. CBD is still dominant. Most the growers that that we talked to and from the beginning of 2020 or even late 2019 scaled back as a cautionary measure but are not giving up on or abandoning the prospect to grow hemp but we are seeing and hearing more about curiosity to use hemp for fiber grows but I would say and we want to promote that we think the potential for hemp is well beyond CBD and there's probably actually other cannabinoids that will come to market CPG and others. So we want to encourage many more applications for hemp but I would say right now it's still predominantly CBD that is driving growers to plant hemp and as I said in my prepared comments all the growers we talked to who have grown previously even if they decided to scale back or didn't grow in ‘19 it is fully their intention to grow in 2021.

Got it. All right. I think that's a good place to stop. Thanks for taking my questions and I'll get back in queue.

Great. Thanks Ben. Appreciate it.

Thank you. Our next question will come from Steven Ralston with Zachs. Please go ahead.

Good afternoon.

Hey Steven.

Hi. Is the collaboration with GoodMills affected at all by a relationship with Arista Cereal Technologies?

No.

How so, since I believe Arista has exclusive rights to the IP?

Well, there are different kinds of GoodWheat and there are different rights to those different kinds of GoodWheat and so there is no overlap between the two.

Is the end product different between the two?

Sure. It can be. So you can use the high Almelo sweet. You can use the reduced gluten and you can do different formulations and so we've been very careful to make sure that we're not giving rights we cannot give.

Okay. So the IP rights that Arista Cereal has are not involved with the products that are going through GoodMills innovation?

Correct and there is a hexaploid and a tetraploid and so that's the one is a pasta durum wheat, another is a bread wheat. So the rights to those are separate as well and so we're making sure that there is no conflict there. It's a very important.

There is no overlap?

Yes. Absolutely.

Okay. And given that you're awaiting approval for the HB4 in China, are there any approvals regulatory that are required for GoodWheat going into China in the direct to consumer product effort?

No.

Is there a reason why?

It's well it's not GMO. I think that's the place I would start which is where you tend to have regulatory barriers but maybe that's the simplest way to put it. It's a non-GMO wheat.

And last question is concerning this inventory write-off in the GoodHemp area. You said it wasn't up to quality standards. Was this having anything to do with the THC content or was it mold or?

Let me just clarify. It was hemp. So it was our GoodHemp sourcing. In 2019 as I mentioned we had orders for over 10,000 acres which is a lot of seed and so we were sourcing from a number of suppliers and in order to ramp up and meet what we expected to be a high demand in a short period of time, in some instances we had to advance funds in order to provide sufficient build out for some of the internal facilities that we were leveraging to grow seed and so one of those suppliers did not meet our quality requirements for the seed that we grow and so when we rejected that seed and determined not to continue working with that supplier that funding, that advance, we could no longer take advantage of. So we had to write it off as part of the rejection of that seed.

And how does that a comment about they needed different equipment?

Well, they just they needed to expand their facilities too.

But you said you're not doing business with them anymore?

Correct. So that that advance would have been amortized over a period of time as they produced more seed but because we determined that they were not the provider for us we had to take the right off.

Okay and is that 1.4 million related in any way to the 3.7 backlog? Is any inference involved?

No sir. No. fully independent.

Excellent.

Yes.

Thank you very much.

You bet. Thanks Steve.

Thank you. I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Matt Plavan for any further remarks.

Well thank you everyone for joining us this afternoon. We look forward to keeping you apprised of our progress moving forward. Have a great afternoon. Thank you.

Ladies and gentlemen this concludes today's conference call. Thank you for your participation. You may now disconnect.