locl-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission File Number						001-40125

LOCAL BOUNTI CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

98-1584830

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S Employer Identification No.)

400 W. Main St.

Hamilton,

59840

(Address of Principal Executive Offices, Including Zip Code)


			(800)			640-4016


(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value of $0.0001 per share

LOCL

New York Stock Exchange

Warrants, thirteen exercisable for one share of Common Stock for $149.50 per share

LOCL WS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes ☐ No ☒

The number of outstanding shares of Local Bounti Corporation's common stock was 8,227,901 at August 7, 2023.

TABLE OF CONTENTS


			Page
Part I – FINANCIAL INFORMATION			5

Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets at June 30, 2023 and December 31, 2022			5
Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022			6
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the three and six months ended June 30, 2023 and 2022			7
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022			8
Notes to Unaudited Condensed Consolidated Financial Statements			10

Item 2. Management 's Discussion and Analysis of Financial Condition and Results of Operations			19

Item 3. Quantitative and Qualitative Disclosures About Market Risk			26

Item 4. Controls and Procedures			26

Part II – OTHER INFORMATION			27

Item 1. Legal Proceedings			27

Item 1A. Risk Factors			27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27

Item 6. Exhibits			28

SIGNATURES			29

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain certain statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as "expect," "anticipate," "believe," "continue," "estimate," "intend," "may," "plan," "project," "seek," "should," "target," "will," or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements include, without limitation, statements regarding our ability to raise capital in the future, future financial performance, business strategies including future acquisitions, expansion plans including construction of future facilities, future results of operations, estimated revenues, losses, projected costs, prospects, plans and objectives of management. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from results expressed or implied in this Quarterly Report on Form 10-Q. The following factors, among others, could cause actual results to differ materially from those described in these forward-looking statements:

•Local Bounti's ability to generate significant revenue;

•the risk that Local Bounti may never achieve or sustain profitability;

•the risk that Local Bounti could fail to effectively manage its future growth;

•the risk that Local Bounti will fail to obtain additional necessary capital when needed on acceptable terms or at all;

•Local Bounti's ability to complete the build out of its current or additional facilities in the future;

•Local Bounti's reliance on third parties for construction, the risk of delays relating to material delivery and supply chains, and fluctuating material prices;

•Local Bounti's ability to scale its operations and decrease its cost of goods sold over time;

•the potential for damage to or problems with Local Bounti's facilities;

•the impact that current or future acquisitions, investments or expansions of scope of existing relationships have on Local Bounti's business, financial condition, and results of operations;

•unknown liabilities that may be assumed in acquisitions;

•restrictions contained in Local Bounti's debt facility agreements with Cargill Financial Services International, Inc. ("Cargill Financial");

•Local Bounti's ability to attract and retain qualified employees;

•Local Bounti's ability to develop and maintain its brand or brands;

•Local Bounti's ability to achieve its sustainability goals;

•Local Bounti's ability to maintain its company culture or focus on its vision as it grows;

•Local Bounti's ability to execute on its growth strategy;

•the risk of diseases and pests destroying crops;

•Local Bounti's ability to compete successfully in the highly competitive natural food market;

•Local Bounti's ability to defend itself against intellectual property infringement claims;

•Local Bounti's ability to effectively integrate the acquired operations of any CEA or similar operations which it acquires into its existing operations;

•changes in consumer preferences, perception, and spending habits in the food industry;

•the risk that seasonality may adversely impact Local Bounti's results of operations;

•Local Bounti's ability to repay, refinance, restructure, or extend its indebtedness as it comes due;

•Local Bounti's ability to comply with the continued listing requirements of the New York Stock Exchange ("NYSE"); and

•the other factors discussed in Item 1A, "Risk Factors" of the Company's most recent Annual Report on Form 10-K and any updates to those factors set forth in Local Bounti's subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

The forward-looking statements contained herein are based on our current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting our business will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the "Risk Factors" identified in Part I, Item 1A of the Company's most recent Annual Report on Form 10-K. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the effect of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking

statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.

In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements. The forward-looking statements made by us in this Quarterly Report on Form 10-Q speak only as of the date made. Local Bounti undertakes no obligation, other than as required by applicable law, to update or revise its forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.

WEBSITE AND SOCIAL MEDIA DISCLOSURE

Investors and others should note that we routinely announce material information to investors and the marketplace using filings with the SEC, press releases, public conference calls, presentations, webcasts and our website. We also intend to use certain social media channels as a means of disclosing information about Local Bounti and our products to our customers, investors and the public (e.g., @Local Bounti and #LocalBounti on Twitter). The information posted on social media channels is not incorporated by reference in this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC. While not all of the information that we post to our website or social media accounts is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others to sign up for and regularly follow our social media accounts. Users may automatically receive email alerts and other information about Local Bounti by signing up for email alerts under the "Investors" section of our website at https://investors.localbounti.com.

ADDITIONAL INFORMATION

Unless the context indicates otherwise, references in this Quarterly Report on Form 10-Q to the "Company," "Local Bounti," "we," "us," "our" and similar terms refer to Local Bounti Corporation and its consolidated subsidiaries.

On June 15, 2023, we effected a 1-for-13 reverse stock split of our common stock. All common share and per share amounts throughout this Quarterly Report on Form 10-Q have been restated to reflect the 1-for-13 reverse stock split. See Note 2, Summary of Significant Accounting Policies, for additional detail.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LOCAL BOUNTI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	June 30,		December 31,
	2023		2022
Assets
Current assets
Cash and cash equivalents	$	33,946	$	13,666
Restricted cash	6,480		11,272
Accounts receivable, net	2,793		2,691
Inventory, net	4,254		3,594
Prepaid expenses and other current assets	3,046		2,881
Total current assets	50,519		34,104
Property and equipment, net	230,849		157,844
Operating lease right-of-use assets	211		137
Goodwill	38,481		38,481
Intangible assets, net	43,921		47,273
Other assets	25		901
Total assets	$	364,006	$	278,740

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	9,045	$	13,757
Accrued liabilities	17,372		9,426
Operating lease liabilities	62		84
Total current liabilities	26,479		23,267
Long-term debt, net of debt issuance costs	179,403		119,814
Financing obligation	49,146		14,139
Operating lease liabilities, noncurrent	152		187
Warrant liability	10,546		—
Total liabilities	265,726		157,407

Commitments and contingencies (Note 11)

Stockholders' equity
Common stock, $0.0001 par value, 400,000,000 shares authorized, 8,188,981 and 7,976,980 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively(1)	1		10
Additional paid-in capital	311,795		300,636
Accumulated deficit	(213,516)		(179,313)
Total stockholders' equity	98,280		121,333
Total liabilities and stockholders' equity	$	364,006	$	278,740

(1) Prior comparative period share amounts issued and outstanding have been retroactively adjusted to reflect the Reverse Stock Split (as defined below). See Note 2, Summary of Significant Accounting Policies, for additional detail.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

LOCAL BOUNTI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Sales	$	7,183	$	6,269	$	13,881	$	6,551
Cost of goods sold(2)(3)(4)	6,331		6,281		12,750		6,520
Gross profit	852		(12)		1,131		31
Operating expenses:
Research and development(3)(4)	3,526		3,073		7,102		5,914
Selling, general and administrative(3)(4)	16,704		23,141		32,685		44,502
Total operating expenses	20,230		26,214		39,787		50,416
Loss from operations	(19,378)		(26,226)		(38,656)		(50,385)
Other income (expense):
Change in fair value of warrant liability	15,151		—		15,151		—
Interest expense, net	(6,472)		(5,465)		(10,771)		(7,108)
Other income	23		28		73		58
Net loss	$	(10,676)	$	(31,663)	$	(34,203)	$	(57,435)

Net loss applicable to common stockholders per basic common share:
Basic and diluted(1)	$	(1.35)	$	(4.65)	$	(4.37)	$	(8.80)
Weighted average common shares outstanding:
Basic and diluted(1)	7,930,371		6,815,947		7,829,673		6,525,453

(1) Prior comparative period share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split (as defined below). See Note 2, Summary of Significant Accounting Policies, for additional detail.

(2) Amounts include the impact for non-cash increase in cost of goods sold attributable to the fair value basis adjustment to inventory in connection with the Pete's Acquisition (as defined below) as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of goods sold	$	—	$	1,042	$	—	$	1,042
Total business combination fair value basis adjustment to inventory	$	—	$	1,042	$	—	$	1,042

(3) Amounts include stock-based compensation as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of goods sold	$	(11)	$	47	$	76	$	52
Research and development	595		485		1,333		970
Selling, general and administrative	3,850		11,164		8,984		21,687
Total stock-based compensation expense, net of amounts capitalized	$	4,434	$	11,696	$	10,393	$	22,709

(4) Amounts include depreciation and amortization as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of goods sold	$	894	$	891	$	1,830	$	953
Research and development	466		218		1,032		531
Selling, general and administrative	1,956		2,272		3,912		2,438
Total depreciation and amortization	$	3,316	$	3,381	$	6,774	$	3,922

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

LOCAL BOUNTI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 and 2022

(in thousands, except share data)


	Voting Common Stock(1)			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance, December 31, 2022	7,976,980	$	10	$	300,636	$	(179,313)	$	121,333
Vesting of restricted stock units, net	41,502	—		—		—		—
Stock-based compensation	—	—		6,361		—		6,361
Net loss	—	—		—		(23,527)		(23,527)
Balance, March 31, 2023	8,018,482	10		306,997		(202,840)		104,167



Vesting of restricted stock units, net	171,051	—		—		—		—
Reclass of par value related to additional paid in capital	—	(9)		9		—		—
Cash paid for fractional shares from the Reverse Stock Split	(552)	—		(3)		—		(3)
Stock-based compensation	—	—		4,792		—		4,792
Net loss	—	—		—		(10,676)		(10,676)
Balance, June 30, 2023	8,188,981	$	1	$	311,795	$	(213,516)	$	98,280


	Voting Common Stock(1)			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance, December 31, 2021	6,641,914	$	9	$	169,916	$	(68,242)	$	101,683
Vesting of restricted stock units, net	9,298	—		—		—		—
Stock-based compensation	—	—		11,042		—		11,042
Net loss	—	—		—		(25,772)		(25,772)
Balance, March 31, 2022	6,651,212	9		180,958		(94,014)		$	86,953
Issuance of common stock for business combination	434,969	—		50,948		—		50,948
Issuance of common stock for debt modification	148,687	—		17,416		—		17,416
Issuance of common stock upon exercise of warrants	1	—		—		—		—
Vesting of restricted stock units, net	8,859	—		—		—		—
Stock-based compensation	—	—		11,783		—		11,783
Net loss	—	—		—		(31,663)		(31,663)
Balance, June 30, 2022	7,243,728	$	9	$	261,105	$	(125,677)	$	135,437

(1) Share amounts have been retroactively adjusted to reflect the Reverse Stock Split (as defined below). See Note 2, Summary of Significant Accounting Policies, for additional detail.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

LOCAL BOUNTI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Six Months Ended June 30,
	2023		2022
Operating Activities:
Net loss	$	(34,203)	$	(57,435)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	3,423		1,826
Amortization	3,351		2,096
Reduction of right-of-use assets from operating leases	—		—
Stock-based compensation expense, net of amounts capitalized	10,393		22,709
Bad debt allowance	4		7
Inventory allowance	315		378
Loss on disposal of property and equipment	152		280
Gain related to change in fair value of warrant liability	(15,151)		—
Paid-in-kind interest	9,256		—
Amortization of debt issuance costs	3,085		1,858
Interest on financing obligation	232		282
Changes in operating assets and liabilities:
Accounts receivable	(106)		(92)
Inventory	(975)		618
Prepaid expenses and other current assets	496		714
Other assets	—		2,324
Accounts payable	842		2,318
Operating lease liabilities	(135)		5
Accrued liabilities	2,933		(4,545)
Net cash used in operating activities	(16,088)		(26,657)

Investing Activities:
Purchases of property and equipment	(76,187)		(25,467)
Asset acquisition	—		(25,813)
Business combination, net of cash acquired	—		(91,393)
Net cash used in investing activities	(76,187)		(142,673)

Financing Activities:
Proceeds from financing obligation	35,000		—
Proceeds from issuance of debt	72,992		111,881
Payment of debt issuance costs	(226)		(2,342)
Fractional shares paid in cash pursuant to Reverse Stock Split	(3)		—
Net cash provided by financing activities	107,763		109,539
Net increase in cash and cash equivalents and restricted cash	15,488		(59,791)
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	24,938		101,077
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	40,426	$	41,286

Reconciliation of cash, cash equivalents, and restricted cash from the Unaudited Condensed Consolidated Balance Sheets to the Unaudited Condensed Consolidated Statements of Cash Flows


	Six Months Ended June 30,
	2023		2022
Cash and cash equivalents	$	33,946	$	22,703
Restricted cash and cash equivalents	6,480		18,583
Total cash and cash equivalents and restricted cash and cash equivalents as shown in the Unaudited Condensed Consolidated Statements of Cash Flows	$	40,426	$	41,286


Non-cash activities:
Warrants issued in connection with debt modification	$	25,697	$	—
Purchases of property and equipment included in accounts payable and accrued liabilities	$	(543)	$	(10,039)
Non-cash equity settlement on employee receivable	$	176	$	17,416
Stock-based compensation capitalized to property and equipment, net	$	936	$	—
Non-cash financing obligation activity	$	—	$	840
Right-of-use asset obtained in exchange for operating lease liability	$	—	$	388
Reduction of right of use asset and associated lease liability due to lease cancellation	$	—	$	(203)
Issuance of common stock related to modification of line of credit	$	—	$	116

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

LOCAL BOUNTI CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Business Description

Description of the Business

Local Bounti Corporation ("Local Bounti" or the "Company") was founded in August 2018 and is headquartered in Hamilton, Montana. The Company is a producer of sustainably grown living lettuce, herbs, and loose leaf lettuce. The Company is a controlled environment agriculture ("CEA") company that utilizes patent pending Stack & Flow TechnologyTM, which is a hybrid of vertical and hydroponic greenhouse farming, to grow healthy food sustainably and affordably. Through the Company's CEA process, its goal is to produce environmentally sustainable products in a manner that will increase harvest efficiency, limit water usage, and reduce the carbon footprint of the production and distribution process. The Company's primary products include living butter lettuce as well as packaged salad and cress.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Management of Local Bounti is responsible for the Unaudited Condensed Consolidated Financial Statements included in this document, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the statements herein.

The Unaudited Condensed Consolidated Financial Statements do not include all of the disclosures required by GAAP for annual financial statements and should be read in conjunction with the audited Consolidated Financial Statements of the Company for the year ended December 31, 2022 (the "Annual Financial Statements") as filed with the SEC on March 31, 2023. In the opinion of the Company, the accompanying Unaudited Condensed Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary to fairly present its financial position as of June 30, 2023, its results of operations for the three and six months ended June 30, 2023 and 2022, its cash flows for the six months ended June 30, 2023 and 2022, and its stockholders' equity for the three and six months ended June 30, 2023 and 2022. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2023 or any future period. The Unaudited Condensed Consolidated Balance Sheet at December 31, 2022 was derived from the Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.

Liquidity

The Company has incurred losses and generated negative cash flows from operations since its inception. At June 30, 2023, we had an accumulated deficit of $213.5 million and cash and cash equivalents of $33.9 million. The Company believes that its current cash position, cash generated from sales, borrowing capacity, expected cash interest payment deferrals under its credit facilities with Cargill Financial, and its ability to secure financing, if necessary, will be adequate to fund planned operations of the Company for the next 12 months from the issuance of these Unaudited Condensed Consolidated Financial Statements. However, there can be no assurance that equity or debt financing will be available to the Company should it need it or, if available, that the terms will be satisfactory to the Company and not dilutive to existing shareholders. The Company's failure to raise capital as and when needed could have significant negative consequences for our business, financial condition and results of consolidated operations.

Reverse Stock Split Stockholder Approval

On April 3, 2023, the Company's board of directors (the "Board") authorized an amendment to the Company's Certificate of Incorporation to, at the discretion of the Board, effect a reverse stock split of the shares of Local Bounti's common stock, at any time prior to June 30, 2024, at a ratio within a range of 1-for-2 to 1-for-25, with the exact ratio and effective time of the reverse stock split to be determined at the discretion of the Board without further approval or authorization of the Company's stockholders. The amendment was approved by stockholders at a special meeting of stockholders held on April 26, 2023. On June 4, 2023, the Board approved a 1-for-13 reverse stock split (the "Reverse Stock Split") of the Company's issued and outstanding shares of common stock, par value $0.0001 per share. Trading of the Company's common stock on the NYSE commenced on a split-adjusted basis on June 15, 2023.

As a result of the Reverse Stock Split, every 13 shares of common stock issued and outstanding were automatically reclassified into one new share of common stock without any action on the part of the holders. The Company paid cash in lieu of fractional shares resulting from the Reverse Stock Split. Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, and warrants exercisable for shares of Common Stock, as well as to the number of shares issuable under the Company’s equity incentive plans and certain existing agreements.

Accordingly, for the Company’s publicly traded warrants trading under the symbol "LOCL WS," every 13 warrants became exercisable for one share of common stock at an exercise price of $149.50 per share of common stock. The common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The Reverse Stock Split did not affect the number of authorized shares of common stock or the par value of the common stock.

All share and per share amounts presented herein with respect to common stock have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.

There have been no material changes or updates to the Company's significant accounting policies from those described in the Annual Financial Statements except for the updates noted below.

Derivatives

Equity instruments issued in connection with debt and other equity instruments are required to be evaluated for derivative liability accounting treatment in accordance with Accounting Standards Codification ("ASC") 815, Derivatives and Hedging. Unless certain exception criteria are met, the freestanding financial instrument must be recognized as a separate liability and subsequently measured on the balance sheet at fair value in accordance with ASC 820, Fair Value Measurement.

The Company has evaluated the terms and features of its debt and equity instruments and identified a freestanding equity instrument (the March 2023 Cargill Warrant, as defined below) issued in connection with the Sixth Amendment (as defined below) that did not meet the criteria necessary to qualify for the derivative scope exception. Due to certain provisions that could result in the issuance of additional shares upon settlement, the warrant instrument did not meet the fixed-for-fixed criteria necessary for the instrument to be classified and recorded within equity. As a result, the warrant is accounted for at fair value until settled through exercise or expiration and is classified as a derivative liability on the Unaudited Condensed Consolidated Balance Sheet at June 30, 2023. The initial $25.7 million fair value of the March 2023 Cargill Warrant was recorded as additional debt discount to the Facilities (as defined below) and a derivative liability in the "Warrant Liability" line item of the Unaudited Condensed Consolidated Balance Sheets. The change in fair value of the warrant will be remeasured each quarter until the instrument is settled or expires with changes in fair value recorded in "Change in fair value of warrant liability" in the Unaudited Condensed Consolidated Statements of Operations. The fair value of the warrant liability is determined using a Black-Scholes-Merton option pricing model. See Note 6, Debt, for more information.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which amends the guidance on reporting credit losses for assets held at amortized cost and available for sale debt securities. For assets held at amortized cost, the amendment eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost of the financial assets to present the net amount expected to be collected. The Company adopted this guidance on January 1, 2023 using the modified retrospective method. The adoption of this guidance did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liability and equity, including convertible instruments and contracts on an entity’s own equity. The standard reduces the number of models used to account for convertible instruments, removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and requires the if-converted method for calculation of diluted earnings per share for all convertible instruments. The standard is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

3. Inventory

Inventory consisted of the following:


	June 30,		December 31,
	2023		2022
	(in thousands)
Raw materials	$	2,552	$	2,018
Production(1)	2,530		2,213
Finished goods(1)	178		54
Inventory allowance	(1,006)		(691)
Total inventory, net	$	4,254	$	3,594

_____________________

(1) Approximately $1.8 million of inventory classified as finished goods at December 31, 2022 has been reclassified to the production category at June 30, 2023 to conform the historical presentation to the current period presentation, which reflects the nature and timing of the Company's current harvesting and cost accumulation processes.

4. Property and Equipment

Property and equipment consisted of the following:


	June 30,		December 31,
	2023		2022
	(in thousands)
Machinery, equipment, and vehicles	$	42,028	$	32,774
Land	19,253		19,296
Buildings and leasehold improvements	62,760		55,392
Construction-in-progress	116,602		56,753
Less: Accumulated depreciation	(9,794)		(6,371)
Property and equipment, net	$	230,849	$	157,844

Depreciation expense related to property and equipment was $1.6 million and $1.3 million for the three months ended June 30, 2023 and 2022, respectively, and $3.4 million and $1.8 million for the six months ended June 30, 2023 and 2022, respectively.

5. Accrued Liabilities

Accrued liabilities consisted of the following:


	June 30,		December 31,
	2023		2022
	(in thousands)
Interest	$	6,541	$	4,372
Construction	5,800		825
Payroll	1,845		1,470
Production	1,464		1,438
Professional services	808		894
Other	914		427
Total accrued liabilities	$	17,372	$	9,426

6. Debt

Debt consisted of the following:


	June 30,		December 31,
	2023		2022
	(in thousands)
Senior Facility	$	177,962	$	98,442
Subordinated Facility	45,228		42,500
Unamortized deferred financing costs	(43,787)		(21,128)
Total debt	$	179,403	$	119,814

Agreements with Cargill Financial

As previously disclosed in the Company's Annual Financial Statements, Local Bounti Operating Company LLC ("Local Bounti Operating"), the Company and certain subsidiaries entered into with Cargill Financial a First Amendment, a Second Amendment, and a Third Amendment to the Credit Agreement, dated as of September 3, 2021, and the Subordinated Credit Agreement, dated as of September 3, 2021 (the "Original Credit Agreements," and the facilities thereunder, the "Senior Facility" and the "Subordinated Facility," respectively and, collectively, the "Facilities") (which are further described in the Annual Financial Statements) in March 2022, August 2022, and December 2022, respectively. As further described below, Local Bounti Operating, the Company, and certain subsidiaries entered into with Cargill Financial a Fourth Amendment, a Fifth Amendment, and a Sixth Amendment to the Original Credit Agreements (as so amended, collectively referred to as the "Amended Credit Agreements").

Fourth Amendment to the Original Credit Agreements

On January 6, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Fourth Amendment to the Original Credit Agreements (the "Fourth Amendment") with Cargill Financial. The Fourth Amendment reduced the minimum liquidity covenant in each of the Original Credit Agreements from $20.0 million to $11.0 million.

Fifth Amendment to the Original Credit Agreements

On March 13, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Fifth Amendment to the Original Credit Agreements (the "Fifth Amendment") with Cargill Financial. The Fifth Amendment (i) reduced the amount of cash required to be held in the debt service reserve account by approximately $11.0 million until April 2, 2024, at which time the amount of cash required to be held in the debt service reserve account will be an amount equal to the sum of interest and principal payments that would be required under the Amended Credit Agreements for two calendar quarters; (ii) allowed for the payment in kind of the quarterly interest payment due and payable for the quarter ended March 31, 2023 and allowed for the payment in kind of the unused commitment fee payable for the quarter ended March 31, 2023 which amounted to $4.3 million; and (iii) reduced the minimum liquidity covenant in each of the Amended Credit Agreements from $11.0 million to $1.0 million. The aggregate amount of outstanding loans and undrawn commitments under the Amended Credit Agreements remained at $170.0 million (plus interest and fees paid in kind).

Sixth Amendment to the Original Credit Agreements

On March 28, 2023, Local Bounti Operating, the Company and certain subsidiaries entered into a Sixth Amendment to the Original Credit Agreements (the "Sixth Amendment") with Cargill Financial. The Sixth Amendment, among other things, (i) expanded the Facilities from $170.0 million to up to $280.0 million (plus, in each case, interest and fees paid in kind), including capital to fund construction at the Company’s facilities in Georgia, Texas, and Washington, subject to certain conditions and at Cargill Financial's discretion; (ii) allowed for the payment in kind of the quarterly interest payment due and payable for the quarter ending June 30, 2023 which amounted to $5.0 million; and (iii) added a minimum production covenant based on a projected production forecast. In consideration for the improved flexibility and the expanded size of the Facilities, Local Bounti issued Cargill Financial 5.4 million warrants with a per share exercise price of $13.00 per share (both number of warrants and per share exercise price adjusted for the Reverse Stock Split) and a 5-year term that expires on March 28, 2028 (the "March 2023 Cargill Warrant").

The Company evaluated the before and after cash flow changes resulting from the Fourth, Fifth and Sixth Amendments and concluded the change in cash flows underlying these cumulative amendments were not significantly different from the cash flows underlying the terms in the Original Credit Agreements; therefore, the Company accounted for these amendments as a modification rather than as an extinguishment. Consequently, the $25.7 million fair value of the March 2023 Cargill Warrant was recorded as an additional debt discount that will amortize to interest expense over the remaining term of the Amended Credit Agreements. Fees paid to non-lender third parties as a result of the modification have been expensed as incurred.

Subsequent to the Sixth Amendment, the interest rate on the Subordinated Facility is 12.5% per annum and the interest rate on the Senior Facility is equal to SOFR plus a margin (which varies between 7.5% to 8.5% depending on the Senior Facility net leverage ratio) per annum, with accrued interest paid quarterly in arrears on the first business

day of the subsequent quarter (and paid in cash beginning October 1, 2023) through the maturity date on September 3, 2028.

Principal payments under the Senior Facility are payable quarterly, beginning April 1, 2025, based on a 10-year straight line amortization schedule, with the remaining unpaid balance under both the Senior Facility and the Subordinated Facility due on the September 3, 2028 maturity date.

In accordance with the Original Credit Agreements, the Company is required to have a debt service reserve account which is shown as restricted cash and cash equivalents on the Unaudited Condensed Consolidated Balance Sheets. The Fifth Amendment and Sixth Amendment, taken together, reduced the minimum balance to maintain in the debt service reserve account to $0 through March 31, 2025. From and after April 1, 2025, the minimum balance to maintain in the debt service reserve account will be increased to two quarters of scheduled interest payments and two quarters of scheduled principal payments.

The Amended Credit Agreements also contain certain financial covenants that become measurable and effective beginning in the third quarter of 2025, including debt coverage, net leverage, and interest coverage ratios. Additional covenants and other provisions exist that may limit or affect the timing of the Company's ability, among other things, to undergo a merger or consolidation, sell certain assets, create liens, guarantee certain obligations of third parties, make certain investments or acquisitions, and declare dividends or make distributions. The Facilities are secured with a first-priority lien against substantially all of the assets of the Company and its subsidiaries, including their intellectual property. The Company was in compliance with all applicable covenants as of June 30, 2023.

7. Financing Obligation

On April 27, 2023, Hollandia Real Estate, LLC ("Hollandia"), a wholly-owned subsidiary of the Company, and STORE Master Funding XXXI, LLC ("STORE") consummated a $35 million multi-site sale and leaseback transaction relating to the Carpinteria Facility and the Oxnard Facility (collectively, the "Hollandia Facilities").

In connection with the sale and leaseback transaction, Hollandia and STORE entered into a Master Lease Agreement (the "STORE Lease"), dated April 27, 2023 (the "Effective Date"). Pursuant to the STORE Lease, Hollandia will lease the Hollandia Facilities from STORE, subject to the terms and conditions of the STORE Lease.

The STORE Lease provides for an initial term of 25 years, commencing on the Effective Date and expiring on April 30, 2048 ("Initial Term"). Hollandia has four options to extend the Initial Term for separate renewal terms of five years each (together with the Initial Term, the "Lease Term"). Subject to adjustment as set forth in the STORE Lease, the combined annual minimum rent payable to STORE during the first year of the Lease Term is an amount equal to $3.2 million (the "Base Annual Rent") with payments made monthly, subject to annual rent increases of three percent (3%) of the Base Annual Rent.

The STORE Lease contains certain representations, warranties, covenants, obligations, conditions, indemnification provisions and termination provisions customary for sale and leaseback transactions.

As part of the STORE Lease, Hollandia delivered to STORE a letter of credit in an amount equal to $6.5 million as security for the full and faithful performance by Hollandia of the terms, provisions, covenants and conditions of the STORE Lease. In the event of default under the Lease, STORE shall have the right to draw on the letter of credit to satisfy any monetary obligations under the STORE Lease. The letter of credit shall be released after five (5) years, contingent on achieving certain financial metrics as specified in the STORE Lease. The $6.5 million for the letter of credit is included in "Restricted cash" on the Unaudited Condensed Consolidated Balance Sheets.

The Company accounted for the STORE Lease as a financing transaction in accordance with ASC 842, Leases, as the STORE Lease was determined to be a finance lease. The presence of a finance lease indicates that control of the Hollandia Facilities has not transferred to STORE and, as such, the transaction was deemed a failed sale and leaseback and the proceeds from the sale and leaseback transaction are therefore accounted for as a financing obligation. The leased assets remain on the Unaudited Condensed Consolidated Balance Sheets and will continue to be depreciated over their original estimated useful lives, and the contractual lease payments will be allocated between interest expense (as imputed interest) and repayment of the $35 million financing obligation through April 30, 2048, which is the end of the 25-year lease term and when the Company expects control of the leased assets to transfer to STORE. The Company utilized a rate of 11.06% to calculate imputed interest and recognized $0.7 million of interest expense for the three months ended June 30, 2023 related to the STORE Lease.

The following table summarizes future financing obligation payments for the Initial Term by fiscal year through April 30, 2048, when control of the leased assets is expected to transfer to STORE:


	STORE Lease Financing Obligation
	(in thousands)
Remainder of 2023	$	1,619
2024	3,302
2025	3,401
2026	3,503
2027	3,608
Thereafter	102,063
Total financing obligation payments	117,496
Unamortized deferred financing costs	(224)
Amount representing interest	(97,622)
Net financing obligation and asset at end of term	15,240
Total financing obligation	$	34,890

8. Fair Value Measurements

The following table sets forth, by level within the fair value hierarchy, the accounting of the Company’s financial assets and liabilities at fair value on a recurring and nonrecurring basis according to the valuation techniques the Company uses to determine their fair value:


	June 30, 2023
	Level 1		Level 2		Level 3
	(in thousands)
Recurring fair value measurements
Assets:
Money market funds	$	40,135	$	—	$	—
Liabilities:
March 2023 Cargill Warrant liability	$	—	$	—	$	10,546


	December 31, 2022
	Level 1		Level 2		Level 3
	(in thousands)
Recurring fair value measurements
Assets:
Money market funds	$	13,997	$	—	$	—

The fair value of the Company's money market funds is determined using quoted market prices in active markets for identical assets.

The following table presents changes in the Level 3 fair value measurement for the warrant liability on a recurring basis:


	June 30,
	2023
	(in thousands)
Balance as of March 28, 2023 (initial measurement)	$	25,697
Fair value measurement adjustments	(15,151)
Balance as of June 30, 2023	$	10,546

The key inputs into the Black-Scholes model were as follows at their measurement dates:


	June 30, 2023		March 28, 2023 (initial measurement)
Input
Share price	$	2.72	$	5.84
Risk-free interest rate	4.13%		3.63%
Volatility	132%		135%
Exercise price	$	13.00	$	13.00
Warrant life	4.7		5.0
Dividend yield	—%		—%

As of June 30, 2023 and December 31, 2022, the carrying value of the Company's cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses approximated their respective fair values due to their short-term maturities. There were no transfers of financial instruments between Level 1, Level 2, and Level 3 during the periods presented.

9. Stock-Based Compensation

Restricted Common Stock Awards

A summary of the restricted common stock awards ("RSAs") for the six months ended June 30, 2023 is as follows:


	Number of Shares of Restricted Common Stock Awards1	Average Grant-Date Fair Value1
Unvested at December 31, 2022	288,804	$	24.05
Forfeited	(19,175)	$	36.27
Vested	(46,937)	$	34.19
Unvested at June 30, 2023	222,692	$	20.83

_____________________

(1) Share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split. See Note 2, Summary of Significant Accounting Policies, for additional detail.

Total expense of RSAs for the three and six months ended June 30, 2023 was $0.3 million and $0.5 million, respectively. Total expense of RSAs for the three and six months ended June 30, 2022 was $0.9 million and $1.8 million, respectively. As of June 30, 2023, the total compensation cost related to unvested RSAs not yet recognized is $1.3 million. Unvested RSA expense not yet recognized is expected to be recognized over a weighted average period of 1.29 years.

Restricted Stock Units

A summary of the restricted stock units ("RSUs") activity for the six months ended June 30, 2023 is as follows:


	Number of RSUs(1)	Average Grant-Date Fair Value(1)
Unvested at December 31, 2022	727,484	$	81.51
Granted	574,379	$	10.58
Forfeited	(12,763)	$	69.50
Vested	(342,900)	$	64.85
Vested, unsettled	85,813	$	73.01
Unvested and outstanding at June 30, 2023	1,032,013	$	47.00

_____________________

(1) Share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split. See Note 2, Summary of Significant Accounting Policies, for additional detail.

Total expense of RSUs, net of amounts capitalized, for the three and six months ended June 30, 2023 was $4.1 million and $9.9 million, respectively. Total expense of RSUs for the three and six months ended June 30, 2022 was $10.9 million and $21.0 million, respectively. As of June 30, 2023, the total compensation cost related to unvested RSUs not yet recognized is $19.9 million. Unvested RSU expense not yet recognized is expected to be recognized over a weighted average period of 2.1 years.

10. Net Loss Per Share

Net loss per share is computed by dividing net loss by the weighted average number of common stock outstanding during the period. In computing net loss per share, the Company's unvested restricted common stock and warrants are not considered participating securities. Diluted loss per common share is the same as basic loss per common share for the three and six months ended June 30, 2023 and 2022 because the effects of potentially dilutive items were anti-dilutive given the Company's net loss. Diluted net loss per common share represents an adjustment to basic net loss per share attributable to common stockholders giving effect to all potential common shares that were dilutive and outstanding during the period.

The following table sets forth the computation of the Company's net loss per share attributable to common stockholders:


	Three Months Ended June 30,				Six Months Ended June 30,
	(in thousands, except share and per share data)(1)
	2023		2022		2023		2022
Net loss	$	(10,676)	$	(31,663)	$	(34,203)	$	(57,435)
Weighted average common stock outstanding, basic and diluted	7,930,371		6,815,947		7,829,673		6,525,453
Net loss per common share, basic and diluted	$	(1.35)	$	(4.65)	$	(4.37)	$	(8.80)

_____________________

(1) Share and per share amounts have been retroactively adjusted to reflect the Reverse Stock Split. See Note 2, Summary of Significant Accounting Policies, for additional detail.

The following table discloses the weighted-average shares outstanding of securities that could potentially dilute basic net earnings per share in the future that were not included in the computation of diluted net loss per share as the impact would be anti-dilutive:


	Three Months Ended June 30,		Six Months Ended June 30,
	2023	2022	2023	2022
Restricted Stock(1)	222,692	405,444	236,053	410,218
Warrants(2)	6,241,475	887,638	3,697,659	887,639

_____________________

(1) Share amounts have been retroactively adjusted to reflect the Reverse Stock Split. See Note 2, Summary of Significant Accounting Policies, for additional detail.

(2) Subsequent to the Reverse Stock Split, every 13 common shares under warrants becomes exercisable for one share of common stock at an exercise price of $149.50 per share of common stock, which is reflected in the table above. See Note 2, Summary of Significant Accounting Policies, for additional detail.

11. Commitments and Contingencies

Legal Matters

The Company has and may become party to various legal proceedings and other claims that arise in the ordinary course of business. The Company records a liability when it believes that it is probable that a loss will be incurred, and the amount of loss or range of loss can be reasonably estimated. Management is currently not aware of any matters that it expects will have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements, including the Notes to those statements, included elsewhere in this Quarterly Report on Form 10-Q, and the section entitled "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. As discussed in more detail in the section entitled "Cautionary Note Regarding Forward-Looking Statements," this discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements.

Our Mission and Vision

Our mission is to bring our farm to your kitchen. Our vision is to deliver the freshest, locally grown produce over the fewest food miles. We believe that happy plants make happy taste buds and we are committed to reimagining the standards of freshness. We also believe that local is the best kind of business, and we are committed to helping communities thrive for generations to come. We are committed to building empowered local teams. Together, we believe we are capable of extraordinary things.

Company Overview

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 patent pending Stack & Flow Technology™ to grow healthy food sustainably and affordably. Our proprietary process is a hybrid, 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, consistent, and delicious 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.

Our first facility in Hamilton, Montana (the "Montana Facility") commenced construction in 2019 and reached full 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. Immediately after expansion, this facility was dedicated equally to commercial production and research and development that focused on new products, technology and system design. Today, the majority of the Montana Facility is dedicated to commercial production, but we continue to utilize dedicated space for research and development to improve our existing and future facilities.

On April 4, 2022, Local Bounti acquired California-based complementary greenhouse farming company Hollandia Produce Group, Inc. and its subsidiaries (the "Pete's Acquisition"), which operate under the name Pete's ("Pete's"). Through the Pete's Acquisition, we significantly increased our growing footprint, now operating three additional greenhouse growing facilities, including two in California and one in Georgia, the latter of which became operational in July 2022. We now have distribution to approximately 13,000 retail locations across 35 U.S. states and Canadian provinces, primarily through direct relationships with blue-chip retail customers, including Albertsons, Sam's Club, Kroger, Target, Walmart, Whole Foods, and AmazonFresh. Today, our primary product is living butter lettuce – for which we are a leading provider with an approximate 80% share of the CEA market within the Western U.S.

We derive the majority of our revenue from the sale of produce. We grow and package fresh greens that are sold into existing markets and channels such as food retailers and food service distributors from our Montana and two California facilities, and beginning in the third quarter of 2022, from our Georgia facility.

We offer sales incentives to our customers, including temporary price reductions. We anticipate that these promotional activities could impact sales and that changes in such activities could impact period-over-period results. Sales may also vary from period to period depending on the purchase orders we receive, the volume and mix of products sold and the channels through which our products are sold. In response to realized cost inflation, we have implemented contractually allowable price increases which we anticipate to benefit from in 2023 and beyond.

We intend to increase our production capacity and expand our reach to new markets, new geographies, and new customers through either the building of new facilities or through the acquisition of existing greenhouse facilities which we would plan to update with our Stack & Flow Technology™. We conduct an ongoing build-versus-buy analysis whenever we decide to build a new facility or acquire an existing facility. We also expect to expand our product offering to new varieties of fresh greens, herbs, berries, and other produce. Additionally, we evaluate commercial opportunities as part of these expansion efforts on an ongoing basis.

In October 2022, we signed a five-year offtake agreement with Sam's Club for our leafy greens production starting at our greenhouse facility in Georgia. We continue to advance our expansion of the Georgia facility and further

enhance capacity with the addition of our Stack & Flow TechnologyTM to meet pent up demand for Local Bounti packaged salads to current customers and open the opportunity to earn new business in that region.

Commercial Facility Expansion Update

Byron, Georgia Facility Progress

Construction of the greenhouse Phase 1-B was completed in early second quarter and construction of Phase 1-C is well underway with approximately 90% of that building now enclosed. The remaining Stack zones that comprise Phase 1-C are expected to be completed early in the fourth quarter 2023. Our Stack & Flow TechnologyTM is expected to add approximately 40% of incremental revenue generating capacity to the finished Georgia facility, which will be comprised of six acres of greenhouses and multiple climate, water, and spectral controlled Stack zones.

Mount Pleasant, Texas Facility Progress

With the greenhouse structure largely complete, we will begin installation of the Stack zones in the third quarter of 2023. The addition of this new facility in northeast Texas is expected to fortify our distribution in markets across Texas, Oklahoma, Louisiana, Mississippi, Arkansas, Kansas, and Missouri. Further, the facility is designed to provide additional capacity to meet existing demand from our direct relationships with blue-chip retailers and distributors throughout the region. The facility is still expected to commence operations in the fourth quarter of 2023.

Pasco, Washington Facility Progress

The structural steel work for the greenhouses is now complete and glass installation is progressing. When complete, the facility will be comprised of three acres of greenhouse that will be supported by multiple Stack zones. The facility will help bolster our distribution capabilities in the Pacific Northwest and is still expected to commence operations early in the first quarter 2024, which reflects our decision to stagger construction to accommodate the commissioning of our Texas facility in the fourth quarter of 2023.

Recent Developments

Appointment of New Chief Executive Officer

Effective as of June 5, 2023, the Board appointed Anna Fabrega as the Chief Executive Officer and principal executive officer of the Company. Ms. Fabrega previously served as Chief Executive Officer of Freshly, LLC, a direct-to-consumer fresh prepared food subscription service, from October 2021 to November 2022. Ms. Fabrega initially joined Freshly as Chief Commercialization Officer in January 2021. Prior to joining Freshly, from October 2011 to January 2021, Ms. Fabrega served in successively more senior leadership roles with Amazon.com, Inc., including Managing Director of Amazon Go and Amazon Kitchen, Director of Amazon Go Category Leader, General Manager of Amazon Sports, and Senior Manager, Marketing and Third-Party Marketplace – Sporting Goods. Ms. Fabrega earned a B.A. in International Business from the University of Florida and an M.B.A. from the Kellogg School of Management at Northwestern University.

Factors Affecting Our Financial Condition and Results of Operations

We expect to expend substantial resources as we:

•identify and invest in future growth opportunities, including new product lines;

•complete construction and commissioning of new facilities in Pasco, Washington, and Mount Pleasant, Texas;