N
OTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
Business
New Age
Beverages Corporation (the “Company”) was formed under
the laws of the State of Washington on April 26, 2010 under the
name American Brewing Company, Inc. On April 1, 2015, the Company
acquired the assets of B&R Liquid Adventure, which included the
brand Búcha® Live Kombucha. On June 30, 2016, the Company
acquired the combined assets of Xing Beverage, LLC, Aspen
Pure®, LLC, New Age Beverages, LLC, and New Age Properties,
LLC and changed the Company’s name to New Age Beverages
Corporation.
In March 2017, the
Company acquired the assets of Maverick Brands LLC
(“Maverick”), including the Coco-Libre brand. In May
2017, the Company acquired the assets of Premier Micronutrient
Corporation (“PMC”). In June 2017, the Company also
completed the acquisition of the Marley Beverage Company
(“Marley”) including the worldwide brand licensing
rights to all Marley brand non-alcoholic ready-to-drink (RTD)
beverages (see Note 2).
The
Company manufactures, markets and sells a portfolio of healthy
beverage brands including XingTea, Marley, Aspen Pure®,
Búcha® Live Kombucha, and Coco-Libre. The portfolio is
distributed through the Company’s own Direct Store
Distribution (DSD) network and a hybrid of other routes to market
throughout the United States and in 15 countries around the world.
The brands are sold in all channels of distribution including
Hypermarkets, Supermarkets, Pharmacies, Convenience, Gas and other
outlets.
Basis of Presentation
The
accompanying unaudited interim condensed consolidated financial
statements as of September 30, 2018 of the Company have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”)
and the rules of the Securities and Exchange Commission
(“SEC”), and should be read in conjunction with the
audited financial statements and notes thereto contained in the
Company’s Form 10-KA filed with the SEC on August 17, 2018.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim
periods presented have been reflected herein. The results of
operations for interim periods are not necessarily indicative of
the results to be expected for future quarters or for the full
year. Notes to the unaudited condensed consolidated financial
statements which substantially duplicate the disclosure contained
in the audited financial statements for fiscal 2017 as reported in
the Form 10-K have been omitted.
Concentrations of Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and accounts
receivables. The Company places its cash with high credit quality
financial institutions. At times such amounts may exceed federally
insured limits.
As of
September 30, 2018, three customers accounted for approximately
29.6% (10.5%, 10.4%, and 8.7%) of accounts receivables. As of
December 31, 2017, three customers represented approximately 23.1%,
(10.5%, 6.7% and 5.9%) of accounts receivables.
For the
nine months ended September 30, 2018, three customers represented
approximately 22.4% (10.7%, 7.0%. and 4.7%) of revenue. For the
nine
months ended September 30,
2017, three customers represented approximately 27% (14.3%, 8.7%
and 4.0%) of revenue. For the three months ended September 30,
2018, three customers accounted for 22.2% (10.9%, 6.3% and 5.0%) of
revenue compared to 16.2% (8.6%, 5.1% and 2.5%) for the same period
in 2017.
Accounts Receivable
The
Company’s accounts receivable primarily consists of trade
receivables. The Company records an allowance for doubtful accounts
that is based on historical trends, customer knowledge, any known
disputes, and the aging of the accounts receivable balances
combined with management’s estimate of future potential
recoverability. Receivables are written off against the allowance
after all attempts to collect a receivable have failed. The
Company’s allowance for doubtful accounts was $1,161 as of
September 30, 2018 and $52,345 as of December 31,
2017.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of acquired
businesses over the estimated fair value of the identifiable net
assets acquired. Goodwill and other intangibles with indefinite
useful lives are not amortized but tested for impairment annually
or more frequently when events or circumstances indicates that the
carrying value of a reporting unit more likely than not exceeds its
fair value. The goodwill impairment test is applied by performing a
qualitative assessment before calculating the fair value of the
reporting unit. If, on the basis of qualitative factors, it is
considered not more likely than not that the fair value of the
reporting unit is less than the carrying amount, further testing of
goodwill for impairment would not be required. If the carrying
amount of a reporting unit exceeds the reporting unit’s fair
value, an impairment loss is recognized in an amount equal to that
excess, limited to the total amount of goodwill allocated to that
reporting unit. The Company performed a qualitative assessment and
determined there was no impairment of goodwill for the
nine
months ended
September
30, 2018 and 2017,
respectively.
Intangible assets are recorded at fair value as part of the
acquisitions as described in Note 2. The balance as of
September
30, 2018 and December 31,
2017 is reflected net of accumulated amortization. Definite lived
intangible assets are amortized over their estimated useful life
using the straight-line method, which is determined by identifying
the period over which the cash flows from the asset are expected to
be generated, typically 15 to 42 years.
For the
nine
months ended September 30, 2018 and
2017 amortization expense totaled $1,098,776 and $293,941,
respectively. As of September 30, 2018 and December 31, 2017,
accumulated amortization was $2,467,344 and $1,368,568,
respectively.
Share-Based Compensation
The Company accounts for share-based compensation to employees in
accordance with Accounting Standard Codification (ASC) 718
Compensation—Stock
Compensation.
Share-based
compensation to employees is measured at the grant date, based on
the fair value of the award, and is recognized as expense over the
requisite employee service period. The Company accounts for
share-based compensation to nonemployees in accordance with ASC
505-50,
Equity-Based Payments to
Nonemployees
. Equity
instruments issued to nonemployees are valued at the earlier of a
commitment date or upon completion of the services, based on the
fair value of the equity instruments and is recognized as expense
over the service period. The Company estimates the fair value of
share -based payments using the Black-Scholes option- pricing
model for common stock options and warrants and the latest fair
market price of the Company’s common stock for common share
issuances. The Company has not experienced any material forfeitures
as of September 30, 2018. Management does not anticipate future
forfeitures to be material.
Included in prepaid expenses as of
September
30, 2018 and December 31, 2017 are prepaid
share-based compensation of approximately $620,000 and $1,000,000,
of which approximately $292,000 and $409,000 are presented as
long-term on the consolidated balance sheets under the caption
Prepaid Expenses, long-term. These amounts represent the prepaid
compensation to employees and certain non-employees for services
rendered.
Long-lived Assets
Long-lived
assets consisted of property and equipment, customer relationships,
tradenames and patents and are reviewed for impairment in
accordance with the guidance of the Financial Accounting Standards
Board ("FASB") Topic ASC 360,
Property, Plant, and Equipment
. The
Company tests for impairment losses on long-lived assets used in
operations whenever events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable.
Through September 30, 2018, we had not experienced impairment
losses on our long-lived assets as management determined that there
were no indicators that a carrying amount of the asset may not be
recoverable.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Recently Issued Accounting Standards
Recently Adopted Accounting Guidance
In May
2014, the FASB issued Accounting Standards Update ("ASU")
2014-09,
Revenue from Contracts
with Customers
, which replaces most existing revenue
recognition guidance in U.S. GAAP and is intended to improve and
converge with international standards the financial reporting
requirements for revenue from contracts with customers. ASU 2014-09
and its amendments were included primarily in ASC 606. The core
principle of ASC 606 is that an entity should recognize revenue for
the transfer of goods or services equal to the amount that it
expects to be entitled to receive for those goods or services. ASC
606 also requires additional disclosures about the nature, amount,
timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in
judgments. We adopted ASC 606 effective January 1, 2018, using the
modified retrospective method. There was no impact to the opening
balance of reinvested earnings as of January 1,
2018.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic
842).” The new standard establishes a right-of-use (ROU)
model that requires a lessee to record a ROU asset and a lease
liability on the balance sheet for all leases with terms longer
than 12 months. Leases will be classified as either finance or
operating, with classification affecting the pattern of expense
recognition in the income statement. The new standard is effective
for fiscal years beginning after December 15, 2018, including
interim periods within those fiscal years. A modified retrospective
transition approach is required for leases for capital and
operating leases existing at, or entered into after, the beginning
of the earliest comparative period presented in the financial
statements, with certain practical expedients available. The
Company adopted ASU 2016-02 as of December 31, 2017.
Accounting Guidance Not Yet Adopted
In January 2017, the FASB issued 2017-04,
Intangibles - Goodwill and
Other
(Topic 350): Simplifying
the Test for Goodwill Impairment. The amendments in this ASU
simplify the subsequent measurement of goodwill by eliminating Step
2 from the goodwill impairment test and eliminating the requirement
for a reporting unit with a zero or negative carrying amount to
perform a qualitative assessment. Instead, under this
pronouncement, an entity would perform its annual, or interim,
goodwill impairment test by comparing the fair value of a reporting
unit with its carrying amount and would recognize an impairment
change for the amount by which the carrying amount exceeds the
reporting unit’s fair value; however, the loss recognized is
not to exceed the total amount of goodwill allocated to that
reporting unit. In addition, income tax effects will be considered,
if applicable. This ASU is effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2019. Early adoption is permitted. The Company is currently
evaluating the impact of this ASU on its consolidated financial
statements and related disclosures.
In
August 2018, the FASB issued ASU 2018-13. “Fair Value
Measurement (Topic 820) Disclosure Framework-Changes to the
Disclosure Requirements for Fair Value Measurement.” The
amendments in the standard apply to all entities that are required,
under existing GAAP, to make disclosures about recurring or
nonrecurring fair value measurements. ASU 2018-13 removes,
modifies, and adds certain disclosure requirements in ASC 820, Fair
Value Measurement. The standard is effective for all entities for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2019.
The
amendments on changes in unrealized gains and losses, the range and
weighted average of significant unobservable inputs used to develop
Level 3 fair value measurements, and the narrative description of
measurement uncertainty should be applied prospectively for only
the most recent interim or annual period presented in the initial
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
Early adoption is permitted upon issuance of ASU 2018-13. An entity
is permitted to early adopt any removed or modified disclosures
upon issuance of ASU 2018-13 and delay adoption of the additional
disclosures until their effective date. The Company is currently
assessing the impact that ASU 2018-13 will have on its financial
statements.
Cash Flows
|
|
Nine
months ended
September
30, 2018
|
Nine
months ended
September
30, 2017
|
|
|
|
|
|
CASH PAID DURING
THE PERIODS FOR:
|
|
|
|
Interest
|
$
253,212
|
$
226,022
|
|
Income
taxes
|
$
-
|
$
-
|
|
|
|
|
|
NONCASH INVESTING
AND FINANCING ACTIVITIES:
|
|
|
|
Common stock issued
for acquisition of Maverick Brands, LLC, Marley Beverages, LLC
and Premier Micronutrient Corporation
|
$
-
|
$
33,182,000
|
|
Common stock issued
for settlement of note payable, including interest expense of
$61,001
|
$
1,488,052
|
$
-
|
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 – ACQUISITIONS
Maverick Brands, LLC.
On
March 31, 2017, the Company acquired all of the assets of Maverick
Brands, LLC or Maverick. Maverick is engaged in the manufacturing
and sale of coconut water and other beverages. The acquisition
helped the Company expand its capabilities and product offering.
The operating results of Maverick have been consolidated with those
of the Company beginning April 1, 2017. Total purchase
consideration paid was $11,086,000, which consisted of $2,000,000
of cash and 2,200,000 shares of common stock valued at $9,086,000.
The common stock issued was valued at $4.13 per share, which was
the closing price of the Company’s stock on the date of the
acquisition. The acquisition was subject to customary closing
conditions. All of the goodwill was assigned to the Company’s
Brands segment. All of the goodwill and intangible assets
recognized is expected to be deductible for income tax purposes.
The fair value of the customer list was valued using the income
approach, as the Company obtained an independent third-party
valuation. In addition, the market approach was utilized to
determine the fair value of the trade name and
recipes.
The
purchase price was allocated to the net assets acquired based on
their estimated fair values as follows:
|
Cash
|
$
2,000,000
|
|
Stock
|
9,086,000
|
|
Purchase
price
|
$
11,086,000
|
|
|
|
|
Accounts
receivable
|
$
245,426
|
|
Inventories
|
1,523,413
|
|
Prepaid expenses
and other current assets
|
211,213
|
|
Property and
equipment, net
|
68,282
|
|
Other intangible
assets acquired (trade names, recipes and customer
lists)
|
6,660,441
|
|
Accounts payable
and accrued expenses
|
(1,345,155
)
|
|
Assumption of note
payable
|
(1,427,051
)
|
|
|
5,936,569
|
|
Goodwill
|
5,149,431
|
|
|
$
11,086,000
|
Goodwill
is the excess of the purchase price over the preliminary fair value
of the underlying net tangible and identifiable intangible assets.
In accordance with applicable accounting standards, goodwill is not
amortized but instead is tested for impairment at least annually or
more frequently if certain indicators are present.
In
connection with the acquisition of Maverick, the Company incurred
transactional costs totaling $231,925, which has been recognized as
expense as of March 31, 2017. These costs have been reflected in
other expenses.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
PMC Holdings, Inc.
On May
18, 2017, the Company entered into an Asset Purchase Agreement
whereby the Company acquired substantially all of the operating
assets of Premier Micronutrient Corporation, a subsidiary of PMC
Holdings, Inc. or PMC, which is a company engaged in the business
of developing, manufacturing, selling and marketing micronutrient
products and formulations. On May 23, 2017, the parties executed
the Bill of Sale and Assignment and Assumption Agreement for the
acquisition.
Upon
the closing of the acquisition, the Company received substantially
all of the operating assets of PMC, consisting of fixed assets and
intellectual property in exchange for a purchase price of 1,200,000
shares of the Company’s common stock. The shares were fair
valued at $4.58 per share. The Company also agreed to assume
various accounts payable and accrued liabilities of PMC. The shares
of Common Stock issued pursuant to the acquisition are restricted
under Rule 144. The acquisition was subject to customary closing
conditions. All of the goodwill was assigned to the Company’s
Brands segment. All of the goodwill and intangible assets
recognized is expected to be deductible for income tax purposes.
The fair value of the patents were valued using the market
approach, as the Company obtained an independent third-party
valuation.
The
purchase price was allocated to the net assets acquired based on
their estimated fair values as follows:
|
Stock
|
$
5,496,000
|
|
Purchase
price
|
$
5,496,000
|
|
Prepaid expenses
and other current assets
|
$
2,256
|
|
Property and
equipment, net
|
55,023
|
|
Patents
|
4,100,000
|
|
Accounts
payable
|
(27,772
)
|
|
Assumption of notes
payable
|
(401,095
)
|
|
|
3,728,412
|
|
Goodwill
|
1,767,588
|
|
|
$
5,496,000
|
Marley Beverage Company, LLC
On
March 23, 2017, the Company entered into an asset purchase
agreement whereby the Company acquired substantially all of the
operating assets of Marley Beverage Company, LLC or Marley, which
is a company engaged in the development, manufacturing, selling and
marketing of nonalcoholic relaxation teas and sparkling waters, and
ready to drink coffee drinks. The consideration for the acquisition
was amended pursuant to an amendment to the asset purchase
agreement on June 9, 2017. The acquisition closed on June 13,
2017.
At
closing, the Company received substantially all of the operating
assets of Marley, consisting of inventory, accounts receivable,
fixed assets, intellectual property, and worldwide licensing rights
in perpetuity to all non-alcoholic Marley RTD beverages in exchange
for a purchase price of 3,000,000 shares of the Company’s
common stock. The Company agreed to an earn out payment of
$1,250,000 in cash if the gross revenues of the Marley business
during any trailing twelve calendar month period after the closing
are equal to or greater than $15,000,000. The earnout, if
applicable, will be paid as $625,000 on or before the 15th day
after the end of the first trailing twelve calendar month period in
which the earnout condition is satisfied, $312,500 not later than
the first anniversary of the initial earnout payment, and $312,500
not later than the second anniversary of the initial earnout
payment. The fair value of the earnout was valued using the
weighted average return on asset. The shares of common stock issued
pursuant to the acquisition have not been registered, but the
holders were granted piggyback registration rights, as well as
demand registration rights, with the demand registration rights
beginning twelve months from the Closing Date. The acquisition was
subject to customary closing conditions. The shares were fair
valued at $6.20 per share. All of the goodwill was assigned to the
Company’s Brands segment. All of the goodwill and intangible
assets recognized is expected to be deductible for income tax
purposes. The fair value of the customer list was valued using the
cost approach, as the Company obtained an independent third-party
valuation. In addition, the market approach was utilized to
determine the fair value of the trade name and
recipes.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
purchase price was allocated to the net assets acquired based on
their estimated fair values as follows:
|
Stock
|
$
18,600,000
|
|
Contingent
consideration
|
800,000
|
|
Purchase
price
|
$
19,400,000
|
|
Accounts
receivable
|
$
186,658
|
|
Inventories
|
798,098
|
|
Prepaid expenses
and other current assets
|
198,882
|
|
Property and
equipment, net
|
22,191
|
|
Other intangible
assets acquired (trade names, recipes and customer lists)
|
9,281,365
|
|
Accounts payable
and accrued expenses
|
(505,146
)
|
|
|
9,982,048
|
|
Goodwill
|
9,417,952
|
|
|
$
19,400,000
|
The
following unaudited pro forma financial results reflects the
historical operating results of the Company for the
nine
months ended September 30, 2017 and
includes the pro forma results of operations as if Maverick, PMC
and Marley were acquired on January 1, 2017. The unaudited pro
forma financial information includes an adjustment to remove
$231,925 of one-time transactional costs related to the Maverick
acquisition that were expensed during the
nine
months ended September 30, 2017. These
one-time costs were removed for pro forma purposes as the costs
were non-recurring. No adjustments have been made for synergies
that may result from the acquisition. These combined results are
not necessarily indicative of the results that may have been
achieved had the companies been combined as of such dates or
periods, or of the Company’s future operating
results.
|
|
Nine
months ended
September
30, 2017
|
|
|
|
|
|
|
|
Revenues
|
$
44,429,967
|
|
Net loss from
continuing operations
|
$
(2,839,432)
|
|
Net loss per share
– Basic and diluted
|
$
(0.09
)
|
|
Weighted average
number of common shares outstanding – Basic and
Dilutive
|
30,238,372
|
Adjustments
to the fair values of the assets acquired, which are subject to
change, could have a material impact on these pro forma combined
results.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – INVENTORIES
Inventories
consist of brewing materials, tea ingredients, bulk packaging and
finished goods. The cost elements of work in process and finished
goods inventory consist of raw materials and direct labor.
Provisions for excess inventory are included in cost of goods sold
and have historically been immaterial but adequate to provide for
losses on its raw materials. Inventories are stated at the lower of
cost, determined on the first-in, first-out basis, or
market.
Inventories
consisted of the following as of:
|
|
|
|
|
Finished
goods
|
$
8,099,781
|
$
6,302,265
|
|
Raw
materials
|
1,896,903
|
739,510
|
|
|
$
9,996,684
|
$
7,041,775
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following as of:
|
|
|
|
|
Land and
building
|
$
518,293
|
$
518,293
|
|
Trucks and
coolers
|
1,286,413
|
1,226,053
|
|
Other property and
equipment
|
924,881
|
913,053
|
|
Less: accumulated
depreciation
|
(1,188,487
)
|
(762,579
)
|
|
|
$
1,541,100
|
$
1,894,820
|
Depreciation
expense, computed on the basis of three-to-five year useful lives
for all property and equipment, and a 40-year useful life on the
building, was $425,908 and $434,282 for the
nine
months ended September 30, 2018 and
2017; respectively.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5 – NOTES PAYABLE AND CONVERTIBLE NOTE
PAYABLE
Notes
payable consisted of the following as of:
|
|
|
|
|
Revolving note
payable due bank
|
$
-
|
$
2,000,000
|
|
Series B note
assumed from the Maverick Acquisition
|
-
|
1,427,051
|
|
|
-
|
3,427,051
|
|
Less: current
portion
|
-
|
(3,427,051
)
|
|
Long-term portion,
net of unamortized discounts
|
$
-
|
$
-
|
In
connection with the acquisition of Maverick, the Company assumed
Series B notes payable in the aggregate amount of $1,427,051.
Monthly payments consisted of interest only payments at a rate of
10% per annum. The loans were due December 2018, but were
extinguished during the nine months ended September 30, 2018. The
Company entered into Exchange Agreements with the note holders
whereby the Company issued an aggregate of 741,092 shares of its
common stock to the Series B note holders in exchange for the
extinguishment of the promissory notes in the principal amount of
$1,427,051 and interest expense of $61,001. The fair value of the
shares of common stock was $1.89 per share which represents the
closing price on the date of executing the Exchange
Agreements.
On July
6, 2017 the Company entered into a revolving credit agreement with
U.S. Bank National Association. Total borrowings under the
revolving credit agreement was $2,000,000 and was subject to
borrowing base requirements. The credit agreement bore interest at
2.5% plus Daily Reset LIBOR Rate. Interest only payments of
approximately $7,000 were due monthly with the entire principal and
outstanding interest payments were due on maturity on July 6, 2018.
The revolving credit line was subject to a fixed charged ratio
financial covenant. The Company needed to maintain a fixed charged
coverage ratio of at least 1:15 to 1:00. During the period ended
September 30, 2018 the revolving credit agreement was paid in
full.
On June
20, 2018 the Company entered into a Securities Purchase Agreement
with an institutional investor pursuant to which the Company issued
to the Investor for an aggregate purchase price payable in cash of
$4,750,000, before reimbursement of expenses, a Senior Secured
Convertible Promissory Note with a principal face amount of
$4,750,000, which Convertible Note was, subject to certain
conditions, convertible into shares of underlying common stock of
the Company at a conversion price of $1.89 per share, subject to
adjustment. The convertible note would have matured on June 20,
2019, unless earlier repurchased by the Company or converted
pursuant to its terms.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
Company issued to the Investor (i) 125,661 shares of Common Stock
as a commitment fee; and (ii) 100,529 shares of Common Stock
as payment of an additional exit fee to the Investor.
On August 24 2018 the Company repaid
the entire convertible note by paying an aggregate of $4,992,778
which represented the optional redemption amount plus interest. The
Company has no further obligations related to this convertible
note.
On August 10, 2018, the Company entered into a loan and security
agreement with Siena Lending Group LLC, which provides for a $12
million aggregate principal amount revolving credit facility, which
is subject to availability based on eligible accounts receivables
and eligible inventory of the Company. The Loan and Security
Agreement has a scheduled maturity date of August 10,
2021.
Pursuant
to the Loan and Security Agreement, the Company and its
subsidiaries granted to the Lender a security interest in all
assets of the Company and the subsidiaries. In addition, pursuant
to an intellectual property security agreement, the Company and New
Age Health Sciences, Inc. granted to the Lender a continuing
security interest in all of their respective intellectual property.
In addition, pursuant to the Collateral Pledge Agreement, the
Company granted the Lender a security interest in the equity
interests of its subsidiaries. The Lender’s obligation to
fund any loans under the Loan and Security Agreement is subject to
the satisfaction of certain closing conditions, including the
requirement to raise debt or equity, as described in the Loan and
Security Agreement.
The
Loan and Security Agreement contains standard and customary events
of default including, but not limited to:
|
●
|
failure
to make payments of principal or interest when due;
|
|
●
|
failure
to comply with certain covenants;
|
|
●
|
bankruptcy
or insolvency.
|
The
Loan and Security Agreement also includes an event of default if
Brent Willis ceases to be employed as chief executive officer or if
Chuck Ence ceases to be employed as the chief financial
officer/controller, unless a successor is appointed within 60 days
and such successor is reasonably satisfactory to the
Lender.
If for
any reason the Lender’s commitment to make revolving loans is
terminated prior to the Maturity Date, in addition to the payment
of any outstanding principal and interest, the Borrowers will be
required to pay an early payment/termination premium consisting of
the applicable percentage of the amount of the revolving loan
commitment termination.
The applicable percentage shall be
(i) 4%, if such event occurs on or before the first anniversary of
the Closing Date, (ii) 2.25% if such event occurs after the first
anniversary of the Closing Date, but on or before the second
anniversary of the Closing Date, or (iii) 1.25% if such event
occurs after the second anniversary of the Closing Date but
before the Maturity Date.
In
connection with the financing, pursuant to an advisory agreement
between the Company and Alliance Global Partners, a licensed
broker-dealer with FINRA, the Company paid the advisor a cash fee
of $240,000 upon funding of the initial loan.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6 – COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
On June
30, 2016, the Company assumed the lease commitments for New Age
Beverage, LLC (NAB) and Xing Beverage, LLC (Xing) when it acquired
those companies. The Colorado Springs property, previously leased
by Xing, has a base rent of $14,000 per month plus common area
expenses, with escalation clauses over time. On April 14, 2017 the
Company entered into the Second Lease Amendment whereby extending
the lease term through August 31, 2020 and new monthly rental
payments of $16,400, subject to rental escalation
clauses.
On
January 10, 2017, the Company entered into a Purchase and Sale
Agreement with an unaffiliated third party. Pursuant to the
agreement, the Company sold the property located at 1700 E 68th
Avenue, Denver, CO 80229 for a purchase price of $8,900,000 and
entered into a lease back arrangement, whereby the Company leases
the property for an initial term of ten years, with an option to
extend for two successive five-year periods. The lease cost is
$52,000 per month for the initial year, with two percent annual
increases. The Company elected to early adopt ASU 2016-02
(‘
Leases
”) and,
as a result, the Company recognized a Right-of-Use for the asset of
approximately $4,500,000 and a corresponding liability of a similar
amount as of December 31, 2017. The total Right-of-Use for the
asset as of September 30, 2018 totaled $4,135,964.
Future
minimum lease payments under these facilities leases are
approximately as follows:
|
Remaining of
2018
|
$
245,685
|
|
2019
|
820,800
|
|
2020
|
830,640
|
|
2021
|
840,000
|
|
2022
|
845,000
|
|
Thereafter
|
4,050,696
|
|
Total
|
$
7,632,821
|
Rent
expense was $756,992 and $608,966 for the
nine
months ended September 30, 2018 and
2017, respectively.
Legal
In the
normal course of business, the Company may be involved in legal
proceedings, claims and assessments arising in the ordinary course
of business. Such matters are subject to many uncertainties, and
outcomes are not predictable with assurance. There are no such
matters that are deemed material to the condensed consolidated
unaudited interim financial statements as of September 30,
2018.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 7 – STOCKHOLDERS’ EQUITY
Preferred Stock
The
Company is authorized to issue 1,000,000 shares of preferred stock,
each having a par value of $0.001, with voting, distribution,
dividend and redemption rights, and liquidation preferences and
conversions as designated by the board of directors from time to
time. The board of directors designated 250,000 shares as Series A
Preferred stock, par value $.001 per share, 300,000 shares as
Series B Preferred stock and 7,000 shares of Series C Preferred
stock, par value of $.001 per share.
Series A Preferred Stock
Each
share of Series A Preferred has the right to vote on any matter
with holders of common stock and shall each have 500 votes. As of
December 31, 2016, 250,000 shares of Series A Preferred were issued
and outstanding. As a result of the February 17, 2017 public
offering, all shares of Series A Preferred stock were rescinded,
resulting in an increase to additional paid in capital of
$250.
Series B Preferred Stock
Our
board of directors designated 300,000 shares as Series B Preferred
stock, par value $.001 per shares (“Series B
Preferred”). The Series B Preferred is non-voting, not
eligible for dividends and ranks equal to common stock and below
Series A preferred stock. Each share of Series B Preferred has a
conversion rate into eight shares of common stock. As of December
31, 2017, 169,234 shares of Series B Preferred are issued and
outstanding. In January 2018, all remaining 169,234 shares of
Series B Preferred stock were converted into shares of common stock
at a ratio of 8:1.
Series C Preferred Stock
Pursuant
to the Series C Designation, our board of directors designated
7,000 shares of the Company’s preferred stock as Series C
Preferred Stock. Holders of the Series C Preferred Stock are
entitled to receive dividends equal, on an as-if-converted basis,
to and in the same form as dividends actually paid on shares of the
Company’s common stock when, as and if paid on shares of
Common Stock. Each holder of outstanding Series C Preferred Stock
is entitled to vote equal to the number of whole shares of Common
Stock into which each share of the Series C Preferred Stock is
convertible. Holders of Series C Preferred Stock are entitled, upon
liquidation of the Company, to receive the same amount that a
holder of Series C Preferred Stock would receive if the Series C
Preferred Stock were fully converted into Common Stock. On
the date on which an amendment to the Company’s Articles
of Incorporation, as amended, to increase the Corporation’s
authorized shares of Common Stock has been filed with the Secretary
of State of the State of Washington, each share of Series C
Preferred Stock shall convert automatically into 1,000 shares of
the Company’s Common Stock.
Effective September 21, 2018, the Company entered into an Exchange
Agreement with Brent Willis and Neil Fallon pursuant to which the
officers exchanged an aggregate of 6,900,000 shares of common stock
which they owned for an aggregate of 6,900 shares of the
Company’s newly designated Series C Convertible Preferred
Stock.
Common Stock
On
February 17, 2017, the Company issued 4,285,714 shares of common
stock in an underwritten public offering at an offering price of
$3.50 per share. In addition, the Company’s underwriters
exercised the over-allotment to purchase an additional 642,857
shares of common stock. Net proceeds to the Company were
$15,638,232 before deducting underwriting discounts and
commissions, and other offering expenses payable by the
Company.
During
the nine months ended September 30, 2018 the Company issued common
stock for the following:
In
January 2018 the Company issued 1,353,872 common shares for the
conversion of preferred shares.
In
April 2018 the Company completed an underwritten public offering
and issued 2,560,000 common shares.
In June
2018 the Company issued 226,190 common shares to pay certain loan
fees.
In
August 2018 the Company completed an underwritten public offering
at $1.28 per share issuing 9,200,000 shares.
In
September 2018 the Company issued 6,900,000 common shares pursuant
to the At The Market (ATM) Offering
Agreement
dated September 24, 2018 with Roth Capital Partners,
LLC.
Throughout
the nine months ended September 30, 2018 the Company converted
Series B Promissory Notes into an aggregate of 741,092 shares of
common stock for the full payment of these notes and issued 261,513
common shares to directors, management and consultants for services
rendered.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8 – COMMON STOCK AWARDS
Long-term Incentive Plan:
On
August 3, 2016, the Company’s approved and implemented the
New Age Beverages Corporation 2016-2017 Long Term Incentive Plan
pursuant to which the maximum number of shares that can be granted
as of September 30, 2018 is 3,517,141 shares. Grants under the Plan
include options and share awards. The purpose of the Plan is to
provide such individuals with additional incentive and reward
opportunities designed to enhance the profitable growth of the
Company and its affiliates. The shares of common stock to be issued
in connection with the Plan will not be registered under the
Securities Act. As of September 30, 2018 and December 31, 2017, a
total of 1,117,014 and 292,565 options were outstanding under the
plan. Employee stock option activities under the Incentive Plan for
the nine-month period ended and year ended September 30, 2018 and
December 31, 2017, and changes during the years then ended are
presented below:
|
|
|
Weighted
Average Exercise Price
|
Weighted Average Remaining Contractual Life
|
Aggregated Intrinsic Value
|
|
|
|
|
|
|
|
Outstanding
December 31, 2017
|
1,611,475
|
$
1.96
|
2.70
|
$
5,462,900
|
|
Granted
|
-
|
-
|
|
|
|
Exercised
|
-
|
-
|
|
|
|
Forfeited
|
(125,075
)
|
-
|
|
|
|
|
-
|
-
|
|
|
Outstanding
September 30, 2018
|
1,486,400
|
$
1.96
|
1.95
|
$
5,038,896
|
|
Exercisable at
September 30, 2018
|
539,243
|
$
1.79
|
1.95
|
$
1,919,705
|
Available for grant
at September 30, 2018
|
2,030,741
|
|
|
|
The
options granted in 2017 were fair valued using the Black-Scholes
Merton model and valued at $1.33 and $0.83 per share on the grant
date.
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The
options granted in 2018 were fair valued using the BlackScholes
Merton model and valued at $1.22 per share on the grant
date.
The
following table presents the assumptions for the Black-Scholes
option-pricing model used in determining the fair value of options
granted to employees on the grant date:
|
|
|
|
|
Exercise
price$
|
$
2.04-2.09
|
2.04-2.09
|
|
Dividend
yield
|
0.0
%
|
0.0
%
|
|
Risk-free interest
rate
|
2.01
%
|
2.01
%
|
|
Expected
volatility
|
100
%
|
100
%
|
|
Expected term
(years)
|
1.0-3.0
|
1.0-3.0
|
|
Estimated
forfeiture % rate
|
0.0
%
|
0.0
%
|
Restricted Stock Awards:
Restricted
stock award activity under the Incentive Plan for the
nine
months ended September 30, 2018 and
for the year ended December 31, 2017, are presented
below:
|
|
|
|
Restricted Stock-Based Compensation
Award Activity
|
|
Weighted-
Average Grant
Date Fair
Value
|
|
|
|
|
|
Non-vested
restricted stock awards at December 31, 2017
|
869,522
|
$
0.71
|
|
Granted
|
153,300
|
$
2.12
|
|
Vested
|
(240,817
)
|
$
2.11
|
|
Forfeited
|
-
|
$
-
|
|
Non-vested restricted stock awards at
September
30, 2018
|
782,005
|
$
2.11
|
The
shares were fair valued using our closing stock price of $2.11 in
2017 and $2.12 in 2018 per share on the grant dates.
NOTE 9 – NET LOSS PER SHARE
The
following table provides basic and diluted shares outstanding for
the calculation of net (loss) income per share. Series B preferred
stock is included on an as-converted basis and warrants are
included using the treasury stock method. For the periods whereby
the Company is reporting a net loss from continuing operations,
securities to acquire common stock or convertible into shares of
common stock are excluded from the computation of net (loss) income
per share as they would be anti-dilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding – Basic
|
43,346,175
|
35,171,419
|
39,492,335
|
30,138,372
|
|
Series B preferred
stock
|
-
|
-
|
-
|
-
|
|
Series C preferred
stock
|
-
|
-
|
-
|
-
|
|
Warrant to acquire
common stock
|
-
|
|
-
|
100,000
|
|
Weighted average
shares outstanding – Diluted
|
43,346,175
|
35,171,419
|
39,492,335
|
30,238,372
|
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 10
– SEGMENT
INFORMATION
The
Company follows segment reporting in accordance with FASB ASC Topic
280,
Segment
Reporting
.
Management
views its operations based on two distinct reporting segments: (1)
the Direct Store Distributions (DSD) and (2) the Brands
segment.
The DSD
segment distributes beverages throughout Colorado and surrounding
states, delivering to approximately 6,000 retail
customers.
The
Brands segment sells beverages to wholesale distributors,
broad-liners, key account owned warehouses and international
accounts using several distribution channels.
Total
revenues by reporting segment for the periods presented are as
follows:
|
|
Three Months Ended
September
30,
(in thousands)
|
|
(In thousands)
|
|
|
|
DSD
|
$
10,383
|
$
11,066
|
|
Brands
|
2,860
|
3,983
|
|
Total
revenues
|
$
13,243
|
$
15,049
|
DSD
A
summary of the DSD segment’s revenues and cost of sales is as
follows:
|
|
Three Months Ended
September
30,
(in thousands)
|
|
(In thousands)
|
|
|
|
Revenues
|
$
10,383
|
$
11,066
|
|
Cost
of sales
|
(8,074
)
|
(7,628
)
|
|
Gross
profit
|
$
2,309
|
$
3,438
|
Brands
A
summary of the Brands segment’s revenues and cost of sales is
as follows:
|
|
Three Months Ended
September
30 ,
(in thousands)
|
|
(In thousands)
|
|
|
|
Revenues
|
$
2,860
|
$
3,983
|
|
|
(3,470
)
|
(3,475
)
|
|
|
$
(610
)
|
$
508
|
|
|
Nine Months Ended
September
30,
(in thousands)
|
|
(In thousands)
|
|
|
|
DSD
|
$
28,708
|
$
29,338
|
|
Brands
|
9,455
|
11,604
|
|
Total
revenues
|
$
38,163
|
$
40,942
|
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DSD
A
summary of the DSD segment’s revenues and cost of sales is as
follows:
|
|
Nine Months Ended
September
30,
(in thousands)
|
|
(In thousands)
|
|
|
|
Revenues
|
$
28,708
|
$
29,338
|
|
Cost
of sales
|
(22,414
)
|
(22,081
)
|
|
Gross
profit
|
$
6,294
|
$
7,258
|
Brands
A
summary of the Brands segment’s revenues and cost of sales is
as follows:
|
|
Nine Months Ended
September
30
,
(in thousands)
|
|
(In thousands)
|
|
|
|
Revenues
|
$
9,455
|
$
11,604
|
|
|
(9,674
)
|
(9,090
)
|
|
|
$
(219
)
|
$
2,514
|
Total
assets for each reporting segment as of September 30, 2018 and
December 31, 2017 are as follows:
|
|
|
|
(In thousands)
|
|
|
|
DSD
|
$
17,386
|
$
16,630
|
|
Brands
|
79,846
|
51,042
|
|
Total
Assets
|
$
97,232
|
$
67,672
|
NEW AGE BEVERAGES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 11 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date these
condensed consolidated financial statements were available for
issuance.
On
October 23, 2018, the Company filed an amendment to its Articles of
Incorporation, as amended, pursuant to which the Company increased
the authorized shares of common stock of the Company from
50,000,000 to 100,000,000.
Since
October 1, 2018, the Company has sold an aggregate 1,188,565 shares
of common stock for aggregate gross proceeds of approximately
$5,347,349 under the At the Market Offering Agreement
with Roth Capital Partners, LLC. The net proceeds were
$5,186,914 and commissions totaled $160,435.
On
November 9, 2018, we entered into an underwriting agreement with
Roth Capital Partners, LLC and A.G.P./Alliance Global Partners,
acting as representatives of the several underwriters named on
Schedule 1 thereto, which provided for the issuance and sale by the
Company in an underwritten public offering and the purchase by the
Underwriters of 12,900,000 shares of the Company’s common
stock, $0.001 par value per share. Subject to the terms and
conditions contained in the Underwriting Agreement, the shares were
sold to the Underwriters at a public offering price of $3.50 per
share, less certain underwriting discounts and commissions. The
Company also granted the Underwriters a 45-day option to purchase
up to 1,935,000 additional shares of the Company’s common
stock on the same terms and conditions for the purpose of covering
any over-allotments in connection with the Offering, which was
exercised in full on November 13, 2018. The net offering proceeds
to the Company from the Offering are estimated to be approximately
$48.1 million, after deducting estimated underwriting discounts and
commissions and other estimated offering expenses. The Company
intends to use the net proceeds from the Offering for working
capital and potential acquisitions.