Local Bounti CorporationDE
For the period ended Sep 30, 2024. Filed Nov 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 14, 2024
LOCL$0.87-3.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-13.
0001840780-24-000024
Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-14.
0001840780-24-000028
Item 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 88 previous paragraphs and 91 current paragraphs.
43 unchanged; 32 reworded; 15 added; 13 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 6 previous and 6 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (15)
Current report
Commercial Facility Update
Current report
Three and Nine Months Ended September 30, 2024 compared to the Three and Nine Months Ended September 30, 2023
Current report
Our current operating plan indicates that we will continue to incur losses from operations and generate negative cash flows from operating activities until the Texas and Washington facilities start operating at full commercial scale and generate sufficient gross profit to cover our losses. Our cash on hand as of September 30, 2024, and projected cash inflows generated from operations over the next 12 months are expected to be insufficient to fund anticipated cash outflows for operations and the required debt service obligations beginning April 1, 2025. These conditions raise substantial doubt about our ability to continue as a going concern for the next twelve months.
Current report
Our plan to alleviate the conditions that raised substantial doubt about our ability to continue as a going concern includes the following:
Current report
•Renegotiate the terms of the credit facilities with Cargill Financial to provide additional working capital over the next twelve months, subject to terms and conditions precedent to the Senior Facility.
Current report
•Renegotiate the terms of the credit facilities with Cargill Financial to defer all principal payments due under the Senior Facility through November 30, 2025, subject to terms and conditions precedent to the Senior Facility.
Current report
•Renegotiate the terms of the credit facilities with Cargill Financial to allow for the payment in kind of the interest payments on the Senior Facility and the Subordinated Facility through November 30, 2025, subject to terms and conditions precedent to the Senior Facility.
Current report
•Renegotiate the terms of the credit facilities with Cargill Financial to waive the restricted cash requirement of two quarters of future interest and principal payments through November 30, 2025, subject to terms and conditions precedent to the Senior Facility.
Current report
•Continue to ramp production at the Company’s Washington and Texas facilities to full commercial scale to accelerate and significantly increase revenue growth.
Current report
•Reduce production costs as a result of manufacturing and technical developments.
Current report
•Lower research and development and general and administrative costs.
Current report
•Reduce or delay uncommitted capital expenditures, including nonessential facilities and information technology projects.
Current report
•Raise additional working capital through other sources of debt and equity financings.
Current report
While we fully expect to implement and execute our plans and to have access to these additional sources of capital, such plans or other additional sources of financing may not be achievable on favorable terms and conditions, or at all, and these conditions and events in the aggregate do not alleviate substantial doubt regarding our ability to continue as a going concern over the next twelve months from the date these Unaudited Condensed Consolidated Financial Statements are issued.
Current report
This substantial doubt about our ability to continue as a going concern may adversely affect our stock price and our ability to raise capital, and failure to obtain this necessary capital on acceptable terms, or at all, may force us to delay, limit, reduce, or terminate our operations and future growth. We will need to raise additional working capital funds to operate our business and fund continued construction, commissioning, and operating at commercial scale with sufficient gross profit, which is expected to extend beyond the next twelve months from the date these Unaudited Condensed Consolidated Financial Statementsare issued. If additional financing is available, financing terms may lead to significant dilution of our stockholders’ equity.
Removed paragraphs (13)
Previous report
Commercial Facility Expansion Update
Previous report
Now Shipping Product from Mount Pleasant, TX & Pasco, WA Facilities
Previous report
We commenced operations at both our Texas and Washington facilities and began shipping product to customers in the second quarter. We were able to scale these facilities in less than one-third of the time that it took to scale Georgia given the advantages of the purpose-built design and other efficiencies that were integrated. The Texas facility fortifies our distribution for Sam’s Club, which expands our service from three distribution centers to six. The Washington facility bolsters our distribution capabilities with new and existing customers in the Pacific Northwest to serve our expanding customer base.
Previous report
In the second quarter, we expanded our distribution with Sam's Club for leafy greens production with service commencing from our recently opened facility in Mount Pleasant, Texas. We are now fulfilling shipments to six of Sam's Club's regional distribution centers from two Local Bounti facilities, Mount Pleasant, Texas and Byron, Georgia.
Previous report
We are also now shipping to Brookshire Grocery Company (“Brookshire's”) locations from our new Mount Pleasant, Texas facility. Brookshire's is stocking our full line of produce products – including our Grab-and-Go Salad Kits, living lettuce and baby leaf varieties – to Brookshire's nearly 180 store locations across three states in the Southeast and Southwest United States.
Previous report
Financing Developments
Previous report
In July 2024, we entered into negotiations for an additional Conditional Commitment Letter ("CCL") for up to $175 million of potential financing. Combined with the existing $228 million of previously announced CCLs with the same commercial finance lender, we will have CCLs that could provide up to approximately $400 million of financing to fund our existing facility expansions, our planned greenfield facility in the Midwest, working capital needs, strategic growth capital and to repay certain existing construction financing which is expected to lower our cost of capital. The funding expected pursuant to the CCLs is subject to the completion of definitive documents and the satisfaction of customary closing conditions which we believe will be complete in the third quarter of 2024. We have also entered into a non-binding letter of intent for a $55 million sale-lease back of our facility in Byron, GA, subject to the completion of customary diligence and binding documentation.
Previous report
Three and Six Months Ended June 30, 2024 compared to the Three and Six Months Ended June 30, 2023
Previous report
Research and development costs increased by $1.0 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 and increased by $0.9 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. As explained above, as the Georgia facility expansion has been completed and operations have commenced at both the Texas and Washington facilities, there has been a resulting decrease of investment in personnel, materials, supplies, and facility capacity devoted to research and development.
Previous report
The CEA business is capital-intensive. Currently, our primary sources of liquidity and capital resources are cash on hand, cash flows generated from the sale of our products, and the Facilities with Cargill Financial. Cash expenditures over the next 12 months are expected to include general operating costs for employee wages and related benefits, outside services for legal, accounting, IT infrastructure, and costs associated with growing, harvesting and selling our products, such as the purchase of seeds, soil, nutrients and other growing supplies, shipping and fulfillment costs, and facility maintenance costs.
Previous report
The Ninth Amendment to the credit facilities with Cargill Financial, as described in Note 6, Debt, of the Unaudited Condensed Consolidated Financial Statements, allows for the payment in kind of the quarterly interest payments due and payable for the quarters ending June 30, 2024, September 30, 2024, and December 31, 2024. In addition, the Company expects to close in the third quarter of 2024 on the four previously disclosed CCLs from a commercial finance lender that were executed in the second half of 2023. Together, the CCLs will provide financing of approximately $228 million. In addition, in July 2024, we entered into negotiations for an additional CCL for up to $175 million of potential financing with the same commercial finance lender. Combined with the existing $228 million of previously announced CCLs, we will have CCLs that could provide up to approximately $400 million of financing to fund our existing facility expansions, our planned greenfield facility in the Midwest, working capital needs, strategic growth capital and to repay certain existing construction financing which is expected to lower our cost of capital. The funding expected pursuant to the CCLs is subject to the completion of definitive documents and the satisfaction of customary closing conditions which we believe will be complete in the third quarter of 2024. We have also entered into a non-binding letter of intent for a $55 million sale-lease back of our facility in Byron, GA, subject to the completion of customary diligence and binding documentation.
Previous report
The Company believes that financing associated with the CCLs from a commercial finance lender, the Company's current cash position, cash generated from product sales, and anticipated additional deferrals of future cash interest and principal payments under the Company's credit facilities with Cargill Financial will be adequate to fund the Company’s planned operations over the next 12 months from the issuance of these Unaudited Condensed Consolidated Financial Statements.
Previous report
We also believe additional cash can be secured through other debt, equity financings, or sale leaseback financing, if necessary. However, there can be no assurance that equity or debt financing will be available to us should we need it or, if available, that the terms will be satisfactory to us and not dilutive to existing shareholders. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth in Part I, Item 1A of the Company's most recent Annual Report on Form 10-K. Our failure to raise capital as and when needed could have significant negative consequences for our business, financial condition and results of consolidated operations.
Reworded paragraphs (32)
Previous wording
Local Bounti is a controlled environment agriculture ("CEA") company that produces sustainably grown produce, focused today on living and loose leaf lettuce. Founded in 2018, and headquartered in Hamilton, Montana, Local Bounti utilizes its patented Stack & Flow Technology® to grow healthy food sustainably and affordably. Our proprietary process is a hybrid growing approach, utilizing vertical farming in early plant growth, followed by greenhouse farming for final grow out. We designed our Stack & Flow Technology® to give our products exactly what they need at every step of their growth cycle. Our goal is to grow in an environmentally sustainable manner that not only increases harvest efficiency and enhances unit economics, but also limits water usage and reduces the carbon footprint of the production and distribution process. Controlling the environmental conditions in both the 'Stack' and 'Flow' components of our growing system helps to ensure healthy, nutritious, and consistent products that are non-genetically modified organisms ("non-GMO"). We use 90% less water, 90% less land, and significantly less pesticides and herbicides than traditional outdoor agriculture operations.
Current wording
Local Bounti is a controlled environment agriculture ("CEA") company that produces sustainably grown produce, focused primarily on living and loose leaf lettuce, arugula, spinach, and basil. Founded in 2018, and headquartered in Hamilton, Montana, Local Bounti utilizes its patented Stack & Flow Technology® to grow healthy food sustainably and affordably. Our proprietary process is a hybrid growing approach, utilizing vertical farming in early plant growth, followed by greenhouse farming for final grow out. We designed our Stack & Flow Technology® to give our products exactly what they need at every step of their growth cycle. Our goal is to grow in an environmentally sustainable manner that not only increases harvest efficiency and enhances unit economics, but also limits water usage and reduces the carbon footprint of the production and distribution process. Controlling the environmental conditions in both the 'Stack' and 'Flow' components of our growing system helps to ensure healthy, nutritious, and consistent products that are non-genetically modified organisms ("non-GMO"). We use 90% less water, 90% less land, and significantly less pesticides and herbicides than traditional outdoor agriculture operations.
Previous wording
Our first facility in Hamilton, Montana (the "Montana Facility") commenced construction in 2019 and reached commercial operation by the second half of 2020. In 2021, we successfully completed the expansion of our Montana Facility, more than doubling our production capacity. The Montana Facility is currently used for commercial production, as well as research-and-development activities. In 2022, we acquired California-based complementary greenhouse farming company Hollandia Produce Group, Inc. and its subsidiaries, which operated under the name Pete's. Through the Pete's Acquisition, we significantly increased our growing footprint to include two then-existing facilities in California and one under-construction facility in Georgia. The Georgia facility initially became operational in July 2022 and was significantly expanded in 2023. In 2024, we completed construction on two new facilities in Washington and Texas, bringing our total facility count to six.
Current wording
Our first facility in Hamilton, Montana (the "Montana Facility") commenced construction in 2019 and reached commercial operation by the second half of 2020. In 2022, we acquired California-based complementary greenhouse farming company Hollandia Produce Group, Inc. and its subsidiaries, which operated under the name Pete's. Through the Pete's Acquisition, we significantly increased our growing footprint to include two then-existing facilities in California and one under-construction facility in Georgia. The Georgia facility initially became operational in July 2022 and was significantly expanded in 2023. In 2024, we completed construction on two new facilities in Washington and Texas, bringing our total facility count to six.
Previous wording
We distribute our products to approximately 13,000 retail locations across 35 U.S. states, primarily through direct relationships with blue-chip retail customers, including Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, Brookshire's, and AmazonFresh. Our primary products include living butter lettuce – for which we are a leading provider with an approximate 80% share of the CEA market within the Western U.S. – as well as packaged leafy greens and cress. We are currently expanding distribution of our Grab & Go Salad Kits and have expanded our baby leaf portfolio by introducing several high-velocity offerings in the second quarter of 2024, including spinach, arugula, and basil. In addition, we are set to introduce 50/50 blend and power greens by the third quarter of 2024. We signed an offtake agreement with Sam's Club in October 2022 for our leafy greens production initially from our Georgia facility and now including both our Georgia and Texas facilities. The offtake agreement provides for the sale of defined minimum quantities of leafy greens from our Georgia and Texas facilities and runs through September 2028.
Current wording
We distribute our products to approximately 13,000 retail locations across 35 U.S. states, primarily through direct relationships with blue-chip retail customers, including Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, Brookshire's, H-E-B, and AmazonFresh. Our primary products include living butter lettuce – for which we are a leading provider with an approximate 80% share of the CEA market within the Western U.S. – as well as packaged leafy greens and cress. We recently introduced new Grab & Go Salad Kits and additions to our baby leaf portfolio with several high-velocity offerings, including spinach, arugula, and basil. In addition, we introduced 50/50 blend and power greens in the third quarter of 2024. We signed an offtake agreement with Sam's Club in October 2022 for our leafy greens production initially from our Georgia facility and now including both our Georgia and Texas facilities. The offtake agreement provides for the sale of defined minimum quantities of leafy greens from our Georgia and Texas facilities and runs through September 2028.
Previous wording
Hamilton, Montana Facility Transition to Commercial Production Nearly Complete
Current wording
Hamilton, Montana Facility Transition to Commercial Production Now Complete
Previous wording
The transition of our Montana Facility from a research and development focus to a commercially oriented focus growing produce for sale to customers is nearly complete. This transition follows the capacity enhancements brought about by the completion of the Georgia facility and the commencement of operations at both the Texas and Washington facilities and is expected to help drive us toward our goals of achieving positive adjusted EBITDA in early 2025.
Current wording
We completed the transition of our Montana facility from a research and development focus to a commercially oriented focus growing produce for sale to customers in the third quarter of 2024. This transition follows the capacity enhancements brought about by the completion of the Georgia facility and the commencement of operations at both the Texas and Washington facilities and is expected to help drive toward our goal of achieving positive adjusted EBITDA in the second quarter of 2025.
Previous wording
Plans remain underway to build additional capacity across our network of facilities enabled with our Stack & Flow Technology®. The planned expansions are designed to provide additional capacity and allow for our growing product assortment to meet existing demand from our direct relationships with blue-chip retailers and distributors. The timing and scope of these projects, which includes plans to expand into the Midwest, remain under review pending ongoing discussions with retailers to optimize those facilities for specific products in support of retail commitments and strategies to expand distribution.
Current wording
Plans remain in place to build additional capacity across our network of facilities enabled with our Stack & Flow Technology®. The planned expansions are designed to provide additional capacity and allow for our growing product assortment to meet existing demand from our direct relationships with blue-chip retailers and distributors. The timing and scope of these projects, which include plans to expand into the Midwest, remain under review pending ongoing discussions with retailers to optimize those facilities for specific products in support of retail commitments and strategies to expand distribution.
Previous wording
We are set to expand our product assortment in the third quarter of 2024 by introducing several high-velocity offerings including Arugula, Spring Mix & Spinach Blend, Power Greens, and Basil.
Current wording
We expanded our product assortment in the third quarter of 2024 by introducing several high-velocity offerings, including Arugula, Spinach, Spring Mix & Spinach Blend, Power Crisp, and Basil. We began shipping our entire assortment to customers during the third quarter and added additional distribution with retailers in the mass and grocery channels in the fourth quarter.
Previous wording
Starting in the second quarter of 2024, we rolled out our Grab-and-Go Salad Kits to customers representing approximately 200 doors throughout the Pacific Northwest and Southern United States; we expect this to expand to a total of approximately 700 doors in the second half of 2024. These product expansions include four unique flavor offerings: Artisanal Chicken Caesar, Memphis Inspired Chicken, Sweet Poppy Power, and Modern Greek Style.
Current wording
We continued our rollout of Grab-and-Go Salad Kits to customers throughout the Pacific Northwest and Southern United States. The Grab-and-Go assortment includes four unique flavor offerings: Artisanal Chicken Caesar, Memphis Inspired Chicken, Sweet Poppy Power, and Modern Greek Style.
Previous wording
Sales increased by $3.9 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was due to increased production and growth in sales from our facility in Georgia and, to a lesser extent, sales from our newly opened facilities in Texas and Washington.
Current wording
Sales increased by $3.4 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was due to increased production and growth in sales from our facility in Georgia and sales from our new facilities in Texas and Washington, which began shipping and sell products in the second quarter of 2024.
Previous wording
Sales increased by $2.3 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was due to increased production and growth in sales from our facility in Georgia and, to a lesser extent, sales from our newly opened facilities in Texas and Washington.
Current wording
Sales increased by $7.4 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was due to increased production and growth in sales from our facility in Georgia and, to a lesser extent, sales from our new facilities in Texas and Washington, which began shipping and sell products in the second quarter of 2024.
Previous wording
Cost of goods sold increased by $1.8 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, due primarily to increased production and increased sales of $2.3 million.
Current wording
Cost of goods sold increased by $2.4 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, due primarily to production ramp-up at our new Texas and Washington facilities and increased production at our Georgia facilities.
Previous wording
Cost of goods sold increased by $2.9 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, due primarily to increased production and increased sales of $3.9 million.
Current wording
Cost of goods sold increased by $5.4 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, due primarily to production ramp-up at our new Texas and Washington facilities and increased production at our Georgia facilities.
Previous wording
Research and development expenses consist primarily of costs related to the continued development of our production, harvesting, and post-harvest packaging methods, techniques, and processes, as well as production surplus costs related to the development and testing of our production processes during the post-commissioning phase at our new facilities. Our research and development efforts are focused on the development of our processes utilizing our facilities, increasing production yields, developing new leafy green SKUs and value-added products such as grab-and-go salads, and exploring new crops, including spinach, arugula, and berries. Research and development is performed at the Montana, Texas, Washington, and Georgia facilities, where we continue to develop our commercial scale Stack & Flow Technology® and processes for implementation throughout our facility footprint.
Current wording
Research and development expenses consist primarily of costs related to the continued development of our production, harvesting, and post-harvest packaging methods, techniques, and processes, as well as production surplus costs related to the development and testing of our production processes during the post-commissioning phase at our new facilities. Our research and development efforts are focused on the development of environmental controls and Stack and Flow processes to increase production yields and to develop new leafy green SKUs, value-added products such as grab-and-go salads, and new crops, including spinach, arugula, basil, and berries. Research and development is performed at the Montana, Texas, Washington, California, and Georgia facilities, where we continue to develop our commercial scale Stack & Flow Technology® and processes for implementation throughout our facility footprint.
Previous wording
However, in both periods, we incurred costs for the development of our production, harvesting, and post-harvest packaging techniques and processes, including production surplus costs related to the development and testing of our commercial scale Stack & Flow Technology® and production processes at the Georgia, Washington, and Texas facilities.
Current wording
Research and development costs increased by $2.1 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 and increased by $3.0 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase for both the quarter to date and year to date period is related primarily to the additional development of our production, harvesting, and post-harvest packaging techniques and processes, including production surplus costs, related to the development and testing of our commercial scale Stack & Flow Technology® and production processes at the Washington, and Texas facilities.
Previous wording
Selling, general, and administrative expenses consist of employee compensation, including salaries, benefits, and stock-based compensation for our executive, legal, finance, information technology, human resources and sales and marketing teams, expenses for third-party professional services, insurance, marketing, advertising, computer hardware and software, and amortization of intangible assets, among others. We expect selling, general, and administrative expenses to decrease significantly in 2024 due primarily to expected salary cost savings of approximately $5.0 million on an annualized basis as a result of our recent actions to streamline our organizational structure.
Current wording
Selling, general, and administrative expenses consist of employee compensation, including salaries, benefits, and stock-based compensation for our executive, legal, finance, information technology, human resources and sales and marketing teams, expenses for third-party professional services, insurance, marketing, advertising, computer hardware and software, and amortization of intangible assets, among others. We expect selling, general, and administrative expenses to continue decreasing for the remainder of 2024 due primarily to realized employee related cost savings of approximately $5.0 million on an annualized basis as a result of our actions to streamline our organizational structure in late 2023 and early 2024.
Previous wording
Selling, general, and administrative expenses decreased by $6.0 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, related to a $2.3 million decrease in stock-based compensation expense, a $1.4 million decrease in salaries, benefits, and payroll related fees, a $1.3 million decrease in legal, accounting, and professional consulting fees, and a $0.4 million decrease in transaction costs.
Current wording
Selling, general, and administrative expenses decreased by $2.1 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, related to a $1.6 million decrease in stock-based compensation expense, a $0.5 million decrease in salaries, benefits, and payroll related fees, a $0.3 million decrease in legal, accounting, and professional consulting fees, and a $0.1 million decrease in marketing and advertising costs, which was partially offset by an increase of $0.4 million on loss on disposal of fixed assets.
Previous wording
Selling, general, and administrative expenses decreased by $14.4 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily related to a $8.5 million decrease in stock-based compensation expense that was a result of prior year awards that were issued at a higher fair value, as compared to the fair value of awards being expensed in the current period, that fully vested and expensed in the prior quarter. Additional decreases as compared to the prior year period were a $2.6 million decrease in legal, accounting, and professional consulting fees, a $1.7 million decrease in salaries, benefits, and payroll related fees, a $0.4 million decrease in transaction costs, and a $0.4 million decrease in marketing and advertising costs.
Current wording
Selling, general, and administrative expenses decreased by $16.4 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, primarily related to a $10.1 million decrease in stock-based compensation expense that was a result of prior year awards that were issued at a higher fair value, as compared to the fair value of awards being expensed in the current period, that fully vested and expensed in prior periods. Additional decreases as compared to the prior year period were a $2.9 million decrease in legal, accounting, and professional consulting fees, a $2.2 million decrease in salaries, benefits, and payroll related fees, a $0.5 million decrease in transaction costs, and a $0.5 million decrease in marketing and advertising costs, which was partially offset by an increase of $0.4 million on loss on disposal of fixed assets.
Previous wording
The change in fair value of warrant liability includes the mark-to-market adjustments to the warrant liability to reflect its fair value as of the end of the reporting period. The decrease in the fair value of warrant liability for the three months ended June 30, 2024 is primarily due to the decrease in our closing stock price at June 30, 2024 compared to the closing stock price on the prior measurement date of March 31, 2024. The increase in fair value of the warrant liability for the six months ended June 30, 2024 is primarily due to a net increase in our closing stock price at June 30, 2024 compared to the closing stock price on the prior measurement date of December 31, 2023. The period-end close stock price is a key input to the Black-Scholes model we use to measure and estimate the fair value of the warrant at the end of each reporting period.
Current wording
The change in fair value of warrant liability includes the mark-to-market adjustments to the warrant liability to reflect its fair value as of the end of the reporting period. The decrease in the fair value of warrant liability for the three months ended September 30, 2024 is primarily due to the decrease in our closing stock price at September 30, 2024 compared to the closing stock price on the prior measurement date of June 30, 2024. The increase in fair value of the warrant liability for the nine months ended September 30, 2024 is primarily due to a net increase in our closing stock price at September 30, 2024 compared to the closing stock price on the prior measurement date of December 31, 2023. The period-end close stock price is a key input to the Black-Scholes model we use to measure and estimate the fair value of the warrant at the end of each reporting period.
Previous wording
Interest expense consists primarily of contractual interest and amortization of debt issuance costs, net of interest capitalized for construction assets, related to the loans from Cargill Financial and also interest recognized per the terms of our financing obligation related to the Montana Facility and the California Facilities. We capitalize interest costs on borrowings during the construction period of major construction projects as part of the cost of the constructed assets.
Current wording
Interest expense consists primarily of contractual interest and amortization of debt issuance costs, net of interest capitalized for construction assets, related to the loans from Cargill Financial and also interest recognized per the terms of our financing obligations related to our Montana Facility and our Carpinteria Facility and Oxnard Facility (collectively, the “California Facilities”). We capitalize interest costs on borrowings during the construction period of major construction projects as part of the cost of the constructed assets.
Previous wording
Interest expense, net increased by $6.0 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase is primarily due to an increase in the principal amount outstanding on the Senior Facility, and, to a lesser extent, a variable rate increase on the Senior Facility period over period, both of which increased interest expense by $5.7 million over the prior year period. Also contributing to the net increase was $0.3 million of incremental interest expense for the financing obligations related to the California Facilities. During the three months ended June 30, 2024 and 2023, we capitalized $4.4 million and $3.2 million of interest, respectively.
Current wording
Interest expense, net increased by $11.2 million for the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase is primarily due to a significant increase in the principal amount outstanding on the Senior Facility which increased interest expense by $10.9 million over the prior year period. Also contributing to the net increase was $0.3 million of incremental interest expense for the financing obligations related to the California Facilities. During the three months ended September 30, 2024 and 2023, we capitalized $0.4 million and $4.2 million of interest, respectively.
Previous wording
Interest expense, net increased by $11.3 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase is primarily due to an increase in the principal amount outstanding on the Senior Facility, and, to a lesser extent, a variable rate increase on the Senior Facility period over period, both of which increased interest expense by $10.1 million over the prior year period. Also contributing to the net increase was $1.2 million of incremental interest expense for the financing obligations related to the California Facilities. During the six months ended June 30, 2024 and 2023, we capitalized $10.1 million and $5.3 million of interest, respectively.
Current wording
Interest expense, net increased by $22.5 million for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase is primarily due to a significant increase in the principal amount outstanding on the Senior Facility which increased interest expense by $21.0 million over the prior year period. Also contributing to the net increase was $1.5 million of incremental interest expense for the financing obligations related to the California Facilities. During the nine months ended September 30, 2024 and 2023, we capitalized $10.5 million and $9.5 million of interest, respectively.
Previous wording
We have incurred losses and generated negative cash flows from operations since our inception. At June 30, 2024, we had an accumulated deficit of $352.6 million and cash and cash equivalents and restricted cash of $16.2 million.
Current wording
The CEA business is highly capital-intensive. Since our inception, we have incurred losses and generated negative cash flows from operations. At September 30, 2024, we had an accumulated deficit of$387.0 million and, cash and cash equivalents and restricted cash of$6.8 million. Currently, our primary sources of liquidity and capital resources are cash on hand, cash flows generated from the sale of our products, and the credit facilities with Cargill Financial.
Previous wording
The credit facilities with Cargill Financial contain various financial and non-financial covenants and certain restrictions on our business, which include restrictions on additional indebtedness, minimum liquidity and other financial covenants, and material adverse effects, that could cause us to be at risk of default. We are currently in compliance with the financial covenants under the credit facilities, but in the past, we have periodically failed to meet certain quarterly financial covenants. While we were able to obtain permanent waivers for all past covenant violations, there can be no assurances that we will be able to obtain waivers for any future covenant compliance failures. A failure to comply with the covenants and other provisions of these debt instruments, including any failure to make payments when required, would generally result in events of default under such instruments, which could result in the acceleration of a substantial portion of such indebtedness.
Current wording
During the quarter ended September 30, 2024, we failed to comply with the following financial covenants: minimum liquidity, minimum production, maximum cash operating expense ratio, and certain capital expenditure limitations. We obtained waivers for these covenant violations and, therefore, are in compliance with the credit facilities’ covenants as of September 30, 2024. While we obtained permanent waivers for all past covenant violations, there can be no assurances that we will be able to obtain waivers for any future covenant compliance violations. A failure to comply with the covenants and other provisions of these debt instruments, including any failure to make payments when required, would generally result in events of default under such instruments, which could result in the acceleration of a substantial portion of such indebtedness.
Previous wording
In September 2021, the Company and Cargill Financial entered into the Senior Facility and the Subordinated Facility. Subsequent to the amendments described in Note 6, Debt, of the Unaudited Condensed Consolidated Financial Statements, Cargill Financial may in its discretion provide advances under the Facilities of up to $343.5 million (plus paid-in-kind interest and fees), including capital to fund construction at the Company’s facilities in Georgia, Texas, and Washington, subject to certain conditions. As of June 30, 2024, a total of $358.1 million and $51.2 million (including paid-in-kind interest and fees) was outstanding on the Senior Facility and the Subordinated Facility, respectively. Also, the credit facilities, as amended, require quarterly principal and interest payments beginning April 1, 2025, which is reflected in the table below, and the funding of a debt service reserve on April 1, 2025 equal to two quarters of principal and interest payments. The Senior Facility and the Subordinated Facility are included in "Short-term debt" and "Long-term debt" on the Unaudited Condensed Consolidated Balance Sheets.
Current wording
In September 2021, the Company and Cargill Financial entered into the Senior Facility and the Subordinated Facility. Subsequent to the amendments described in Note 6, Debt, of the Unaudited Condensed Consolidated Financial Statements, Cargill Financial may in its sole discretion provide advances under the Facilities of up to $343.5 million (plus paid-in-kind interest and fees), including working capital advances and capital to fund the remaining construction costs at our facilities in Georgia, Texas, and Washington, subject to certain conditions. The credit facilities, as amended, require quarterly principal and interest payments beginning April 1, 2025, which is reflected in the table below, and the funding of a debt service reserve on April 1, 2025 equal to two quarters of principal and interest payments. The Senior Facility and the Subordinated Facility are included in "Short-term debt" and "Long-term debt" on the Unaudited Condensed Consolidated Balance Sheets.
Previous wording
(1)Interest is calculated based on a 12.5% interest rate for the Subordinated Facility and a 13.83% interest rate for the Senior Facility effective as of April 1, 2024.
Current wording
(1)Interest is calculated based on a 12.5% interest rate for the Subordinated Facility and a 13.10% interest rate for the Senior Facility effective as of October 1, 2024.
Previous wording
We have two financing obligations related to sale leaseback transactions that did not qualify for sales treatment of the underlying assets. In June 2020, the Company completed the construction of the Montana Facility. Subsequent to its completion, the Company entered into a sale leaseback transaction of the Montana Facility with Grow Bitterroot, LLC, a related party, for total consideration of $6.9 million with a current lease term of 20 years. On April 27, 2023, Hollandia Real Estate, LLC, a wholly owned subsidiary of the Company, and STORE Master Funding XXXI, LLC consummated a $35 million multi-site sale and leaseback transaction with an initial term of 25 years relating to our Carpinteria Facility and our Oxnard Facility (collectively, the "California Facilities").
Current wording
We have two financing obligations related to sale leaseback transactions that did not qualify for sales treatment of the underlying assets. In June 2020, the Company completed the construction of the Montana Facility. Subsequent to its completion, the Company entered into a sale leaseback transaction of the Montana Facility with Grow Bitterroot, LLC, a related party, for total consideration of $6.9 million with a current lease term of 20 years. On April 27, 2023, Hollandia Real Estate, LLC, a wholly owned subsidiary of the Company, and STORE Master Funding XXXI, LLC consummated a $35 million multi-site sale and leaseback transaction with an initial term of 25 years relating to our California Facilities.
Previous wording
Net cash used in operating activities was $11.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023 due to a net loss of $49.3 million. This was partially offset by non-cash activities of $21.7 million in paid-in-kind interest, $5.3 million in depreciation expense, $4.2 million in amortization of debt issuance costs, a non-cash loss of $3.1 million related to change in fair value of warrant liability, $1.8 million in amortization expense, and $0.9 million net increase of cash from changes in assets and liabilities.
Current wording
Net cash used in operating activities was $28.3 million for the nine months ended September 30, 2024 primarily due to a net loss of $83.6 million. This was partially offset by non-cash activities of $23.3 million in paid-in-kind interest, $10.3 million in depreciation expense, $6.3 million in amortization of debt issuance costs, $2.7 million in amortization expense, $2.1 million in stock-based compensation expense, net of amounts capitalized, and $5.7 million net increase of cash from changes in operating assets and liabilities.
Previous wording
Net cash used in operating activities was $16.1 million for the six months ended June 30, 2023 due to a net loss of $34.2 million. The net loss included a non-cash gain in fair value of warrant liability of $15.2 million. These amounts were partially offset by non-cash activities of $10.4 million in stock-based compensation expense, net of amounts capitalized, $9.3 million of paid-in-kind interest, $3.4 million in depreciation expense, $3.4 million in amortization expense, $3.1 million in amortization of debt issuance costs, and $3.1 million net increase of cash from changes in assets and liabilities.
Current wording
Net cash used in operating activities of $26.0 million for the nine months ended September 30, 2023 was driven by a net loss of $58.5 million. The net loss included a non-cash gain in fair value of warrant liability of $16.9 million. These amounts were partially offset by non-cash activities of $13.7 million in stock-based compensation expense, net of amounts capitalized, $15.8 million of paid-in-kind interest, $5.2 million in depreciation expense, $5.0 million in amortization expense, $5.2 million in amortization of debt issuance costs, and $2.7 million net increase of cash from changes in operating assets and liabilities.
Previous wording
Net cash used in investing activities was $59.8 million for the six months ended June 30, 2024, due primarily to purchases of construction materials and services, equipment, and other items for the Washington, Texas, and Georgia facilities.
Current wording
Net cash used in investing activities was $72.6 million for the nine months ended September 30, 2024, due primarily to purchases of construction materials and services, equipment, and other items for the Washington, Texas, and Georgia facilities.
Previous wording
Net cash used in investing activities was $76.2 million for the six months ended June 30, 2023, due primarily to purchases of equipment and other items for the Washington, Georgia, and Texas facilities.
Current wording
Net cash used in investing activities was $117.2 million for the nine months ended September 30, 2023, due primarily to purchases of equipment and other items for the Washington, Georgia, and Texas facilities.
Previous wording
Net cash provided by financing activities was $70.2 million for the six months ended June 30, 2024, comprised of $70.2 million of net proceeds from the issuance of debt.
Current wording
Net cash provided by financing activities was $90.8 million for the nine months ended September 30, 2024, comprised of $90.9 million of net proceeds from the issuance of debt.
Previous wording
Net cash provided by financing activities was $107.8 million for the six months ended June 30, 2023, comprised of $73.0 million of proceeds from the issuance of debt and $35.0 million of proceeds from the sale and leaseback transaction with STORE for the Hollandia Facilities.
Current wording
Net cash provided by financing activities was $136.6 million for the nine months ended September 30, 2023, comprised of $101.9 million of proceeds from the issuance of debt and $35.0 million of proceeds from the sale and leaseback transaction with STORE for the Hollandia Facilities.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
As of September 30, 2024, our outstanding debt principal totaled $431.7 million, and on April 1, 2025, we are required to begin making quarterly principal payments under the Senior Facility and quarterly interest payments under both the Senior Facility and the Subordinated Facility. Also, the credit facilities contain various financial and non-financial covenants and certain restrictions on our business, which include restrictions on additional indebtedness, minimum liquidity, and other financial covenants, and material adverse effects that could cause us to be at risk of default.