locl-20220331

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 March 31, 2022


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

For the transition period from to

LOCAL BOUNTI CORPORATION

(Exact name of registrant as specified in its charter)


Delaware	001-40125		98-1584830
(State or other jurisdiction of incorporation or organization)	(Commission File Number)		(I.R.S Employer Identification No.)
220 W. Main St.	Hamilton	MT	59840
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (800) 640-4016

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, each exercisable for one share of Common Stock for $11.50 per share

LOCL WS

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

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, anon-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-2of 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 94,105,753 at May 5, 2022.

TABLE OF CONTENTS


			Page
Part I – F INANCIAL INFORMATION			6

Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 2022 (Unaudited) and December 31, 2021			6
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021			7
Unaudited Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the three months ended March 31, 2022 and 2021			8
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021			9
Notes to Unaudited Condensed Consolidated Financial Statements			11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18

Item 3. Quantitative and Qualitative Disclosures About Market Risk			23

Item 4. Controls and Procedures			23

Part II – OTHER INFORMATION			24

Item 1. Legal Proceedings			24

Item 1A. Risk Factors			24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52

Item 6. Exhibits			52

SIGNATURES			53

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Sections of this Quarterly Report on Form 10-Q including, in particular, our Management’s Discussion and Analysis of Financial Condition and Results of Operations above, contain forward-looking statements. These forward-looking statements reflect our views regarding current expectations and projections about future events and conditions and are based on currently available information. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict, including the Risk Factors identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021and, if applicable, updated in Item 1A of this Quarterly Report on Form 10-Q; therefore, our actual results could differ materially from those expressed, implied or forecast in any such forward-looking statements. Expressions of future goals and expectations and similar expressions, including "may," "will," "should," "could," "aims," "seeks," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "potential," "targets," and "continue," reflecting something other than historical fact are intended to identify forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents we file or furnish from time to time with the SEC, particularly our Annual Report on Form 10-K for the year ended December 31, 2021, and our subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. The following factors among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward- looking statements:

•Local Bounti is an early-stage company with a history of losses and expects to incur significant expenses and continuing losses for the foreseeable future. Local Bounti has only recently started to generate revenue and its ability to continue to generate revenue is uncertain given Local Bounti’s limited operating history. Local Bounti may never achieve or sustain profitability. Local Bounti’s business could be adversely affected if it fails to effectively manage its future growth.

•Local Bounti will require additional financing to achieve its goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, may force Local Bounti to delay, limit, reduce or terminate its operations and future growth.

•The liabilities, risks and costs associated with Pete’s Acquisition and the integration of Pete’s operations with our own operations may detract from our core CEA operations.

•Local Bounti’s plans and strategic initiatives for Pete’s assume it will be able to successfully integrate Pete’s business, implement its technologies into Pete’s existing greenhouse facilities and utilize Pete’s existing customer and distribution channels; however, various factors both outside and within Local Bounti’s control may affect its ability to successfully do so, and, if Local Bounti is unsuccessful in integrating Pete’s operations into its own, the Company may never realize the anticipated benefits of the Pete’s Acquisition.

•Local Bounti currently relies on a limited number of facilities for its operations.

•Local Bounti’s first facility has been in operation at commercial capacity for less than 18 months, which makes it difficult to forecast future results of operations.

•Local Bounti’s estimates of market opportunity and forecasts of market growth rely in part upon assumptions and analyses developed by Local Bounti. If these assumptions and analyses prove to be incorrect, Local Bounti’s actual operating results may suffer.

•The build-out of new facilities and retrofitting of acquired facilities will require significant expenditures for capital improvements and operating expenses and may be subject to delays in construction and unexpected costs due to governmental approvals and permitting requirements, reliance on third parties for construction, delays relating to material delivery and supply chains, and fluctuating material prices.

•Local Bounti’s ability to decrease its cost of goods sold over time is dependent on its ability to scale its operations and Local Bounti may not be able to achieve such decreases due to factors outside of its control such as inflation or global supply chain interruptions.

•Any damage to or problems with Local Bounti’s CEA facilities could severely impact Local Bounti’s operations and financial condition.

•Local Bounti depends on employing a skilled local labor force, and failure to attract and retain qualified employees could negatively impact its business, results of operations and financial condition.

•If Local Bounti fails to develop and maintain its brand, its business could suffer.

•Local Bounti’s estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which it competes achieves the forecasted growth, Local Bounti’s business could fail to grow at similar rates, if at all.

•The effects of COVID-19, including the impact of new variants, and other potential future public health crises, epidemics, pandemics or similar events on Local Bounti’s business, operating results and cash flows are uncertain.

•If Local Bounti cannot maintain its company culture or focus on its vision as it grows, Local Bounti’s business and competitive position may be harmed.

•Local Bounti may be unable to successfully execute on its growth strategy.

•Local Bounti’s operating costs to grow and sell its products may be higher than expected, which could impact its results and financial condition.

•If Local Bounti’s estimates or judgments relating to its critical accounting policies prove to be incorrect, its results of operations could be adversely affected.

•Local Bounti will incur increased costs as a result of operating as a public company, and its management will devote substantial time to new compliance initiatives.

•Local Bounti’s ability to use net operating loss carryforwards ("NOLs") and certain other tax attributes may be limited.

•Local Bounti faces risks inherent in the CEA business, including the risks of diseases and pests.

•Local Bounti may not be able to compete successfully in the highly competitive natural food market.

•Local Bounti’s ability to generate and grow revenue is dependent on its ability to increase the yield in each of the anticipated product lines it intends to grow. If Local Bounti is unable to increase the yield in each or most of these product lines, Local Bounti’s projection may not be achieved on currently anticipated timelines or at all.

•Local Bounti may need to defend itself against intellectual property infringement claims, which may be time-consuming and could cause Local Bounti to incur substantial costs.

•The loss of any registered trademark or other intellectual property could enable other companies to compete more effectively with Local Bounti.

•Local Bounti relies on information technology systems and any inadequacy, failure, interruption or security breaches of those systems may harm its ability to effectively operate its business.

•Local Bounti could be adversely affected by a change in consumer preferences, perception and spending habits in the food industry, and failure to develop and expand its product offerings or gain market acceptance of its products could have a negative effect on Local Bounti’s business.

•Demand for lettuce, cilantro, basil and other greens and herbs is subject to seasonal fluctuations and may adversely impact Local Bounti’s results of operations in certain quarters.

•Local Bounti has an agreement with Cargill Financial Services International, Inc. ("Cargill Financial") for a $170 million term loan credit facility. The credit facility is secured by all of the Company’s assets, including its intellectual property. Additionally, if there is an occurrence of an uncured event of default, Cargill Financial has the right to foreclose on all Local Bounti assets, and securities in the Company could be rendered worthless.

The forward-looking statements contained in this Quarterly Report on Form 10-Q 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, those factors described in the section entitled “Risk Factors.” 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.

The forward-looking statements made by us in this Quarterly Report on Form 10-Q and any accompanying prospectus supplement speak only as of the date of this Quarterly Report on Form 10-Q and the accompanying prospectus supplement. Except to the extent required under the federal securities laws and rules and regulations of the SEC, we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. 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.

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 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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LOCAL BOUNTI CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	March 31,		December 31,
	2022		2021
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	71,974	$	96,661
Restricted cash and cash equivalents	4,416		4,416
Accounts receivable, net of allowance	73		110
Accounts receivable, related party	1		8
Inventory, net	1,263		922
Prepaid expenses and other current assets	3,584		3,391
Total current assets	81,311		105,508
Property and equipment, net	43,994		37,350
Operating lease right-of-use assets	269		55
Other assets	905		1,017
Total assets	$	126,479	$	143,930

Liabilities and stockholders' equity
Current liabilities
Accounts payable	$	7,431	$	1,912
Accrued liabilities	6,721		16,020
Accrued liabilities, related party	26		8
Operating lease liabilities	111		28

Total current liabilities	14,289		17,968
Long-term debt	11,110		11,199


Financing obligation	13,982		13,070
Operating lease liabilities, noncurrent	145		10

Total liabilities	39,526		42,247

Commitments and contingencies (Note 11)

Stockholders' equity
Common stock, 0.0001 par value, 400,000,000 shares authorized, 86,465,757 and 86,344,881 issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	9		9
Additional paid-in capital	180,958		169,916
Accumulated deficit	(94,014)		(68,242)
Total stockholders' equity	86,953		101,683
Total liabilities and stockholders' equity	$	126,479	$	143,930

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 March 31,
	2022		2021
Sales	$	282	$	57
Cost of goods sold	234		45
Gross profit	48		12
Operating expenses:
Research and development	1,948		432
Selling, general and administrative	22,259		8,294

Total operating expenses	24,207		8,726
Loss from operations	(24,159)		(8,714)
Other income (expense):
Management fee income	30		20
Convertible Notes fair value adjustment	—		(299)


Interest expense, net	(1,643)		(405)

Net loss	$	(25,772)	$	(9,398)

Net loss applicable to common stockholders per basic common share:
Basic and diluted	$	(0.32)	$	(0.19)
Weighted average common shares outstanding:
Basic and diluted	81,009,268		49,131,554

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

LOCAL BOUNTI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except share data)


	Voting Common Stock			Non-Voting Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance, December 31, 2021	86,344,881	$	9	—	$	—	$	169,916	$	(68,242)	$	101,683
Vesting of restricted stock units, net	120,876	—		—	—		—		—		—
Stock-based compensation	—	—		—	—		11,042		—		11,042
Net loss	—	—		—	—		—		(25,772)		(25,772)
Balance, March 31, 2022	86,465,757	$	9	—	$	—	$	180,958	$	(94,014)	$	86,953


	Voting Common Stock			Non-Voting Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance, December 31, 2020	58,076,019	$	1	8,944,465	$	—	$	9,577	$	(12,149)	$	(2,571)
Issuance of common stock	—	—		2,086,829	—		—		—		—

Stock-based compensation	—	—		—	—		4,942		—		4,942
Net loss	—	—		—	—		—		(9,398)		(9,398)
Balance, March 31, 2021	58,076,019	$	1	11,031,294	$	—	$	14,519	$	(21,547)	$	(7,027)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

LOCAL BOUNTI CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Three Months Ended March 31,
	2022		2021
Operating Activities:
Net loss	$	(25,772)	$	(9,398)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	541		124
Reduction of right-of-use assets from operating leases	28		—
Stock-based compensation expense	11,013		4,942
Bad debt and other allowances	2		(8)
Inventory allowance	—		(25)
Loss on disposal of property and equipment	196		—
Change in fair value - Convertible Notes	—		299



Amortization of debt issuance costs	191		—

Changes in operating assets and liabilities:
Accounts receivable	37		(33)
Accounts receivable, related party	7		307
Inventory	(341)		(166)
Prepaid expenses and other current assets	(193)		(816)
Other assets	112		5
Accounts payable	2,619		955
Operating lease liabilities	(25)		—


Accrued liabilities	1,482		1,424
Accrued liabilities, related party	18		(833)
Net cash used in operating activities	(10,085)		(3,223)

Investing Activities:
Purchases of property and equipment	(14,673)		(1,070)
Net cash used in investing activities	(14,673)		(1,070)

Financing Activities:
Proceeds from issuance of Convertible Notes, net	—		10,700
Proceeds from financing obligations	71		1,066
Proceeds from issuance of debt	—		10,388


Repayment of debt	—		(550)

Net cash provided by financing activities	71		21,604
Net (decrease) increase in cash and cash equivalents and restricted cash	(24,687)		17,311
Cash and cash equivalents and restricted cash and cash equivalents at beginning of period	101,077		45
Cash and cash equivalents and restricted cash and cash equivalents at end of period	$	76,390	$	17,356

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements


Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued liabilities	$	8,161	$	—
Stock-based compensation capitalized to property and equipment, net	$	29	$	—
Non-cash financing obligation activity	$	840	$	—
Non-cash proceeds from issuance of Convertible Notes for services provided	$	—	$	50

The following table reconciles cash and cash equivalents and restricted cash and cash equivalents reported in the Unaudited Condensed Consolidated Balance Sheets to the total amount shown in the Unaudited Condensed Consolidated Statements of Cash Flows:


	March 31,
	2022		2021
	(in thousands)
As included in the Unaudited Condensed Consolidated Balance Sheets:
Cash and cash equivalents	$	71,974	$	17,356
Restricted cash and cash equivalents	4,416		—
Total cash and cash equivalents and restricted cash and cash equivalents as shown in the Unaudited Condensed Consolidated Statements of Cash Flows	$	76,390	$	17,356

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") is redefining indoor farming with an innovative method – its proprietary Stack & Flow Technology™ – that significantly improves crop turns, increases output and improves unit economics. We grow healthy food utilizing a hybrid approach that integrates the best attributes of controlled environment agriculture with natural elements. Our sustainable growing methods are better for the planet, using 90% less land and 90% less water than conventional farming methods. With a mission to 'bring our farm to your kitchen in the fewest food miles possible,' Local Bounti’s food is fresher, more nutritious, and lasts 3-5 times longer than traditional agriculture.

On March 14, 2022, the Company entered into definitive purchase agreements to acquire California-based complementary indoor farming company Hollandia Produce Group, Inc., which operates under the name Pete’s® ("Pete's"), for total consideration of $122.5 million, subject to customary adjustments (the "Pete's Acquisition"). On April 4, 2022, Company completed the Pete's Acquisition pursuant to the terms and conditions of the purchase agreements. Pursuant to the purchase agreements, Pete’s and its subsidiaries became wholly owned subsidiaries of the Company.

Pete’s is a California-based indoor farming company with three greenhouse growing facilities, including two operating facilities in California and one under construction in Georgia which is scheduled to begin operations in the second quarter of 2022. Pete’s has distribution to approximately 10,000 retail locations across 35 U.S. states and Canadian provinces, primarily through direct relationships with blue-chip retail customers, including Albertsons, Kroger, Target, Walmart, as well as Whole Foods and AmazonFresh. Pete’s primary products include living butter lettuce – where it is a leading provider with an approximate 80 percent share of the controlled environment agriculture ("CEA") market within the Western U.S. – 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. The accompanying Unaudited Condensed Consolidated Financial Statements 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 Unaudited Condensed Consolidated Financial 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, 2021 (the “Annual Financial Statements”), which have been prepared in accordance with GAAP. In the opinion of the Company, the accompanying Unaudited Condensed Financial Statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2022, and its results of operations for the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2022. The Condensed Consolidated Balance Sheet at December 31, 2021, was derived from the Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.

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.

Reclassification

The Company reclassified depreciation in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 to conform to the presentation for the three months ended March 31, 2022. Depreciation is no longer stated as a separate financial statement line item on the Condensed Consolidated Statements of Operations but it has instead been allocated to cost of goods sold, research and development, and selling, general and administrative expense on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021. This reclassification had no impact on loss from operations or net loss. The Company believes this reclassification is preferable because it enhances the comparability of its Unaudited Condensed Consolidated Financial Statements with those of many of its industry peers and aligns with how the Company internally manages and reviews costs and margin.

The Company reclassified property and equipment, net for the balance that related to its operating lease right-of-use assets to be shown as a separate line item on the Condensed Consolidated Balance Sheet as of December 31, 2021. The related operating lease liabilities and operating lease liabilities, noncurrent included within accrued liabilities and other liabilities, respectively, have also been reclassified and are shown as separate line items on the Condensed Consolidated Balance Sheet as of December 31, 2021. This reclassification had no impact on total assets and total liabilities and had no impact on loss from operations or net loss. The Company believes this reclassification is

preferable because it enhances the comparability of its Unaudited Condensed Consolidated Financial Statements with those of many of its industry peers.

Recently Adopted Accounting Pronouncements

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40); Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, which clarifies the accounting for modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after modification or exchange. The Company adopted ASU 2021-04 on January 1, 2022 and applied the applicable amendments on a prospective basis. The adoption did not have a material impact on the Company's Unaudited Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 on January 1, 2022 and applied the applicable amendments on a prospective basis. The adoption 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, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

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 U.S. 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. ASU 2016-13 is effective for the Company as of January 1, 2023 and 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:


	March 31,		December 31,
	2022		2021
	(in thousands)
Raw materials	$	399	$	145
Work-in-process	173		173
Finished goods	104		69
Packaging	682		467
Consignment	—		163
Inventory allowance	(95)		(95)
Total inventory, net	$	1,263	$	922

4. Property and Equipment

Property and equipment consisted of the following:


	March 31,		December 31,
	2022		2021
	(in thousands)
Greenhouse facility	$	11,033	$	10,194
Equipment	4,986		3,683
Land	3,991		4,122
Leasehold improvements	3,947		3,947
Construction-in-progress	21,549		16,375
Less: Accumulated depreciation	(1,512)		(971)
Property and equipment, net	$	43,994	$	37,350

Depreciation expense related to property and equipment was $541 thousand and $124 thousand for the three months ended March 31, 2022 and 2021, respectively.

5. Accrued Liabilities

Accrued liabilities consisted of the following:


	March 31,		December 31,
	2022		2021
	(in thousands)
Accrued construction expenses	$	135	$	11,192
Accrued insurance	1,825		2,582
Accrued payroll	273		792
Accrued agriculture expenses	294		461
Accrued legal fees	3,448		273
Accrued other	746		720
Total accrued liabilities	$	6,721	$	16,020

6. Debt

Debt consisted of the following:


	March 31,		December 31,
	2022		2021
	(in thousands)
Subordinated Facility	$	16,293	$	16,293
Unamortized deferred financing costs, Cargill Credit Agreements	(5,183)		(5,094)
Total debt	$	11,110	$	11,199

Agreements with Cargill Financial

In September 2021, the Company and Cargill Financial entered into (a) a credit agreement (the "Original Senior Credit Agreement") for an up to $150,000 thousand multiple-advance term loan (the "Senior Facility") and (b) a subordinated credit agreement (the "Original Subordinated Credit Agreement" and, together with the Original Senior Credit Agreement, the "Original Credit Agreements") for an up to $50,000 thousand multiple-advance subordinated term loan (the "Subordinated Facility" and, together with the Senior Facility, the "Original Facilities"). On March 14, 2022, the Company and Cargill Financial amended the Original Credit Agreements and the Original Facilities, as described in Note 13, Subsequent Events.

The interest rate on the Subordinated Facility is 10.5% per annum, with accrued interest on the agreement paid quarterly in arrears on the last business day of each calendar quarter, commencing the last business day of the calendar quarter ending December 31, 2022, and on the maturity date September 3, 2028. A total of $16,293 thousand was outstanding on the Subordinated Facility as of March 31, 2022 and December 31, 2021.

The interest rate on the Senior Facility is equal to LIBOR plus the Applicable Margin (which varies between 5.5% to 6.5% depending on the Senior Facility net leverage ratio). The maturity date of the Senior Facility will be on September 3, 2028. There were no amounts outstanding on this loan as of March 31, 2022 and December 31, 2021.

As part of the Original Credit Agreements, the Company is required to have an Interest Reserve Account. The Original Credit Agreements also require the Company to be in compliance with certain financial covenants, including specified debt coverage, net leverage, and interest coverage ratios. Additional covenants and other restrictions exist that limit 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. In accordance with the Original Credit Agreements, budgets and timelines for CEA facilities also have to be approved by Cargill Financial and the Company is required to report ongoing CEA facility construction costs. The credit facility is secured with a first-priority lien against substantially all of the assets of the Company, including its intellectual property.

The Original Credit Agreements have an unused revolving line commitment fee in an amount of 125 basis points per annum of the unused portion of the Original Credit Agreements.

The Company was in compliance with all applicable covenants as of March 31, 2022.

7. 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:


	March 31, 2022
	Level 1		Level 2		Level 3
	(in thousands)
Recurring fair value measurements
Assets:
Money market funds, included in cash and cash equivalents	$	71,943	$	—	$	—
Total	$	71,943	$	—	$	—


	December 31, 2021
	Level 1		Level 2		Level 3
	(in thousands)
Recurring fair value measurements
Assets:
Money market funds, included in cash and cash equivalents	$	96,661	$	—	$	—
Total	$	96,661	$	—	$	—

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

As of March 31, 2022 and December 31, 2021, the carrying value of all other financial assets and liabilities approximated their respective fair values.

As of March 31, 2022 and December 31, 2021, the Company had no transfers between levels of the fair value hierarchy of its liabilities measured at fair value.

8. Stock-Based Compensation

Restricted Common Stock Awards

A summary of the restricted common stock awards ("RSAs") for three months ended March 31, 2022 is as follows:


	Number of Shares of Restricted Common Stock Awards	Average Grant-Date Fair Value
Unvested at December 31, 2021	5,479,451	$	1.80


Vested	(208,682)	$

SEC Form 10-Q filed by Local Bounti Corporation