22ND CENTURY GROUP, INC. 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 11, 2021 . 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. For purposes of this Management's Discussion and Analysis of Financial Condition and Results of Operations, references to the "Company," "we," "us" or "our" refer to the operations of22nd Century Group, Inc. and its direct and indirect subsidiaries for the periods described herein.
Overview
22nd Century Group, Inc. is a biotechnology company developing disruptive, plant-based solutions for the life science, consumer product, and pharmaceutical markets. We are focused on technology that allows us to modulate the level of nicotine and other nicotinic alkaloids in tobacco plants and the levels of cannabinoids and terpenes in hemp/cannabis plants through genetic engineering and modern plant breeding techniques. 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 cigarettes, which contains 95% less nicotine than conventional tobacco and cigarettes. 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. We have a significant intellectual property portfolio of issued patents and patent applications relating to both tobacco and hemp/cannabis plants. In tobacco, we have developed unique and proprietary bright and burley VLNC tobaccos that grow with at least 95% less nicotine than tobacco used in conventional cigarettes. In the year 2011, we developed our SPECTRUM® research cigarettes in collaboration with independent researchers, officials from the FDA, theNational Institute on Drug Abuse ("NIDA"), which is part of theNational Institutes of Health ("NIH"), theNational Cancer Institute ("NCI"), and theCenters for Disease Control and Prevention 21
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("CDC"). Since 2011, we have provided more than 31.6 million variable nicotine
research cigarettes for use in numerous independent clinical studies with
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). The results
of these studies 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. A list
of completed and published clinical studies using cigarettes made with our VLNC
tobaccos is shown on our website at
https://www.xxiicentury.com/vln-clinical-studies/published-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes.
A list of on-going clinical studies using our SPECTRUM® research cigarettes is
shown on our website at
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 Annual Report on Form 10-Q.
In hemp, we are developing proprietary hemp 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 in the United States involve only work with legal hemp in full
compliance with U.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 2018
Farm Bill legalized hemp and cannabinoids extracted from hemp in the U.S. , such
extracts remain subject to state laws and regulation by other U.S. federal
agencies such as the FDA, U.S. Drug Enforcement Administration ("DEA"), and the
U.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
under U.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 under U.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.
In the United States , we work only with legal hemp in full compliance with
federal and state laws.
Additional information about our business and operations is contained in our
Annual Report on Form 10-K for the year ended
Executive Overview of First Quarter 2021 Results
Key Business and Financial Highlights
Securing Modified Risk Tobacco Product (MRTP) authorization for VLN® remains
our number one priority and we are confident that the FDA is in the final ? stages of the review process related to our application. There are no
outstanding requests for information from the FDA. We are working to ensure
that the launch of our VLN® King and VLN® Menthol King cigarettes occur within
90 days of receiving MRTP designation.
We have now secured four out of the five key partnerships needed to maximize ? each component in the upstream segment of the hemp/cannabis value chain. These
partnerships will enable us to accelerate the new development of valuable,
commercial hemp/cannabis lines and intellectual property to market.
? Net sales revenue for the first quarter of 2021 was
to the first quarter of 2020 at
? Gross profit for the first quarter of 2021 improved by
year-over-year to
Net loss for the first quarter of 2021 was
million.
Corporate Business Highlights
On
securities class action lawsuit captioned Noto. V.
19-CV-1285 by a federal district court in the
York, where it was captioned Bull v.
denying the Plaintiffs' request for an opportunity to file another amended
Complaint, the Court held that "further amendment would be futile."
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On
to the up-and coming
moved in during
joining other multinational technology and professional services companies. Our
new headquarters will accommodate all of our staff from our current office
location in nearby
During February and March of 2021, our warrant holders exercised 11,293,211 ? warrants for cash in exchange for common stock. In connection with these
exercises, we received net proceeds of
On
research partnership agreement with KeyGene, a global leader in plant research
involving high-value genetic traits and increased crop yields. The new
partnership agreement extends the length of the collaboration we have with ? KeyGene to develop new, disruptive hemp/cannabis plants and intellectual
property for the life science, medicinal, and pharmaceutical end-use markets.
It also expands the partnership to include research and development activity
for non-combustible, alternative tobacco plant applications, such as protein
production, and our third plant franchise.
Tobacco Franchise Highlights and Notable Accomplishments
We believe that our proprietary, reduced nicotine content cigarettes, VLN®,
have massive global market opportunity. In 2018, the global tobacco market was
worth
global tobacco market is comprised of combustible cigarettes. There are more
? than 1 billion global and 34 million
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. Based on our consumer perception studies, 60%
of adult smokers indicate a likelihood to use VLN®.
Our VLN® cigarettes contain 95% less nicotine than conventional cigarettes and
are a familiar combustible product format that replicates the conventional
cigarette experience, including the sensory and experiential elements of taste, ? scent, smell, and "hand-to-mouth" behavior. VLN® contains 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". The lack of reward from nicotine
creates a dissociation between the act of smoking and nicotine which helps
adult smokers reduced the harm caused by smoking.
Since 2011, our reduced nicotine content cigarettes have been used in more than
50 independent scientific clinical studies by universities and institutions.
The studies, using our reduced nicotine content tobacco cigarettes, 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-35 free days, and (iv) double their quit attempts - all with minimal or
no evidence of nicotine withdrawal or compensatory smoking.
In
authorization for our reduced nicotine content cigarettes, giving us the
ability to sell the product. In order to market our reduced nicotine content ? cigarettes under the brand name VLN®, with pack and advertising claims stating
that the product contains 95% less nicotine than conventional tobacco
cigarettes, as well as related claims regarding nicotine exposure, we will need
to secure an MRTP authorization from the FDA.
As a part of the MRTP application process, on
our MRTP application for our reduced nicotine content cigarettes, VLN® to the
as the deadline for the submission of public comments on our MRTP application.
The public comment period is now closed, and we believe that we are in the
final stages of the review and decision-making process. We were and remain focused on our primary mission and highest, near-term
priority of securing MRTP authorization for our proprietary, reduced nicotine
content tobacco cigarettes, VLN®. The designation will allow us to communicate
key features of the VLN® products, including the headline claim of "95% less
nicotine." We continue to steadily increase our advocacy activities and engage
? in conversations at the highest levels of the Administration,
FDA about VLN®, and every indication is that the MRTP application is in the
final stages of review with the FDA. In addition to our ongoing contact with
the FDA, we have been and continue to work with various legal advisers,
regulatory consultants, and government affairs specialists to highlight the
public health importance of the MRTP application to encourage a near-term authorization of its application.
We are prepared to launch sales of VLN® within 90 days of receiving
regional, and national distribution and retail partners. We anticipate a phased
rollout of VLN® in
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select geographies and plan to position VLN® in the premium pricing segment of
the cigarette market. On
growing program and increase planting in the 2021 crop year for VLN® reduced
nicotine content tobacco. This new planting for VLN® tobacco is in addition to
our current VLN® inventory, which is earmarked for the launch and initial sales
of VLN®.
On
Zealand to reach its goal to be a smoke-free nation by 2025. Our VLN®
cigarettes contain just 0.5 milligrams of nicotine per gram of tobacco, 95%
less nicotine than conventional cigarette brands, which is in line with the New ? Zealand proposal. We initially engaged with the public health researchers in
smoke-free, leading the
recommending our reduced nicotine content cigarettes as an "important smoking
reduction tool."
We are fully prepared to manufacture enough VLN® to secure its market position.
We own and operate a fully credentialed 62,000 square foot facility in North
? Carolina. Our capacity is currently approximately 1% of the
market volume. With minimal investment, we believe that we can triple that
capacity to 3%.
Our research cigarettes, SPECTRUM®, continue to fuel numerous independent,
scientific studies to validate the enormous public health benefit identified by
the FDA and others of implementing a national standard requiring all cigarettes
to contain "minimally or non-addictive" levels of nicotine. In
others, submitted an order to us for 3.6 million variable nicotine research
cigarettes. On
the total number of research cigarettes provided for public health research to
more than 31 million cigarettes.
On
testing capabilities to increase our ability to rapidly conduct high-precision ? analysis of our VLN® cigarettes and other nicotine products. We are making the
investment now to be well-positioned for the FDA authorization of our MRTP
application. 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, we believe that the FDA will refocus on implementing 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® will serve as a starting point for the
We believe that our next generation, non-GMO, plant research is the key to
commercializing our reduced nicotine content tobacco and technology in
international markets. Non-GMO products are critical for success in
international markets where non-GMO products are preferred, or GMO products are
banned. We continue to make progress in our non-GMO tobacco research. In
partnership with
research field trials that have validated new non-GMO methodologies for
reducing nicotine in tobacco plants and have consistently achieved reductions ? in nicotine levels by as much as 99%. During the fourth quarter of 2020, we
announced that we were granted a new
"Up-regulation of auxin response factor NbTF7", related to the reduction of
nicotine in the tobacco plant. The new technology provides us with a rapid
pathway 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. We are also using
our non-GMO technology to introduce reduced nicotine traits into oriental
varieties of tobacco.
Hemp/Cannabis Franchise Highlights and Notable Accomplishments
We continue to place an emphasis on our hemp/cannabis strategy to target the
upstream segments of the cannabinoid value chain in the areas of plant
biotechnology research, gene modification and engineering, modern plant ? breeding and development, and extraction. We believe that we can differentiate
ourselves in the hemp/cannabis industry by building upon our core strength and
expertise in plant science and the ingredient value chain and through our
strategic, operational partnerships, including the addition of our new partner,
CannaMetrix.
We continue to shift our focus away from the already saturatedU.S. consumer market of cannabidiol (CBD) and hemp-based products and expect to gain ingredient cultivation capabilities and extraction and purification services through a non-binding agreement with Panacea, which is expected to provide us with operational assets, including a farm and various extraction and distillation equipment. 24 Table of Contents
We developed and launched a new, cutting-edge technology platform that will
enable us and our strategic partners to quickly identify and incorporate
commercially valuable traits of hemp/cannabis plants to create new, stable
hemp/cannabis lines. The platform, developed in collaboration with researchers
at KeyGene, incorporates a suite of proprietary molecular tools and a large
library of genomic markers and gene-trait correlations. We have already
characterized millions of high-value single nucleotide polymorphisms (SNPs). By ? targeting these newly identified SNPs, we have been able to locate and isolate
specific sections of genetic code from genome assemblies present in our
state-of-the-art hemp/cannabis bioinformatics database. This breakthrough
enables us to quickly and easily identify the genes responsible for specific
traits in a plant and is a powerful tool for us and the hemp/cannabis industry.
We have already begun discussions to license this platform to strategic
partners to help them improve their plant breeding techniques and optimize
their hemp/cannabis lines.
We continue to secure commercially, valuable patents and intellectual property
through our internal research capabilities and external research partnerships.
We were recently granted a new
specific promoters for the manipulation of cannabinoids and other compounds in
glandular trichomes". This new intellectual property enables us to develop and ? deliver new hemp/cannabis plants that are designed to produce cannabinoids more
efficiently by activating the molecular promoters, "on/off switches,"
specifically and only in the plant's trichomes where the majority of
cannabinoids are produced. The patent application describes eight promoters,
which are essentially molecular on/off switches, covering all of the major
steps in the cannabinoid biosynthesis pathway and is related to the control of
cannabinoid and terpene production.
We have secured an exclusive agreement with
their proprietary, human cell-based testing CannaMetrix EC50Array™ technology
that will enable us to accelerate the commercialization of new, disruptive
hemp/cannabis plant lines and intellectual property. CannaMetrix's proprietary
CannaMetrix EC50Array™ technology serves as a high-throughput roadmap for ? developing new hemp/cannabis plant lines with tailor-made cannabinoid and
terpenoid profiles for use in the life science, consumer product, and
pharmaceutical markets. The human cell-based assay has the ability to measure
and validate the potency and efficacy of cannabinoids and/or terpenoids through
defined biomarkers and receptor activity and can rapidly identify optimum plant
profiles by measuring the potency and effect on the human cell system.
We have secured a number of the key partnerships needed to maximize our work in
the upstream segments of the cannabinoid value chain, and vertically integrate ? our hemp/cannabis capabilities. The combination of our core strengths in plant
science and our network of key partnerships will enable us to drive
differentiation and value by delivering new, disruptive plant lines and IP.
2021 Priorities and Areas of Focus
We remain focused on securing FDA authorization for VLN®. Starting within 1. 90-days of authorization of our MRTPA by the FDA, we are prepared to launch
VLN® cigarettes in select markets.
We believe that an equally important first priority initiative is for us to
2. support and advance the
to just 0.5 milligrams of nicotine per gram of tobacco.
We continue to target the upstream segment of the cannabinoid value chain;
creating proprietary, commercially valuable new plant lines and related 3. intellectual property with stabilized genetics to harness and optimize
hemp/cannabis plant potential. We will seek to monetize a portion of our existing hemp/cannabis IP in 2021 and will continue to bring disruptive technology forward.
We will turn attention to the development of a third, plant-based franchise 4. after securing MRTP authorization for VLN®. We will leverage our plant science
expertise to develop and secure valuable intellectual property and sign
lucrative strategic partnerships to support the development of this franchise.
5. We will maintain diligent financial execution, efficient operating structure,
and balance sheet strength to support our growth initiatives.
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Results of Operations
Year-to-Date March, 31 2021 compared to 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
2021 2020
Sale of products, net $ 6,806 $ 7,058
Dollar Change from Prior Year
The decrease in sales revenue for the three months endedMarch 31, 2021 , compared to the three months endedMarch 31, 2020 , was primarily the result of decreased sales of contract manufactured cigarettes of$1,059 . The decreased sales were primarily driven by volume decreases compared to the prior period. This was partially offset by increased contract manufactured filtered cigar sales of$127 , and fulfillment of our SPECTRUM® cigarette order of$680 which did not occur in the prior period.
Cost of goods sold - Products / Gross profit (loss)
Year-to-Date
March 31 March 31
2021 2020
Cost of goods sold $ 6,159 $ 6,771
Percent of Product Sales 90.5 % 95.9 %
Dollar Change from Prior Year
Year-to-Date
March 31 March 31
2021 2020
Gross profit (loss) $ 647 $ 287
Percent of Product Sales 9.5 % 4.1 %
Dollar Change from Prior Year
The increase in gross margin for the three months endedMarch 31, 2021 , compared the three months endedMarch 31, 2020 , was primarily due to fulfillment of our SPECTRUM® cigarette order and was partially offset by lower sales volume in contract manufacturing cigarettes and filtered cigars.
Research and development expense
Year-to-Date
March 31 March 31
2021 2020
Research and Development $ 689 $ 811
Percent of Product Sales 10.1 % 11.5 %
Dollar Change from Prior Year $ (122) The decrease in R&D expense for the three months ended
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Research and development expense - MRTP
Year-to-Date
March 31 March 31
2021 2020
Research and Development - MRTP $ 12 $ 149
Percent of Product Sales 0.2 % 2.1 %
Dollar Change from Prior Year $ (137)
MRTP expenses for the three months ended March 31, 2021 declined significantly,
as we submitted our MRTP application to the FDA during 2019. MRTP-related
expenses for 2021 are primarily related to consulting services related to our
application while 2020 are primarily related to our February 14, 2020 Tobacco
Products Scientific Advisory Committee (TPSAC) hearing.
Sales, general and administrative expense
Year-to-Date
March 31 March 31
2021 2020
Sales, general and administrative $ 4,829 $ 3,141
Percent of Product Sales 71.0 % 44.5 %
Dollar Change from Prior Year $ 1,688
The increase in SG&A expense during the three months ended March 31, 2021 , as
compared to the prior year respective period, was driven by a $675 increase in
personnel expenses, a $604 increase in insurance expenses, a $441 increase in
investor relations expenses, and a $112 increase in marketing expenses primarily
related to VLN® activities. We have deployed incremental SG&A spending to
support our corporate management capabilities and to evaluate and prepare for
future opportunities. These increases in SG&A were partially offset by lower
legal fees of $283 compared to the prior year.
Depreciation expense
Year-to-Date
March 31 March 31
2021 2020
Depreciation $ 138 $ 156
Percent of Product Sales 2.0 % 2.2 %
Dollar Change from Prior Year
The decrease in depreciation expense during the three months endedMarch 31, 2021 , as compared to the prior year respective period, was primarily due to a lower property, plant, and equipment depreciable base primarily due to impairments taken for theWilliamsville corporate office during the fourth quarter of 2020. Amortization expense Year-to-Date March 31 March 31 2021 2020 Amortization$ 150 $ 172 Percent of Product Sales 2.2 % 2.4 % Dollar Change from Prior Year$ (22) The decrease in amortization expense during the three months endedMarch 31, 2021 , as compared to the prior year respective period, was primarily due to a lower intangible asset depreciable base primarily due to impairments taken during 2020. 27 Table of Contents
Unrealized gain (loss) on investment
Year-to-Date
March 31 March 31
2021 2020
Unrealized gain (loss) on investments $ 36 $ (445)
Percent of Product Sales 0.5 % (6.3) %
Dollar Change from Prior Year $ 481
The warrants to purchase 81,164 shares of Aurora Cannabis, Inc ("Aurora") common
stock are considered an equity security and are recorded at fair value. We
recorded the fair value of the stock warrants of $275 at March 31, 2021 , using
the Black-Scholes pricing model, and recorded an unrealized gain on the warrants
in the amount of $36 for the three months ended March 31, 2021 , and an
unrealized loss of $445 for the three months ended March 31, 2020 .
Interest income, net
Year-to-Date
March 31 March 31
2021 2020
Interest Income, net $ 112 $ 612
Percent of Product Sales 1.7 % 8.7 %
Dollar Change from Prior Year
Interest income, net (interest income less investment fees) for the three months endedMarch 31, 2021 is comprised of cash interest income of$67 and non-cash interest accretion of$45 which relates to our preferred stock investment in Panacea, and short-term investment securities purchased at a discount or premium. The decrease in interest income during the three months endedMarch 31, 2021 , as compared to the prior year respective period, was primarily due to lower cash and non-cash interest income on our Panacea convertible note receivable ($173 and$93 , respectively) as a result of a non-binding letter of intent to restructure our Panacea investment. See Note 5 to our consolidated financial statements included herein for additional information regarding our Panacea investment. Cash interest income, net on our short-term investment securities decreased$163 primarily due to lower bond interest yields and lower total short-term investment securities as ofMarch 31, 2021 , as compared to the prior year respective period. Interest expense Year-to-Date March 31 March 31 2021 2020 Interest Expense$ (7) $ (12) Percent of Product Sales (0.1) % (0.2) %
Dollar Change from Prior Year $ 5
Interest expense for the three months ended
Net loss
Year-to-Date
March 31 March 31
2021 2020
Net Loss $ (5,030) $ (4,028)
Percent of Product Sales (73.9) % (57.1) %
Dollar Change from Prior Year $ (1,002)
The increase in net loss for the three months ended March 31, 2021 , as compared
to the same period during the prior year, was primarily the result of increased
SG&A expense of $1,688 during the three months ended March 31, 2021 , compared to
the respective prior year period. This was partially offset by increased gross
margin of $360 , which was primarily due to fulfillment of our
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SPECTRUM® cigarette order, decreased R&D expenses of
Other Comprehensive Income (Loss)
Year-to-Date
March 31 March 31
2021 2020
Other Comprehensive Income (Loss) $ (32) $ (193)
Percent of Product Sales (0.5) % (2.7) %
Dollar Change from Prior Year $ 161
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 $32
resulting in other comprehensive loss of $32 for the three months ended
March 31, 2021 . For the three months ended March 31, 2020 , we recorded an
unrealized loss on short-term investment securities of $196 and recorded a
reclassification of gains to net loss in the amount of $3 , resulting in other
comprehensive loss of $193 .
Liquidity and Capital Resources
Year-to-Date
March 31 March 31
2021 2020
Net cash provided by (used in) operating activities $ (3,911) $ (4,662)
Net cash provided by (used in) investing activities (8,535) 4,896
Net cash provided by (used in) financing activities 12,689 -
Net increase (decrease) in cash and cash equivalents 243
234
Cash and cash equivalents - beginning of period 1,029
485
Cash and cash equivalents - end of period$ 1,272 $
719
Short-term investment securities$ 29,671 $ 21,313 Working Capital As ofMarch 31, 2021 , we had working capital of approximately$29,379 compared to working capital of approximately$20,998 atDecember 31, 2020 , an increase of$8,381 . This increase in working capital was primarily due to a$8,601 increase in cash, cash equivalents and short-term investment securities resulting from cash exercises of all of our outstanding warrants. The cash exercises eliminated all outstanding warrants and amounted to net cash proceeds of$11,782 .
Net cash used in operating activities
The decrease of cash used in operations in the amount of
Net cash provided by investing activities
The increase in cash used in investing activities, in the amount of$13,431 , was primarily the result of an increase in the net cash used for our short-term investments in the amount of$13,422 and an increase in the cash used for acquisition of machinery and equipment in the amount of$92 , as compared to the three months endedMarch 31, 2020 . The increase in cash used in our short-term investments was primarily due to increased funds for investment, from Q1 2021 warrant exercises, while the increased cash used for acquisition of machinery and equipment was primarily due to new office furnishings and improvements at our newly relocated corporate headquarters. 29
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Net cash provided by (used in) financing activities
During the three months ended
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, 2021 , we had approximately$30,943 of cash and cash equivalents and short-term investments which is an increase of$8,601 fromDecember 31, 2020 . This increase was primarily due to the cash exercise of our outstanding warrants. Our short-term investment securities along with sustained contract manufacturing sales provide sufficient resources for estimated contractual commitments, described further in Note 11, and normal cash requirements for operations for at least the next twelve months. In addition to the commitments described in Note 11 to our consolidated financial statements, we are currently in the process of securing contracts with select tobacco farmers to assist with the 2021 growing of our VLNC tobacco. These contacts, once finalized and executed, will increase the quantity of our current leaf inventory which will help support expected demand of VLN®, if MTRP authorization is granted by the FDA. The cost of such growing efforts is dependent on the final agricultural yields and leaf quality, but we expect the cost to range between$1.5 million and$1.9 million . We also believe that we have appropriate liquidity to successfully manufacture and distribute our VLN® cigarette within 90 days of MRTP authorization by the FDA, if granted in 2021. We also have an effective S-3 shelf registration statement on file with theU.S. Securities and Exchange Commission (SEC), which provides us flexibility and optionality to raise capital, however there can be no assurance that capital will be available to us on acceptable terms or at all.
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
Inflation
Inflation did not have a material effect on our operating results for the three
months 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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