22ND CENTURY GROUP, INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read in conjunction with, our audited
consolidated financial statements, the accompanying notes and the MD&A included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 ,
as well as our consolidated financial statements and the accompanying notes
included in Item 1 of this Form 10-Q. Note references are to the notes to
consolidated financial statements included in Item 1 of this Form 10-Q.
For purposes of this MD&A, references to the "Company," "we," "us" or "our"
refer to the operations of
Forward Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this section are forward-looking statements. Forward-looking statements typically contain terms such as "anticipate," "believe," "consider," "continue," "could," "estimate," "expect," "explore," "foresee," "goal," "guidance," "intend," "likely," "may," "plan," "potential," "predict," "preliminary," "probable," "project," "promising," "seek," "should," "will," "would," and similar expressions. Actual results might differ materially from those explicit or implicit in forward-looking statements. Important factors that could cause actual results to differ materially are set forth in "Risk Factors" in our Annual Report on Form 10-K filed onMarch 1, 2022 . We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events, or otherwise, except as otherwise required by law. All information provided in this quarterly report is as of the date hereof, and we assume no obligation to and do not intend to update these forward-looking statements, except as required by law.
Business Overview
22nd Century Group, Inc. (Nasdaq: XXII) is a leading agricultural biotechnology company focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. In tobacco, hemp/cannabis, and hop plants, we use modern plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the life science and consumer products industries by creating new, proprietary plants with optimized alkaloid and flavonoid profiles as well as improved yields and valuable agronomic traits. Our mission in tobacco is to reduce the harm caused by smoking by introducing adult smokers to our proprietary Very Low Nicotine Content "VLNC" tobacco and cigarette products. The Company received the first and onlyFood and Drug Administration ("FDA") Modified Risk Tobacco Product ("MRTP") authorization of a combustible cigarette inDecember 2021 . Our mission in hemp/cannabis is to develop proprietary varieties of hemp with valuable cannabinoid and terpene profiles and other superior agronomic traits, with potential applications in life sciences and consumer products. Our mission in hops is to leverage our experience with tobacco and hemp/cannabis, a close hop relative, and accelerate the development of proprietary specialty hop varieties or valuable traits, with potential applications in life sciences and consumer products. We have a significant intellectual property portfolio of issued patents and patent applications relating to both tobacco and hemp/cannabis plants and have further resources directed towards creating and securing additional intellectual property pertaining to all three franchises.
Tobacco Franchise Overview
In tobacco, we have developed unique and proprietary bright and burley Very Low
Nicotine Content ("VLNC") tobaccos that grow with at least 95% less nicotine
than tobacco used in conventional cigarettes. In the year 2011, we developed our
SPECTRUM® variable nicotine research cigarettes in collaboration with
independent researchers, officials from the FDA, the National Institute on Drug
Abuse ("NIDA"), which is part of the National Institutes of Health ("NIH"), the
National Cancer Institute ("NCI"), and the Centers for Disease Control and
Prevention ("CDC"). Since 2011, we have provided more than 31.6 million variable
nicotine research cigarettes for use in numerous independent clinical studies
funded in large part by agencies of the United States federal government. These
independent clinical studies are estimated to have been performed at a cost of
more than $125 million . The results of these independent clinical studies have
been published in peer-reviewed publications (including the New England Journal
of Medicine , the Journal of the American Medical Association , and many others)
and indicate that our VLNC tobaccos have been associated with reductions in
smoking, nicotine exposure and nicotine dependence with little to no evidence of
compensatory smoking and without serious adverse events. Lists of published and
on-going clinical studies using our variable nicotine research cigarettes are
shown on
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our website at
https://www.xxiicentury.com/vln-clinical-studies/published-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes
and
https://www.xxiicentury.com/vln-clinical-studies/on-going-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes.
We do not incorporate third party studies or the information on our website into
this Quarterly Report on Form 10-Q.
We believe that our proprietary reduced nicotine content cigarettes, sold under
the brand name VLN®, have a large global market opportunity. According to a 2018
report by the Foundation for a Smoke Free World , the global tobacco market was
worth $817 billion and of that, $714 billion , or approximately 90% of the global
tobacco market is comprised of combustible cigarettes. According to the CDC and
WHO (World Health Organization ), there are more than 1 billion global and 30
million U.S. adult smokers. CDC statistics go on to state that more than
two-thirds of adult smokers want to quit, yet less than ten percent of them are
able to quit successfully. We believe that smokers are actively seeking
alternatives to addictive combustible cigarettes. In our consumer perception
studies, 60% of adult smokers indicated a likelihood to use VLN®.
Our VLN® cigarettes contain 95% less nicotine than conventional cigarettes in a
familiar combustible product format that replicates the conventional cigarette
smoking experience, including the sensory and experiential elements of taste,
scent, smell, and "hand-to-mouth" behavior. The tobacco in VLN® cigarettes
contain on average 0.5 milligrams of nicotine per gram of tobacco, an amount
cited by the FDA, based on clinical studies, to be "minimally or non-addictive."
It is believed that the reduced nicotine levels in VLN® creates a dissociation
between the act of smoking and the introduction of nicotine to the bloodstream,
which helps adult smokers to smoke less.
Since 2011, our reduced nicotine content cigarettes have been used in more than
50 independent scientific clinical studies by universities and institutions.
These studies show that smokers who use our products: (i) reduce their nicotine
exposure and dependence, (ii) smoke fewer cigarettes per day, (iii) increase
their number of smoke-free days, and (iv) double their quit attempts - all with
minimal or no evidence of nicotine withdrawal or compensatory smoking. Our
research cigarettes, SPECTRUM®, continue to be used in numerous independent,
scientific studies to validate the enormous public health benefit identified by
the FDA and others of implementing a national product standard requiring all
cigarettes to contain "minimally or nonaddictive" levels of nicotine.
In December 2019 , the FDA granted a Premarket Tobacco Application ("PMTA")
authorization for our reduced nicotine content cigarettes, giving us the ability
to sell our reduced nicotine cigarettes. On December 23, 2021 , the FDA
authorized the marketing of the Company's VLN® King and VLN® Menthol King
reduced nicotine content cigarettes as modified risk tobacco products with a
modified exposure classification (MRTPs). In doing so, the FDA stated that VLN®
- which smokes, tastes, and smells like a conventional cigarette but contains
95% less nicotine than conventional, highly addictive cigarettes - "help reduce
exposure to, and consumption of, nicotine for smokers who use them." In its
marketing order granting the MRTPs, the FDA authorized an additional fourth
claim: "Helps You Smoke Less " that we must use in the advertising and on the
packaging of all VLN® products where other approved claims are also used.
Following FDA authorization, we commenced activities to launch VLN® culminating
in initial sales in April 2022 in the Chicago metro area through our exclusive
retail pilot launch partner, Circle K . We anticipate a phased rollout of VLN® to
additional geographies where we will continue to position VLN® in the premium
pricing segment of the cigarette market.
We believe that recent political changes will likely be favorable to our
business prospects from a policy priority and regulatory standpoint. Under the
new administration and new leadership at the FDA and Center for Tobacco Products
(CTP), we believe that the FDA will refocus on implementing a menthol ban on
combustible high nicotine cigarettes and its ground-breaking Comprehensive Plan
for Tobacco and Nicotine Regulation, in particular the agency's plan to cap the
amount of nicotine in combustible cigarettes to a "minimally or non-addictive"
level. We believe that the MRTP authorization and the launch of VLN® serves as a
starting point for the FDA's proposed policies.
On January 27, 2022 , the FDA posted an update on its FDA Voices site stating
that it "remains on track" with its plans to prohibit menthol in combustible
tobacco products. We continue to support upcoming FDA action and believe VLN®
Menthol King reduced nicotine cigarettes could be exempted from the menthol ban
to help current menthol smokers transition away from highly addictive nicotine
cigarettes. The FDA published a proposed tobacco product standard to ban menthol
as a characterizing flavor in cigarettes in April 2022 . The proposed FDA rule
includes a process for firms to request an exemption from the standard for
specific products of certain types on a case-by-case basis, indicating "reduced
nicotine" as an example of such exemption.
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We believe that our next generation, non-GMO (genetically modified organism) plant research is the key to commercializing our reduced nicotine content tobacco and technology in international markets where non-GMO products are preferred or GMO products are banned. In partnership withNorth Carolina State University , we have completed successful research field trials. During the first quarter of 2021, we published a newU.S. patent, entitled "A Genetic Approach for Achieving Ultra Low Nicotine Content in Tobacco" (PCT/US2021/012742). The new technology provides us with methods and a new approach to introduce very low nicotine traits into virtually any variety of tobacco, including bright, burley, and oriental tobacco varieties. We have successfully applied our non-GMO technology to bright and burley varieties of tobacco and have developed a VLN® 2.0 prototype cigarette. InFebruary 2022 , we initiated commercial growing activities for our non-GMO reduced nicotine varieties including, non-GMO VLN® bright and burley varieties. We anticipate production of VLN® 2.0 American blend cigarettes beginning in 2023.
Hemp/Cannabis Franchise Overview
In hemp/cannabis, we are developing proprietary hemp/cannabis varieties with increased levels of certain cannabinoids and other desirable agronomic traits with the goal of generating new and valuable intellectual property and plant lines. Our activities inthe United States involve only work with legal hemp in full compliance withU.S. federal and state laws. The hemp and the marijuana plants are both part of the same cannabis genus, except that hemp does not have more than 0.3% dry weight content of delta-9-tetrahydrocannabinol ("THC"). While the 2018 Farm Bill legalized hemp and cannabinoids extracted from hemp in theU.S. , such extracts remain subject to state laws and regulation by otherU.S. federal agencies such as the FDA,U.S. Drug Enforcement Administration ("DEA"), and theU.S. Department of Agriculture ("USDA"). The same plant, with a higher THC content is marijuana, which is legal under certain state laws but not yet legal underU.S. federal law. The similarities between these plants can cause confusion. To reflect this difference in law, sometimes we refer to legal hemp and the legal hemp industry as hemp/cannabis to distinguish this as being separate and apart from marijuana/cannabis which is not legal underU.S. federal law. Our activities with legal hemp have sometimes been incorrectly perceived as us being involved in federally illegal marijuana/cannabis. This is not the case. Inthe United States , we work only with legal hemp in full compliance with federal and state laws, and outside theU.S. , we operate in full compliance with the laws of each country in which we operate. Our goal is to provide leading companies in the life science, consumer product, and pharmaceutical end-use markets with new, disruptive, and highly differentiated plant lines or ingredients (flower, extracts, distillates, isolates, etc.) derived from hemp/cannabis plants. Most existing hemp/cannabis plant lines do not exhibit the stable genetics, predictable yield, and specific composition of cannabinoids required to fully unlock the value of the hemp/cannabis industry. Our plant genetics and innovative upstream cannabinoid value chain provide for rapid development and optimization of plant products and scale-up as the industry evolves toward mass production.
Hops Franchise Overview
We are leveraging our experience with tobacco and hemp/cannabis to accelerate the development of proprietary specialty hop varieties with valuable competitive advantages to increase yields and distinctive aroma, flavor, nutraceutical and medicinal properties, and disease/pest resistance. We believe that our innovative upstream alkaloid plant value chain is critical to unlocking new disruptive hop plant varieties and IP at large-scale. We are leveraging research findings from the closely related hemp/cannabis plant and our strategic partnerships to support the development of our new technologies based on molecular breeding, flowering time, and double haploid breeding to accelerate the stabilization or creation of hop varieties. Industry reliance on high-risk traditional breeding techniques makes hops ripe for disruption with our new accelerated molecular breeding technologies and gene-editing tools. Hops is a large global addressable market with well-established hops providers and consumer brands. We are actively engaged in discussions with multiple hops growers and consumer product partners to develop specific desired traits in leading hop strains that are already well-accepted by the brewing industry. We have an exclusive agreement with KeyGene for research with the hops plant. We believe hops presents a faster route to commercialization than tobacco and hemp/cannabis due to lower regulatory barriers.
Additional information about our business and operations is contained in our
Annual Report on Form 10-K for the year ended
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Notable Accomplishments and Recent Announcements
Tobacco Franchise:
Commenced pilot market sales of VLN® King and VLN® Menthol King 95% reduced
? nicotine content cigarettes, the first and only FDA authorized MRTP designated
combustible cigarettes.
o VLN® is now available at more than 150 Chicago-area
pilot launch designed to optimize our marketing programs.
o Positioned VLN® in the premium pricing segment of the cigarette market, with
corresponding margins.
o VLN® packaging prominently displays FDA mandated claim of "Helps You Smoke
Less."
o Advanced discussions with potential channel partners to expand the regional and
national sales reach of VLN® as the pilot program results become available.
Ahead of our planned national VLN® launch, we have secured the regulatory
? authorizations to sell VLN® in 9 states to date:
York,
Applications pending in additional states, with responses expected by summer
o for most states, particularly those undertaking their annual Master Settlement
Agreement (MSA) directory reviews in April.
? Completed the first shipments of VLN® to
international launch program.
We believe that the South Korean market is an ideal market in which to test
o VLN®'s global appeal given its strong premium pricing, high smoking rates
including one in three adult men, and interest in alternative tobacco choices.
Continuing to explore launch opportunities in additional markets in
o
authorization from the FDA toward seeking approval in markets with higher
regulatory barriers.
? Continued our support of
flavor in conventional nicotine cigarettes.
The
o only combustible menthol cigarette on the market, providing a critical off-ramp
to help current menthol smokers to smoke less.
We currently have the only FDA-authorized tobacco cigarette able to meet the
o stringent reduced nicotine content product standard under the
Comprehensive Plan requiring that all cigarettes be made "minimally or
non-addictive."
Completing delivery of a purchase order for 3 million variable nicotine
o research cigarettes, including menthol, for use in studies underpinning
proposed menthol ban and reduced nicotine content proposals.
? Contracted the largest VLN® tobacco planting to date to support expansion in
both the
o Planting will include use of the new southern hemisphere capabilities to
facilitate year-round growing of VLN® tobacco.
o The growing program for the first time includes our proprietary, non-GMO VLN®
2.0 bright and burley tobacco varieties at commercial scale.
Hemp/Cannabis Franchise:
Continued revenue opportunities from hemp/cannabis IP and plant lines,
? including license fees from the Anandia biosynthesis IP jointly owned with
Aurora Cannabis Inc and distillate and isolate sales.
Preparing plant lines for expanded growing programs at our
?
plant line placed into the field.
Announced an industry-first breakthrough in hemp/cannabis plant transformation
? with our partner KeyGene, expanding the Company's capabilities in modifying the
principal genes controlling cannabinoid biosynthesis in the plant.
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Shipped next generation seeds to Extractas Bioscience for breeding and scale up
evaluation to identify the plant lines best suited to grow in the
? growing region. Extractas Bioscience is a world leader in the research,
manufacturing, and export of botanical extracts and purified products with a
specialization in hemp/cannabis.
Hops Franchise:
? Continued to advance our entry into the specialty hops market, our third and
newest alkaloid plant franchise and closely related to hemp/cannabis
? Expanded work under an exclusive agreement with partner KeyGene in support of
proprietary hops development programs tied to specific grower needs.
Corporate Business:
Dr.
? across all three of our plant franchises.
biotechnology programs at Bayer and Monsanto, including corn, soybean, and
cotton crop technologies.
Our CEO,
? Board's depth of experience in the commercialization of science-driven consumer
products as we prepare to launch our first reduced nicotine content tobacco
products and commercially modified hemp/cannabis plant lines.
? New research coverage of the Company was initiated by
agricultural technology analyst at
First Quarter 2022 Financial Highlights:
? Net sales for the first quarter of 2022 were
? Gross profit for the first quarter of 2022 declined by
compared to the prior year period.
Net loss in the first quarter of 2022 was
? unrealized loss related to the fair value of investments, compared to the first
quarter of 2021 net loss of
? As of
investment securities. Results of Operations
Year-to-Date
Amounts in thousands, except for share and per share data.
Revenue - Sale of products, net
Year-to-Date
March 31 March 31
2022 2021
Sale of products, net
The increase in revenue for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 , was primarily the result of an increase in sales of contract manufactured cigarettes of$1,031 and filtered cigars of$1,208 , resulting primarily from new customer contracts. 26
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Cost of goods sold - Products / Gross profit (loss)
Year-to-Date
March 31 March 31
2022 2021
Cost of goods sold $ 8,585 $ 6,159
Percent of Product Sales 94.9 % 90.5 %
Dollar Change from Prior Year
Year-to-Date
March 31 March 31
2022 2021
Gross profit $ 460 $ 647
Percent of Product Sales 5.1 % 9.5 %
Dollar Change from Prior Year
For the three months endedMarch 31, 2022 , the decrease in gross profit as compared to 2021 was mainly due to product mix. Product revenue and margins can vary from quarter to quarter due to customer order volume and product mix within the period. Increases in customer prices and volume were offset by lower sales of high margin products in the first quarter of 2022.
Research and development ("R&D") expense
Year-to-Date
March 31 March 31
2022 2021
Research and development $ 972 $ 701
Percent of Product Sales 10.7 % 10.3 %
Dollar Change from Prior Year
Higher R&D expense for the three months endedMarch 31, 2022 , as compared to the prior year period, was primarily driven by an increase in hemp/cannabis license, royalty and contract costs of$323 , offset by lower legal fees of$25 and personnel expense of$18 . We continue to prioritize our R&D activities to achieve our strategic and investment priorities.
Sales, general and administrative expense
Year-to-Date
March 31 March 31
2022 2021
Sales, general and administrative
80.8 % 71.0 %
Dollar Change from Prior Year
The increase in sales, general and administrative ("SG&A") expense during the
three months ended March 31, 2022 , as compared to the respective prior year
period, was driven by increased strategic consulting of $1,219 , non-cash equity
compensation expense of $692 , legal fees of $554 , insurance expenses of $155 ,
and increased travel and entertainment expenses of $104 . This was partially
offset by lower personnel expense of $299 as compared to the respective prior
year period.
We have invested in this incremental SG&A spending to continue to ramp up our
efforts to allow us to move toward market readiness in both tobacco,
hemp/cannabis and hops. We will continue to invest in SG&A spending as growth
and opportunities present themselves.
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Depreciation expense
Year-to-Date
March 31 March 31
2022 2021
Depreciation $ 168 $ 138
Percent of Product Sales 1.9 % 2.0 %
Dollar Change from Prior Year
The increase in depreciation expense during the three months ended
Amortization expense
Year-to-Date
March 31 March 31
2022 2021
Amortization $ 161 $ 150
Percent of Product Sales 1.8 % 2.2 %
Dollar Change from Prior Year
Amortization expense relates to the amortization taken on capitalized patent costs and license fees. The increase in 2022 was due to a higher intangible asset depreciable base from the development of new patents that further enhances our intangible asset portfolio.
Unrealized gain (loss) on investment
Year-to-Date
March 31 March 31
2022 2021
Unrealized gain (loss) on investments
(9.0) % 0.5 %
Dollar Change from Prior Year
Unrealized gain (loss) on investment includes fair value adjustments for our
investment in Aurora Cannabis Inc ("Aurora") stock warrants and our investment
in Panacea Life Sciences Holdings, Inc. ("PLSH") common stock. Both investments
are considered equity securities and are adjusted to fair value at each
reporting period as discussed within Note 6 to our consolidated financial
statements included herein.
The warrants to purchase 81,164 shares of Aurora common stock were valued at $1
as of March 31, 2022 , using the Black-Scholes pricing model, which amounted to
an unrealized loss of $4 for the three months ended March 31, 2022 compared to
an unrealized gain of $36 for the three months ended March 31, 2021 .
Our shares of PLSH common stock were valued based on the closing share price as
of March 31, 2022 . As of March 31, 2022 , the shares were valued at $1,528
resulting in the recognition of an unrealized loss of $813 for the period. Our
investment in PLSH is a small microcap stock which can be subject to large
market volatility resulting in fluctuations to our net loss and loss per
share-due to unrealized gains or losses that will be recognized within the
Consolidated Statements of Operations. Our investment is described further
within Note 5 to our financial statements included herein.
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Interest income, net
Year-to-Date
March 31 March 31
2022 2021
Interest Income, net $ 50 $ 112
Percent of Product Sales 0.6 % 1.7 %
Dollar Change from Prior Year
Interest income, net (interest income less investment fees) is comprised of cash interest income and non-cash interest accretion. Cash interest income is primarily derived from interest earned on our short-term investment securities and non-cash interest income is primarily related to accretion of short-term investment securities purchased at a discount or premium and accretion of certain other assets recorded at a discount. Cash interest income for the three months endedMarch 31, 2022 decreased$102 , as compared to the respective prior year period, primarily due to lower bond interest yields on our short-term investment securities. Non-cash interest accretion for the three months endedMarch 31, 2022 increased$164 , as compared to the respective prior year period,$42 related to a note receivable obtained from our Panacea investment conversion and$122 related to the accretion of our short-term investment securities. Interest expense Year-to-Date March 31 March 31 2022 2021 Interest Expense$ (5) $ (7) Percent of Product Sales (0.1) % (0.1) %
Dollar Change from Prior Year $ 2
Interest expense decreased in 2022, as compared to the prior year period,
primarily due to the reduction of our severance liability and lower note payable
balances for our licenses which were fully paid off during the fourth quarter of
2021.
Net loss
Year-to-Date
March 31 March 31
2022 2021
Net Loss $ (8,918) $ (5,030)
Percent of Product Sales (98.6) % (73.9) %
Dollar Change from Prior Year
The increase in net loss for the three months endedMarch 31, 2022 , as compared to the same period during the prior year, was primarily the result of increased operating expenses of$2,787 , an increase in unrealized loss on investments of$853 , primarily relating to our Aurora stock warrants and PLSH common stock investments, a decrease in gross profit of$187 and lower interest income in the amount of$62 . 29 Table of Contents Other Comprehensive Loss Year-to-Date March 31 March 31 2022 2021 Other Comprehensive Loss$ (400) $ (32) Percent of Product Sales (4.4) % (0.5) %
Dollar Change from Prior Year
We maintain an account for short-term investment securities that are classified as available-for-sale securities and consist of money market funds and corporate bonds with maturities greater than three months at the time of acquisition. Unrealized gains and losses on short-term investment securities (the adjustment to fair value) are recorded as other comprehensive income or loss.
We recorded an unrealized loss on short-term investment securities in the amount
of
Liquidity and Capital Resources
Year-to-Date
March 31 March 31
2022 2021
Net cash used in operating activities $ (7,928) $ (3,911)
Net cash provided by (used in) investing activities 8,772 (8,535) Net cash provided by (used in) financing activities (596) 12,689 Net increase in cash and cash equivalents 248
243
Cash and cash equivalents - beginning of period 1,336
1,029
Cash and cash equivalents - end of period$ 1,584 $
1,272
Short-term investment securities$ 37,036 $ 29,671 Working Capital As ofMarch 31, 2022 , we had working capital of$37,800 compared to working capital of$45,958 atDecember 31, 2021 a decrease of$8,158 . This decrease in working capital was primarily due to a$9,403 decrease in net current assets and was offset by a decrease in net current liabilities of$1,245 . Cash, cash equivalents and short-term investment securities decreased by$10,116 and the remaining net current assets increased by$713 .
Net cash used in operating activities
Cash used in operating activities increased$4,017 from$3,911 in 2021 to$7,928 in 2022. The primary driver for this increase was higher SG&A spending of$2,475 and an increase in cash used for working capital components related to operations in the amount of$1,914 for the three months endedMarch 31, 2022 , as compared to the three months endedMarch 31, 2021 .
Net cash provided by (used in) investing activities
Cash provided by investing activities amounted to$8,772 for the three months endedMarch 31, 2022 , as compared to cash used in investing activities of$8,535 for the three months endedMarch 31, 2021 . The increase in cash provided by investing activities of$17,307 was the result of an increase provided from transactions relating to our short-term investment account in the amount of$18,232 . These increased cash inflows were partially offset by a decrease in cash flows (cash outflow) of$243 related to the acquisitions of patents, trademarks and property, plant and equipment and$682 related to our investment in Change Agronomy. 30 Table of Contents
Net cash provided by financing activities
During the three months endedMarch 31, 2022 , cash provided by financing activities decreased by$13,285 resulting from (i) the net proceeds of$11,782 resulting from the cash exercises of all outstanding warrants in the first quarter of 2021; (ii) increased note payable payments of$350 ; and (iii) net proceeds from stock option exercises of$1,259 in the prior year period.
Cash demands on operations
Our principal sources of liquidity are our cash and cash equivalents, short-term investment securities, and cash generated from our contract manufacturing business. As ofMarch 31, 2022 , we had approximately$38,620 of cash and cash equivalents and short-term investments which is a decrease of$10,116 fromDecember 31, 2021 . Our short-term investment securities, along with sustained contract manufacturing sales, provide sufficient resources for estimated contractual commitments, described further in Note 11 to our consolidated financial statements included herein, and normal cash requirements for operations beyond the next twelve months. In addition to the commitments described in Note 11 to our consolidated financial statements included herein, we have secured contracts with select tobacco farmers to assist with the growing of our VLNC tobacco. These contracts will increase the quantity of our current leaf inventory which will help support expected demand of VLN®, particularly now that MRTP authorization was granted by the FDA inDecember 2021 . The cost of such growing efforts is dependent on the final agricultural yields and leaf quality, but we expect the cost to be approximately$3.9 million for the 2022 growing season. We also believe that we have appropriate liquidity to successfully manufacture and distribute our VLN® cigarette throughout theChicago pilot launch withCircle K followed by a broader market launch, as well as appropriate liquidity for continued R&D investment in all our plant franchises.
We also have an effective S-3 shelf registration statement on file with the
Critical Accounting Policies and Estimates
There have been no material changes to the information set forth in our Annual
Report on Form 10-K for the year ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
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