Note
1 - Organization and Description of Business
Stryve
Foods, Inc. (f/k/a Andina Acquisition Corp. III) (“Stryve” or the “Company”) is
an emerging healthy snacking company which manufactures, markets and sells highly differentiated healthy snacking products. The Company
offers convenient snacks that are lower in sugar and carbohydrates and higher in protein than other snacks. The
Company is headquartered in Plano, Texas, with manufacturing operations in Madill, Oklahoma.
On
July 20, 2021 (the “Closing Date”), the Company completed a business combination (the “Business Combination”)
pursuant to that certain Business Combination Agreement (the “BCA”) by and among the Company, Andina Holdings LLC, a Delaware
limited liability company and a wholly-owned subsidiary of the Company (“Holdings”), B. Luke Weil, in the capacity from
and after the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”) as the representative
for the shareholders of the Company (other than the Seller), Stryve Foods, LLC, a Texas limited liability company, Stryve Foods Holdings,
LLC, a Texas limited liability company (the “Seller”), and R. Alex Hawkins, in the capacity from and after the Closing
as the representative for the members of the Seller. Notwithstanding the legal form of the Business Combination, pursuant to the Business
Combination Agreement, the Business Combination has been accounted for as a reverse recapitalization in accordance with generally accepted
accounting principles in the United States ("GAAP"). Under this method of accounting, Stryve Foods, LLC is treated as the acquirer
and the Company is treated as the acquired company for financial statement reporting purposes.
In
connection with the completion of the Business Combination and as contemplated by the Business Combination Agreement, the Company: (i)
issued 4,250,000 shares of Class A common stock to private placement investors for aggregate consideration of $42.5 million; (ii) issued
1,357,372 shares of Class A common stock, satisfied by the offset of $10.9 million of principal and accrued interest under outstanding
unsecured promissory notes (the "Bridge Notes") issued by Stryve Foods, LLC to certain investors in a private placement on the
closing date of the Business Combination, and (iii) 11,502,355 newly issued non-voting Class B common units of Holdings (the “Seller
Consideration Units”) and voting (but non-economic) Class V common stock of the Company. In addition, the Company's ordinary shares
outstanding prior to the Closing were converted into 3,409,949 shares of Class A common stock of the Company without any action of the
holders. The Seller will distribute the Seller Consideration Units to its members in accordance with its limited liability company agreement.
On
March 25, 2022, the Company finalized the post-closing adjustments under the Business Combination Agreement (the "Post-Closing Adjustment),
which resulted in the release of all 115,023 escrowed shares of Class V common stock, an equal number of Holdings Class B common units,
and the net payment of approximately $238,000 by the Company to the Seller.
Prior
to July 20, 2021, Stryve Foods, LLC was a “pass-through” (limited liability company) entity for income tax purposes and
had no material income tax accounting reflected in its financial statements for financial reporting purposes since taxable income and
deductions were “passed through” to its members. Following
the consummation of the Business Combination, the combined company is organized in an “Up-C” structure and is now a taxable
C corporation in which the business of Stryve Foods, LLC and its subsidiaries is held by Holdings, which is a subsidiary of the Company.
By virtue of the Up-C structure, the Company's only direct assets consist of its equity interests in Holdings, an entity of which the
Company maintains 100% voting control. As the member of Holdings with voting control, the Company has full, exclusive and complete discretion
to manage and control the business of Stryve Foods, LLC and to take all actions it deems necessary, appropriate, advisable, incidental,
or convenient to accomplish the purposes of Stryve Foods, LLC and, accordingly, the financial statements are prepared on a consolidated
basis. The
financial statements of the Company now account for income taxes in accordance with Accounting Standards Codification (“ASC”)
740, Income taxes. Stryve
Foods, LLC has
four wholly owned subsidiaries, Biltong Acquisition Company LLC, Braaitime LLC, Protein Brothers, LLC, and Kalahari Snacks, LLC.
The
consolidated financial statements are under the name of the Company, the legal parent, but represent Stryve Foods, LLC, the legal subsidiary
(accounting acquirer) with an adjustment to retrospectively adjust the legal capital to reflect the legal capital as earnings per share
(“EPS”). EPS is calculated using the equity structure of the Company, including the equity interests issued to the Seller
in the Business Combination. Prior to the Business Combination, EPS is based on Stryve Foods, LLC’s net income and weighted average
common shares outstanding on an as exchanged basis that were received in the Business Combination. Subsequent to the Business Combination,
EPS is based on the actual number of common shares on an as exchanged basis of the Company outstanding during that period. For any periods
prior to the Closing, basic and diluted net income/loss per share have been retroactively adjusted to reflect the reverse recapitalization
of the Company utilizing the number of Seller Consideration Units (adjusted as necessary to reflect the capital activity of Stryve Foods,
LLC prior to the Closing) as the weighted average shares outstanding for those periods and the actual shares outstanding for any periods
after the Closing, all on an as exchanged basis.
5
Note
2 - Liquidity
The
Company incurred net losses of approximately $7.3 million during the three months ended March 31, 2022. Cash used in operating activities
was approximately $14.1 million for the three months ended March 31, 2022. The Company has historically funded its operations with cash
flow from operations, equity capital raises, and note payable agreements from shareholders and private investors, in addition to bank
loans. Its principal uses of cash have been debt service, capital expenditures, and investment in working capital to fund operations.
At
March 31, 2022, the Company had total current assets of $32.1 million and current liabilities of $4.1 million resulting in working capital
of $28 million.
The
Company's operating plans are primarily focused on expanding its distribution base and increasing awareness of its products and brands
while improving and expanding its manufacturing and distribution capabilities. Debt financing may require the Company to pledge assets
and enter into covenants that could restrict certain business activities or its ability to incur further indebtedness; and may contain
other terms that are not favorable to the Company or its stockholders.
On
January 6, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with select accredited
investors (the “2022 PIPE Investors”), relating to the issuance and sale of 2,496,934 shares of the Company’s Class
A common stock and, in lieu of Class A Common Stock, pre-funded warrants to purchase 7,797,184 shares of Class A common stock (the “PIPE
Pre-Funded Warrants”), and accompanying warrants (the “PIPE Warrants”) to purchase up to 10,294,118 shares of Class
A common stock with an exercise price equal to $3.60 and a term of five years (the “Offering”). The Offering closed on
January 11, 2022. The Class A common stock and PIPE Warrants were sold at a combined purchase price of $3.40 per share (less $0.0001
per share for PIPE Pre-Funded Warrants). The Company received net proceeds from the Offering of approximately $32.3 million.
On
January 28, 2022, the Company repaid approximately $6,841,000 of principal and interest to Origin Bank (the "Origin") under the
Line of Credit and the outstanding notes, which represented all of the outstanding indebtedness to Origin.
While
Stryve has materially improved its liquidity position through the Business Combination and the Offering, the unpredictable nature of
the current COVID-19 pandemic may put the current manufacturing facility at risk, as it may relate to the supply chain and the welfare
of the Company’s labor. Additionally, the uncertainty of current market conditions could also adversely impact capital markets,
with the risk of significant contraction occurring. This risk still is apparent and constantly considered by management, as it relates
to external capital availability.
Based
on the Company's cash balance of approximately $12.6 million as of March 31, 2022, its significantly deleveraged balance sheet, and its
expected cash flows, the Company believes that its available cash and working capital should be sufficient to fund its operations for
at least the next 12 months from the issuance date of these financials as management has greater latitude over expenses with its improved
cash position.
Note
3 - Significant Accounting Policies
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") for interim financial information and in accordance with the rules and regulations of
the Securities and Exchange Commission ("SEC"). Accordingly, these interim financial statements do not include all information
and footnotes required under GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement
of results of operations, balance sheet, cash flows, and shareholders' equity for the periods presented. The unaudited condensed consolidated
results of operations for the interim periods presented are not necessarily indicative of results for the full year. These condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the
Company’s Annual Report filed on Form 10-K for the year ended December
31, 2021.
The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included
in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.
6
Use
of Estimates
The
preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions
that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Accounting estimates
and assumptions discussed herein are those that management considers to be the most critical to an understanding of the condensed consolidated
financial statements because they inherently involve significant judgements and uncertainties. Estimates are used for, but not limited
to revenue recognition, allowance for doubtful accounts and customer allowances, useful lives for depreciation and amortization, standard
costs of inventory, provisions for inventory obsolescence, impairments of goodwill and long-lived assets, warrant liabilities and valuation
allowances for deferred tax assets. All of these estimates reflect management’s judgment about current economic and market conditions
and their effects based on information available as of the date of these consolidated financial statements. If such conditions persist
longer or deteriorate further than expected, it is reasonably possible that the judgements and estimates could change, which may result
in future impairments of assets among other effects.
Accounts
Receivable and Allowance for Doubtful Accounts, Returns, and Deductions
Accounts
receivable are customer obligations due under normal trade terms. The Company records accounts receivable at their net realizable value,
which requires management to estimate the collectability of the Company’s receivables. Judgment is required in assessing the realization
of these receivables, including the credit worthiness of each counterparty and the related aging of past due balances. Management provides
for an allowance for doubtful accounts equal to the estimated uncollectable amounts, in addition to a general provision based on historical
experience. As of March 31, 2022 and December 31, 2021, the allowance for doubtful accounts and returns and deductions totaled $1,191,552
and $1,236,497, respectively. Total bad debt expense for the three months ended March 31, 2022 and 2021 was $55,309 and $85,598 respectively.
Revenue
Recognition Policy
The
Company manufactures and markets a broad range of protein snack products through multiple distribution channels. The products are offered
through branded and private label items. Generally, the Company considers all revenues as arising from contracts with customers. Revenue
is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:
(1)Identification
of the contract with a customer
(2)Identification
of the performance obligations in the contract
(3)Determination
of the transaction price
(4)Allocation
of the transaction price to the performance obligations in the contract
(5)Recognition
of revenue when, or as, the Company satisfies a performance obligation
The
Company’s revenue derived from the sale of branded and private label products is considered variable consideration as the contract
includes discounts, rebates, incentives and other similar items. Generally, revenue is recognized at the point in time when the customer
obtains control of the product, which may occur upon either shipment or delivery of the product. The payment terms of the Company’s
contracts are generally net thirty to sixty days, although early pay discounts are offered to customers.
The
Company regularly experiences customer deductions from amounts invoiced due to product returns, product shortages, and delivery nonperformance
penalty fees. This variable consideration is estimated using the expected value approach based on the Company’s historical experience,
and it is recognized as a reduction to the transaction price in the same period that the related product sale is recognized.
Revenue
is measured as the amount of consideration the Company expects to receive in exchange for transferring products to customers. Revenue
is recognized when the Company satisfies its performance obligations under the contract by transferring the promised product to its customer.
The
Company’s contracts generally do not include any material significant financing components.
7
Performance
Obligations
The
Company has elected the following practical expedients provided for in Topic 606, Revenue
from Contracts with Customers:
(1)The
Company has excluded from its transaction price all sales and similar taxes collected from
its customers.
(2)The
Company has elected to recognize the incremental costs of obtaining a contract as an expense
when incurred if the amortization period of the asset that the entity otherwise would have
recognized is one year or less.
(3)The
Company has elected to account for shipping and handling activities that occur after control
of the related good transfers as fulfillment activities instead of assessing such activities
as performance obligations.
(4)The
portfolio approach has been elected by the Company as it expects any effects would not be
materially different in application at the portfolio level compared with the application
at an individual contract level.
(5)The
Company has elected not to disclose information about its remaining performance obligations
for any contract that has an original expected duration of one year or less.
Neither
the type of good sold nor the location of sale significantly impacts the nature, amount, timing, or uncertainty of revenue and cash flows.
Disaggregation
of Net Sales
The
following table shows the net sales of the Company disaggregated by channel for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
For
the Three Months |
|
|
|
ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
e-Commerce |
|
$ |
1,445,809 |
|
|
$ |
2,946,393 |
|
Wholesale |
|
|
4,936,343 |
|
|
|
2,661,560 |
|
Private
label |
|
|
1,038,402 |
|
|
|
1,226,522 |
|
Ending
balance |
|
$ |
7,420,554 |
|
|
$ |
6,834,475 |
|
Inventories
consist of raw materials, work in process, and finished goods, are stated at lower of cost or net realizable value determined using the
standard cost method. The Company reviews the value of items in inventory and provides write-downs and write-offs of inventory for obsolete,
damaged, or expired inventory. Write-downs and write-offs are included in cost of goods sold.
Stock
Based Compensation
Stock-based
compensation awards are accounted for in accordance with ASC Topic 718, Compensation
–Stock Compensation (ASC 718). The Company expenses the fair value of stock awards granted
to employees and members of the board of directors over the requisite service period, which is typically the vesting period. Compensation
cost for stock-based awards issued to employees is measured using the estimated fair value at the grant date and is adjusted to reflect
actual forfeitures.
Stock-based
awards issued to non-employees, including directors for non-board-related services, are accounted for based on the fair value of such
services received or the fair value of the awards granted on the grant date, whichever is more reliably measured. Stock-based awards
subject to service-based vesting conditions are expensed on a straight-line basis over the vesting period.
Warrant
Liability
The
Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s
specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and
Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC
480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification
under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could
potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions
for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance
and as of each subsequent quarterly period end date while the warrants are outstanding.
8
For
issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component
of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification,
the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Accordingly,
the Company classifies the private warrants issued to Andina's original stockholders (the "Private Warrants") as liabilities
at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each
balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations.
Net
Income (Loss) per Share
The
Company reports both basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted average number
of shares of common stock outstanding and excludes the dilutive effect of warrants, stock options, and other types of convertible securities.
However, certain pre-funded warrants are included in the calculation of basic earnings per share as the pre-funded warrants can be exercised
for nominal value. Diluted earnings per share is calculated based on the weighted average number of shares of common stock outstanding
and the dilutive effect of stock options, warrants and other types of convertible securities are included in the calculation. Dilutive
securities are excluded from the diluted earnings per share calculation if their effect is anti-dilutive, such as in periods where the
Company would report a net loss. For any periods prior to the closing of the Business Combination (the "Closing"), basic and
diluted net income/loss per share have been retroactively adjusted to reflect the reverse recapitalization of the Company utilizing the
Seller Consideration Units (adjusted as necessary to reflect the capital activity of the Company prior to the Closing) as the weighted
average shares outstanding for those periods and the actual shares outstanding for any periods after the Closing all on an as exchanged
basis. As of March 31, 2022 there were 21,291,618 dilutive common stock equivalents, consisting of warrants, which were anti-dilutive.
Income
Taxes
The
Company accounts for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which requires the Company to
recognize current tax liabilities or receivables for the amount of taxes as estimated are payable or refundable for the current year,
and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial
statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and
credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely
than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary
differences become deductible.
Under
the terms of a Tax Receivable Agreement (the “TRA”) as part of the Business Combination Agreement, the Company generally
will be required to pay to the Seller 85% of the applicable cash savings, if any, in U.S. federal and state income tax based on its ownership
in Andina Holdings, LLC that the Company is deemed to realize in certain circumstances as a result of the increases in tax basis and
certain tax attributes resulting from the Business Combination as described below. This is accounted for in conjunction with the methods
used to record income tax described above.
The
Company follows the provisions of ASC 740-10 related to the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. ASC 740-10 prescribes a comprehensive model for the financial statement recognition, measurement, presentation
and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.
The
benefit of tax positions taken or expected to be taken in the Company income tax returns is recognized in the financial statements if
such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions
taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to
as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of tax refundable
is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority
for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. Interest costs and related penalties
related to unrecognized tax benefits are required to be calculated, if applicable. The Company's policy is to classify assessments, if
any, for tax related interest and penalties as a component of income tax expense. As of March 31, 2022, no liability for unrecognized
tax benefits was required to be reported. We do not expect any significant changes in our unrecognized tax benefits in the next year.
9
Tax
Receivable Agreement
In
conjunction with the Business Combination, the Company entered into the TRA with Seller and Holdings. Pursuant to the TRA, the Company
is required to pay Seller 85% of the amount of savings, if any, in U.S. federal, state, local and foreign income tax that the Company
actually realizes as a result of (A) tax basis adjustments resulting from taxable exchanges of Class B common units of Holdings and Class
V common stock of the Company acquired by the Company in exchange for Class A common stock of the Company and (B) tax deductions in respect
of portions of certain payments made under the TRA. All such payments to the Seller are the obligations of the Company. As of March 31,
2022, there have been no exchanges of Class B common units of Holdings and Class V common stock of the Company for Class A common stock
of the Company and, accordingly, no TRA liabilities currently exist.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, and vehicle notes payable. The
carrying amounts of cash, accounts receivable, and accounts payable approximate their respective fair values because of the short-term
maturities or expected settlement date of these instruments. The vehicle notes payable have fixed interest rates the Company believes
reflect current market rates for notes of this nature. The Company believes the current carrying value of long-term debt approximates
its fair value because the terms are comparable to similar lending arrangements in the marketplace.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued
at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.
Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion
of the instrument could be required within 12 months of the balance sheet date.
Note
4 - Inventory
As
of March 31, 2022 and December 31, 2021, inventory consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As
of |
|
|
As
of |
|
|
|
March
31, |
|
|
December
31, |
|
|
|
2022 |
|
|
2021 |
|
Raw
materials |
|
$ |
4,883,127 |
|
|
$ |
2,188,284 |
|
Work
in process |
|
|
2,596,430 |
|
|
|
2,128,894 |
|
Finished
goods |
|
|
5,767,135 |
|
|
|
2,898,803 |
|
Total
Inventory |
|
$ |
13,246,692 |
|
|
$ |
7,215,981 |
|
Note
5 - Line of Credit
The
Company's prior line of credit (the "Line of Credit") was for $3,500,000 and was paid off and terminated in January 2022.
10
Note
6 - Debt
As
of March 31, 2022 and December 31, 2021, debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As
of |
|
|
As
of |
|
|
|
March
31 |
|
|
December
31 |
|
|
|
2022 |
|
|
2021 |
|
Long-term
debt |
|
$ |
223,195 |
|
|
$ |
1,566,598 |
|
Short-term
debt |
|
|
— |
|
|
|
2,000,000 |
|
Line
of credit |
|
|
— |
|
|
|
3,500,000 |
|
Total
notes payable |
|
|
223,195 |
|
|
|
7,066,598 |
|
Less:
current portion |
|
|
(139,534 |
) |
|
|
(3,447,056 |
) |
Less:
line of credit |
|
|
— |
|
|
|
(3,500,000 |
) |
Total
notes payable, net of current portion |
|
$ |
83,661 |
|
|
$ |
119,542 |
|
Long-Term
Debt
Outstanding
as of March 31, 2022
On
December 3, 2018, the Company entered into a business loan agreement with First United Bank and Trust Co. (“Loan Agreement”),
for a principal balance of $89,001. The Loan Agreement calls for monthly principal and interest payments of $1,664, at an interest rate
of 4.49% per annum, and matures on December 15, 2023. The principal amount due on the Loan Agreement was $33,597 as of March 31, 2022.
The Loan Agreement is secured by the vehicles acquired with the loan having a carrying value which approximates the outstanding loan
balance.
On
March 12, 2021, the Company entered into a note payable agreement (“Broken Stone Agreement”) with Broken Stone Investments,
LLC. for the principal amount of $200,000, bearing interest at 5% per annum, with all principal and accrued interest thereon due and
payable at maturity of June 1, 2023. The Broken Stone Agreement calls for monthly principal and interest payments of $8,774 to commence
on July 1, 2021 through maturity on June 1, 2023. As of March 31, 2022, the balance on this loan was $129,563.
Retired
during the three months ended March 31, 2022
Effective
December 15, 2021, the maturity date on all notes outstanding with Origin were extended to January 31, 2022 under similar terms, and
the waiver for debt covenants was extended to January 31, 2022. The debt covenants were released upon the repayment of the notes and
line of credit in the aggregate amount of $6,841,533 with Origin on January 28, 2022.
Short-Term
Debt
Retired
during the three months ended March 31, 2022
On
June 23, 2020, the Company entered into a promissory note agreement with Origin (“Security Agreement 3”) for the principal
amount of $2,000,000. The Security Agreement 3 called for interest only payments beginning August 5, 2020 through September 5, 2020,
at an interest rate of 5% per annum, with the entire balance maturing on October 5, 2020. The maturity date was extended to January 31,
2022. The
Security Agreement 3 was secured by the assets of the Company and guaranteed by certain directors of the Company. As of December 31,
2021, the principal amount due on Security Agreement 3 was $2,000,000. This
note was repaid in full on January 28, 2022.
11
Other
Notes Payable - included in long-term debt
The
Company holds various vehicle financing and lease agreements with original principal balances ranging from $20,000 through $50,000 for
the three months ended March 31, 2022. The vehicle financing agreements call for monthly principal and interest payments ranging from
$368 through $585 and bear interest at fixed rates ranging from 3.89% through 6.81% per annum. Outstanding principal and accrued interest
are due at maturity, ranging from October 12, 2022 through September 13, 2024. The principal amount due on the agreements was $93,632
as of March 31, 2022. The financing agreements are secured by vehicles with a net book value of $59,124 as of March 31, 2022.
Future
minimum principal payments on the notes payable are as of March 31, 2022:
|
|
|
|
|
2022
(for the remainder of) |
|
$ |
103,627 |
|
2023 |
|
|
93,980 |
|
2024 |
|
|
18,255 |
|
2025 |
|
|
7,333 |
|
2026 |
|
|
— |
|
|
|
$ |
223,195 |
|
Note
7 - Income Taxes
Tax
Receivable Agreement Liability
In
conjunction with the BCA, the Company also entered into a TRA with Seller and Holdings. Pursuant to the TRA, the Company is required
to pay the Seller 85% of the amount of savings, if any, in United States federal, state, local and foreign income tax that the Company
actually realizes as a result of (A) tax basis adjustments resulting from taxable exchanges of Class B common units of Holdings and Class
V common stock of the Company acquired by the Company in exchange for Class A common stock of the Company and (B) tax deductions in respect
of portions of certain payments made under the TRA. All such payments to the Seller are the obligations of the Company. As of March 31,
2022, there have been no exchanges of Class B common units of Holdings and Class V common stock
12
of
the Company for Class A common stock of the Company. The estimation of liability under the TRA is by its nature imprecise and subject
to significant assumptions regarding the amount and timing of future taxable income.
As
of March 31, 2022, the Company has recorded a full valuation allowance against its net deferred tax assets as the realizability of the
tax benefit is not at the more likely than not threshold. Since the benefit has not been recorded, the Company has determined that the
TRA liability is not probable and therefore no TRA liability exists as of March 31, 2022.
Note
8 - Shareholders’ Equity
The
Company’s Amended and Restated Certificate of Incorporation (“Charter”) authorizes the issuance of 610,000,000 shares,
of which 400,000,000 shares are Class A common stock, par value $0.0001 per share, 200,000,000 shares of Class V common stock, par value
$0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share.
Warrants
Public
Warrants
The
Company has outstanding 10,997,500 warrants that were issued prior to the Business Combination, of which 10,800,000 are referred to as
public warrants and 197,500 are Private Warrants. Each warrant represents the right to purchase an equal number of shares of the Company’s
Class A common stock. Each warrant entitles the registered holder to purchase one share of Class A common stock at a price of $11.50,
subject to adjustment on or after July 20, 2021. The warrants expire on July 20, 2026.
The
Company may call the public warrants for redemption (but not the Private Warrants), in whole and not in part, at a price of $.01 per
Public Warrant:
|
|
|
|
● |
at
any time while the public warrants are exercisable, |
|
|
|
|
● |
upon
not less than 30 days’ prior written notice of redemption to each public warrant holder, |
|
|
|
|
● |
if,
and only if, the reported last sale price of shares of Class A common stock equals or exceeds $18.00 per share, for any
20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to public warrant
holders, and |
|
|
|
|
● |
if,
and only if, there is a current registration statement in effect with respect to shares of Class A common stock underlying such
public warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day
thereafter until the date of redemption. |
The
right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption.
Private
Warrants
The
Company has agreed that so long as the Private Warrants are still held by our initial shareholders or their affiliates, it will not redeem
such Private Warrants and will allow the holders to exercise such Private Warrants on a cashless basis (even if a registration statement
covering shares of Class A common stock issuable upon exercise of such warrants is not effective). As of March 31, 2022, there were 197,500
Private Warrants outstanding.
September
2021 Pre-Funded Warrants
On
September 15, 2021, the Company entered into a Share Repurchase Agreement with various entities (collectively, the “Investors”)
whereby the Company repurchased an aggregate of 800,000 shares of Class A common stock (the “Repurchase Shares”) from the
Investors. The purchase price for the Repurchase Shares was the issuance of an aggregate of 800,000 pre-funded warrants to acquire an
equal number of shares of Class A common stock (the “Pre-Funded Warrants”). The Pre-Funded Warrants do not expire and are
exercisable at any time after their original issuance.
During
May 2022, the Pre-Funded Warrants were exercised in full.
13
January
2022 Warrants
On
January 6, 2022, the Company sold 2,496,934 shares of the Company’s Class A common stock, and, in lieu of common stock, pre-funded
warrants to purchase 7,797,184 shares of common stock and accompanying warrants to purchase up to 10,294,118 shares of common stock (the
“January Offering”). The common stock and warrants were sold at a combined purchase price of $3.40 per share (less $0.0001
per share for pre-funded warrants). Each warrant has an exercise price per share of common stock equal to $3.60 and will expire five
years from the date of issuance and may be exercised on a cashless basis if a registration statement registering the shares issuable
upon exercise is not effective. The Company received gross proceeds from the offering of approximately $35 million before deducting estimated
offering expenses.
During
March 2022, 1,443,584 of the pre-funded warrants issued in the January Offering were exercised for an aggregate of 1,443,557 shares of
Class A common stock by virtue of a portion of the pre-funded warrants being exercised on a cashless basis. During April 2022, 163,600
of the pre-funded warrants issued in the January Offering were exercised for an aggregate of 163,589 shares of Class A common stock by
virtue of a portion of the pre-funded warrants being exercised on a cashless basis. The exercised pre-funded warrants do not affect the
EPS calculation as pre-funded warrants are included in the weighted EPS calculation.
Stryve
Foods, Inc. 2021 Omnibus Incentive Plan (the “Incentive Plan”)
The
Incentive Plan allows the Company to grant stock options, restricted stock unit awards and other awards at levels determined appropriate
by its board of directors and/or compensation committee. The Incentive Plan also allows the Company to use a broad array of equity incentives
and performance cash incentives in order to secure and retain the services of its employees, directors and consultants, and to provide
long-term incentives that align the interests of its employees, directors and consultants with the interests of its stockholders. The
Incentive Plan is administered by the Company’s board of directors or its compensation committee, or any other committee or subcommittee
or one or more of its officers to whom authority has been delegated (collectively, the “Administrator”). The Administrator
has the authority to interpret the Incentive Plan and award agreements entered into with respect to the Incentive Plan; to make, change
and rescind rules and regulations relating to the Incentive Plan; to make changes to, or reconcile any inconsistency in, the Incentive
Plan or any award agreement covering an award; and to take any other actions needed to administer the Incentive Plan.
The
Incentive Plan permits the Administrator to grant stock options, stock appreciation rights (“SARs”), performance shares,
performance units, shares of Class A common stock, restricted stock, restricted stock units (“RSUs”), cash incentive awards,
dividend equivalent units, or any other type of award permitted under the Incentive Plan. The Administrator may grant any type of award
to any participant it selects, but only employees of the Company or its subsidiaries may receive grants of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code. Awards may be granted alone or in addition to, in tandem with, or (subject to
the repricing prohibition described below) in substitution for any other award (or any other award granted under another plan of the
Company or any affiliate, including the plan of an acquired entity).
The
Company has reserved a total of 2,564,960 shares of Class A common stock for issuance pursuant to the Incentive Plan. The number of shares
reserved for issuance under the Incentive Plan will be reduced on the date of the grant of any award by the maximum number of shares,
if any, with respect to which such award is granted. However, an award that may be settled solely in cash will not deplete the Incentive
Plan’s share reserve at the time the award is granted. If (a) an award expires, is canceled, or terminates without issuance of
shares or is settled in cash, (b) the Administrator determines that the shares granted under an award will not be issuable because the
conditions for issuance will not be satisfied, (c) shares are forfeited under an award, (d) shares are issued under any award and the
Company reacquires them pursuant to its reserved rights upon the issuance of the shares, (e) shares are tendered or withheld in payment
of the exercise price of an option or as a result of the net settlement of outstanding stock appreciation rights or (f) shares are tendered
or withheld to satisfy federal, state or local tax withholding obligations, then those shares are added back to the reserve and may again
be used for new awards under the Incentive Plan. However, shares added back to the reserve pursuant to clauses (d), (e) or (f) in the
preceding sentence may not be issued pursuant to incentive stock options.
14
Note
9 - Stock Based Compensation
The
Company's stock-based awards that result in compensation expense consist of restricted stock units (RSUs) and restricted stock awards
(RSAs). As of March 31, 2022, the Company had 1,645,526 shares available for grant under its stock plans. As of March 31, 2022, the total
unrecognized compensation cost related to all unvested stock-based compensation awards was $4.1 million is expected to be recognized
over the next four years. RSUs generally vest over three years and RSAs generally vest from one to four years.
Restricted
Stock Units (RSUs)
The
following table summarizes the Company's RSU activity:
|
|
|
|
|
|
|
|
|
Nonvested
Restricted Stock Units |
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average |
|
|
|
Restricted
Stock |
|
|
Award
Date Fair Value |
|
|
|
Units |
|
|
Per
Share |
|
Restricted
Stock at January 1, 2022 |
|
|
399,000 |
|
|
$ |
5.20 |
|
Added |
|
|
- |
|
|
|
— |
|
Forfeiture |
|
|
(4,500 |
) |
|
|
5.16 |
|
Vested |
|
|
- |
|
|
|
— |
|
Restricted
Stock at March 31, 2022 |
|
|
394,500 |
|
|
$ |
5.20 |
|
The
fair value of RSUs is determined based on the closing market price of the Company's stock on the grant date.
Restricted
Stock Awards (RSAs)
The
following table summarizes the Company's RSA activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested
Restricted Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average |
|
|
|
|
|
Weighted
Average |
|
|
|
Restricted
Stock |
|
|
Award
Date Fair Value |
|
|
Director |
|
|
Award
Date Fair Value |
|
|
|
Awards |
|
|
Per
Share |
|
|
Stock
Awards |
|
|
Per
Share |
|
Restricted
Stock at January 1, 2022 |
|
|
328,500 |
|
|
$ |
5.31 |
|
|
|
- |
|
|
$ |
— |
|
Added |
|
|
50,000 |
|
|
$ |
2.31 |
|
|
|
58,500 |
|
|
$ |
2.51 |
|
Forfeiture |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
— |
|
Vested |
|
|
(21,875 |
) |
|
$ |
5.43 |
|
|
|
(14,625 |
) |
|
$ |
2.51 |
|
Restricted
Stock at March 31, 2022 |
|
|
356,625 |
|
|
$ |
4.89 |
|
|
|
43,875 |
|
|
$ |
2.51 |
|
The
fair value of RSAs is determined based on the closing market price of the Company's stock on the grant date.
Stock
Based Compensation Expense
Share
based compensation costs associated with RSUs and RSAs grants are recorded as a separate component of Selling Expenses on the consolidated
statements of income. Share-based compensation expense for service-based awards that contain a graded vesting schedule is recognized
net of estimated forfeitures for plan participants on a straight-line basis.
15
Note
10 - Fair Value Measurements
The
Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each
reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The
fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company
would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly
transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities,
the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of
unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value
hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the
assets and liabilities:
|
|
|
|
Level
1: |
Observable
inputs such as quoted prices (unadjusted), for identical instruments in active markets. |
|
Level
2: |
Observable
inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities
and quoted prices for identical assets or liabilities in markets that are not active. |
|
Level
3: |
Unobservable
inputs in
which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived
from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances,
the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances,
the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is
significant to the fair value measurement. |
The
following table presents information about the Company’s liability measured at fair value on a recurring basis at March 31, 2022
and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Level |
|
|
March
31, 2022 |
|
|
December
31, 2021 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Warrant
liability - Private Warrants |
|
|
3 |
|
|
$ |
83,061 |
|
|
$ |
128,375 |
|
Private
Warrants
The
Private Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the
Company’s consolidated balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis,
with changes in fair value presented within change in fair value of warrant liabilities in the consolidated statement of operations.
The
Private Warrants were valued using a binomial lattice model incorporating the Cox-Ross-Rubenstein methodology, which is considered to
be a Level 3 fair value measurement. The Private Warrants were classified as Level 3 at the initial measurement date due to the use of
unobservable inputs.
The
key inputs into the binomial lattice model incorporating the Cox-Ross-Rubenstein methodology for the Private Warrants were as follows
as at March 31, 2022:
|
|
|
|
|
Input |
|
March
31, 2022 |
|
Risk-free
interest rate |
|
|
2.4 |
% |
Dividend
yield |
|
|
0.0 |
% |
Selected
volatility |
|
|
77.2 |
% |
Exercise
price |
|
$ |
11.50 |
|
Market
stock price |
|
$ |
1.25 |
|
On
March 31, 2022, the Private Warrants were determined to have a fair value of $0.20 per warrant for an aggregate fair value of $83,061.
The
following table presents the change in the fair value of warrant liabilities for the period:
|
|
|
|
|
Warrant
Fair Values |
|
Private |
|
Fair
value as of December 31, 2021 |
|
$ |
128,375 |
|
Change
in fair value |
|
|
(45,314 |
) |
Fair
value as of March 31, 2022 |
|
$ |
83,061 |
|
16
Note
11 - Related Party Transactions
Sale
and Leaseback. On May 26, 2021, the Company entered into a Purchase and Sale Agreement with OK Biltong
Facility, LLC (“Buyer”), an entity controlled by a member of the Company’s board of directors, pursuant to which
the parties consummated a sale and leaseback transaction (the “Sale and Leaseback Transaction”) of the Company’s
manufacturing facility and the surrounding property in Madill, Oklahoma (the “Real Property”) for a total purchase price
of $7,500 thousand.
In
connection with the consummation of the Sale and Leaseback Transaction, the Company entered into a lease agreement (the “Lease
Agreement”) with Buyer pursuant to which the Company leased back the Real Property from Buyer for an initial term of twelve (12)
years unless earlier terminated or extended in accordance with the terms of the Lease Agreement. Under the Lease Agreement, the Company’s
financial obligations include base rent of approximately $60,000 per month, which rent will increase on an annual basis at two percent
(2%) over the initial term and two-and-a-half percent (2.5%) during any extension term. The Company is also responsible for all monthly
expenses related to the leased facility, including insurance premiums, taxes and other expenses, such as utilities. Under the Lease Agreement,
the Company has three (3) options to extend the term of the lease by five (5) years for each such option and a one-time right and option
to purchase the Real Property at a price that escalates over time and, if Buyer decides to sell the Real Property, the Company has a
right of first refusal to purchase the Real Property on the same terms offered to any third party.
Management
determined that the sale and leaseback transaction contained continuing involvement and thus used the financing method consistent with
ASC 842. The transfer did not qualify as a sale, hence it is considered a "failed" sale and both parties account for it as a
financing transaction. Accordingly, a financing obligation related to the operating lease in the amount of the sale price ($7,500 thousand)
has been booked and the corresponding assets on the balance sheet are maintained. Under the finance method, rental payments are applied
as amortization and/or interest expense on the financing obligation as appropriate using an assumed interest rate. The Company is accounting
for these as interest only payments because the Company's incremental cost to borrow when applied to the financing obligation is greater
than the rental payments under the Lease Agreement. The Company recognized interest expense of $179,993 during the three months ended
March 31, 2022.
Other.
During the three months ended March 31, 2022, the Company purchased approximately $133,800 in goods from an entity controlled by a member
of the Company’s Board of Directors (the "Related Party Manufacturer"). There was no balance due to the Related Party
Manufacturer at March 31, 2022.
Note
12 - Commitments and Contingencies
Litigation
The
Company may be a party to routine claims brought against it in the ordinary course of business. After consulting with legal counsel,
the Company does not believe that the outcome of any such pending or threatened litigation will have a material adverse effect on its
financial condition or results of operations. However, as is inherent in legal proceedings, there is a risk that an unpredictable decision
adverse to the Company could be reached. The Company records legal costs associated with loss contingencies as incurred. Settlements
are accrued when, and if, they become probable and estimable.
Registration
Rights Agreements
The
Company is a party to various registration rights agreements with certain stockholders where it may be required to register securities
for such stockholders in certain circumstances.
17
Note
13 - Subsequent Events
The
Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial
statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that
would have required adjustment or disclosure in the condensed financial statements.
During
May 2022, all 800,000 Pre-Funded Warrants issued in September 2021 were exercised for an aggregate of 800,000 shares of Class A common
stock.
18
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking
Statements
This
Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has based
these forward-looking statements on the Company’s current expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such
as “may,” “should,” “could,” “would,” “expect,” “plan,”
“anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms
or other similar expressions. These risks, uncertainties, assumptions and other important factors, which could cause actual results to
differ materially from those described in these forward-looking statements, include: (i) the inability to achieve profitability due to
commodity prices, inflation, supply chain interruption, transportation costs and/or labor shortages; (ii) the ability to recognize the
anticipated benefits of the Business Combination or meet financial and strategic goals, which may be affected by, among other things,
competition, supply chain interruptions, the ability to pursue a growth strategy and manage growth profitability, maintain relationships
with customers, suppliers and retailers and retain its management and key employees; (iii) the risk that retailers will choose to limit
or decrease the number of retail locations in which Stryve’s products are carried or will choose not to carry or not to continue
to carry Stryve’s products; (iv) the possibility that Stryve may be adversely affected by other economic, business, and/or competitive
factors; (v) the effect of the COVID-19 pandemic on Stryve; (vi) the possibility that Stryve may not achieve its financial outlook and
(vii) other risks and uncertainties described herein and in other filings with the Securities and Exchange Commission (“SEC”)
filings.
Unless
the context otherwise requires, all references in this report to “Stryve,” the “Company,” “we,”
“us” and “our” herein refer to the parent entity formerly named Andina Acquisition Corp. III, after giving
effect to the Business Combination, and as renamed Stryve Foods, Inc., and where appropriate, our consolidated subsidiaries, and references
in this report to “Andina” refer to Andina Acquisition Corp. III before giving effect to the Business Combination.
The
following discussion should be read in conjunction with our condensed consolidated financial statements and related notes thereto included
elsewhere in this report. Due to rounding, certain totals and subtotals may not foot and certain percentages may not reconcile.
Overview
Stryve
is an emerging healthy snacking company which manufactures, markets and sells highly differentiated healthy snacking products that Stryve
believes can disrupt traditional snacking categories. Stryve’s mission is “to help Americans snack better and live happier,
better lives.” Stryve offers convenient snacks that are lower in sugar and carbohydrates and higher in protein than other snacks.
Stryve offers all-natural, delicious snacks which it believes are nutritious and offer consumers a convenient healthy snacking option
for their on-the-go lives.
Stryve’s
current product portfolio consists primarily of air-dried meat snack products marketed under the Stryve®, Kalahari®, Braaitime®,
and Vacadillos® brand names. Biltong is a process for preserving meat through air drying that originated centuries ago in South
Africa. Unlike beef jerky, Stryve’s all-natural air-dried meat snack products are made of beef and spices, are never cooked, most
contain zero grams of sugar, and are free of monosodium glutamate (MSG), gluten, nitrates, nitrites, and preservatives. As a result,
Stryve’s products are Keto and Paleo diet friendly. Further, based on protein density and sugar content, Stryve believes that
its air-dried meat snack products are some of the healthiest shelf-stable snacks available today.
Stryve
distributes its products in major retail channels, primarily in North America, including grocery, club stores and other retail outlets,
as well as directly to consumers through its e-commerce websites, which officially launched in 2020, as well as direct to consumer through
the Amazon platform.
Stryve
believes increased consumer focus in the U.S. on health and wellness will continue to drive growth of the healthy snacking category and
increase demand for Stryve’s products. Stryve has shown strong sales growth since its inception in 2017. Stryve has made substantial
investments since its inception in product development, establishing its manufacturing facility, and building its marketing, sales and
operations infrastructure to grow its business. As a result, Stryve has reported net losses since its inception. Stryve intends to continue
to invest in product innovation, improving its supply chain, enhancing and expanding its manufacturing capabilities, and expanding its
marketing and sales initiatives to drive continued growth. Additionally, moving forward management anticipates additional expenses not
previously experienced related to internal controls, regulatory compliance, and other expenses relating to its go-forward operations
as a public company.
19
Comparability
of Financial Information
The
Company's results of operations and statements of assets and liabilities may not be comparable between periods as a result of the Business
Combination and becoming a public company.
January
2022 PIPE Transaction
On
January 6, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with select accredited
investors (the “2022 PIPE Investors”), relating to the issuance and sale of 2,496,934 shares of the Company’s Class
A common stock and, in lieu of Class A Common Stock, pre-funded warrants to purchase 7,797,184 shares of Class A common stock (the “PIPE
Pre-Funded Warrants”), and accompanying warrants (the “PIPE Warrants”) to purchase up to 10,294,118 shares of Class
A common stock with an exercise price equal to $3.60 and a term of five years (the “Offering”). The Offering closed on
January 11, 2022. The Class A common stock and PIPE Warrants were sold at a combined purchase price of $3.40 per share (less $0.0001
per share for PIPE Pre-Funded Warrants). The Company received net proceeds from the Offering of $32.3 million. The securities were issued
in reliance on the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended, and/or Regulation
D promulgated thereunder.
Business
Combination
On
July 20, 2021 (the “Closing Date”), Andina completed the business combination (the "Business Combination") pursuant
to that certain Business Combination Agreement (the "Business Combination Agreement") by
and among the Company, Andina Holdings LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Holdings”),
B. Luke Weil, in the capacity from and after the closing of the transactions contemplated by the Business Combination Agreement (the
“Closing”) as the representative for the shareholders of the Company (other than the Seller), Stryve Foods, LLC, a Texas
limited liability company, Stryve Foods Holdings, LLC, a Texas limited liability company (the “Seller”), and R. Alex Hawkins,
in the capacity from and after the Closing as the representative for the members of the Seller.
As
contemplated by the Business Combination Agreement, on or before the Closing Date, the following occurred: (i) the Seller and Stryve
Foods, LLC (“Stryve LLC”) conducted a reorganization via a merger pursuant to which the Seller became a holding company
for Stryve LLC, the former owners of Stryve LLC became the owners of the Seller, and the former holders of convertible notes of Stryve
LLC became holders of convertible notes of the Seller, and pursuant to which Stryve LLC retained all of its subsidiaries, business, assets
and liabilities, and became a wholly-owned subsidiary of the Seller (the “Merger”), (ii) the Company was transferred by
way of continuation out of the Cayman Islands and domesticated as a corporation in the State of Delaware, (iii) the Seller contributed
to Holdings all of the issued and outstanding equity interests of Stryve LLC in exchange for 11,502,355 newly issued non-voting Class
B common units of Holdings (the "Seller Consideration Units") and voting (but non-economic) Class V common stock of the Company
(that was previously subject to a post-Closing working capital true-up), (iv) the Company contributed all of its cash and cash equivalents
to Holdings, approximately $37.9 million, after the payment of approximately $7.8 million to the Company’s shareholders that elected
to have their shares redeemed in connection with the Closing (the “Redemption”) and the payment of approximately $10.4
million of the Company’s expenses and other liabilities due at the Closing, in exchange for newly issued voting Class A common
units of Holdings and (v) the Company issued $10.9 million of Class A common stock, satisfied by the offset of principal and accrued
interest under $10.6 million of outstanding unsecured promissory notes (the "Bridge Notes") issued by Stryve LLC to certain investors
in a private placement on the Closing Date (the "Bridge Investors"); and (vi) the Company changed its name to “Stryve
Foods, Inc.” In addition, the Company’s ordinary shares converted into shares of Class A common stock, par value of $0.0001
per share, without any action of the holder. On March 25, 2022, the Company finalized the post-closing adjustments under the Business
Combination Agreement (the "Post-Closing Adjustment"), which resulted in the release of all 115,023 escrowed shares of Class
V common stock, an equal number of Holdings Class B common units, and the net payment of approximately $238,000 by the Company to the
Seller. As a result, no additional Post-Closing Adjustment remains outstanding.
Following
the consummation of the Business Combination, the combined company is organized in an “Up-C” structure in which the business
of Stryve LLC and its subsidiaries is held by Holdings, which is a subsidiary of the Company. By virtue of the “Up-C” structure,
the Company’s only direct assets consist of its equity interests in Holdings, an entity of which the Company maintains 100% voting
control. As the sole voting member of Holdings, the Company has full, exclusive and complete discretion to manage and control the business
of Stryve LLC and to take all action it deems necessary, appropriate, advisable, incidental, or convenient to accomplish the purposes
of Stryve LLC and, accordingly, the financial statements are prepared on a consolidated basis.
On
July 20, 2021, in connection with the completion of the Business Combination and as contemplated by the Business Combination Agreement,
the Company: (i) issued 4,250,000 shares of Class A common stock to private placement investors for aggregate consideration of $42.5
million; and (ii) the Company issued 1,357,372 shares of Class A common stock to the Bridge Investors satisfied by the offset of $10.9
million of principal and accrued interest under outstanding Bridge Notes issued by Stryve LLC, as part of the Business Combination.
20
The
Business Combination is accounted for as a reverse capitalization in accordance with generally accepted accounting principles in the
United States ("GAAP"). Under this method of accounting, Stryve LLC is treated as the acquirer and Andina is treated as the acquired
company for financial statement reporting purposes. Because Stryve LLC was deemed the accounting acquirer, the historical financial statements
of Stryve LLC became the historical financial statements of the combined company, upon the consummation of the Business Combination.
COVID-19
As
the COVID-19 pandemic continues and new variants emerge, we continue to prioritize the safety of our employees while navigating the evolving
operating environment. Despite facing increased commodity costs, supply chain and transportation constraints, and labor challenges through
the pandemic, throughout the pandemic we have capitalized on our competitive advantages in manufacturing to drive significant growth
in consumer adoption of our products leading to an increased retail footprint and ultimately growth in net sales.
The
COVID-19 pandemic has presented certain challenges and opportunities for us. The unpredictable nature of the COVID-19 pandemic, creates
continued uncertainty around vaccination mandates, economic recovery, labor and other inflationary pressures. The COVID-19 pandemic also
creates uncertainty around customer demand within retail distribution as some retail partners’ willingness to reset distribution
(which involves refreshing and reorganizing their product mix) and bring on new products may be affected. As distribution resets are
an important way for us to secure new retail distribution for our products, this dynamic delayed our entry into many retail locations
over the course of the pandemic. We anticipate that, although there is still a risk that distribution resets of certain retailers may
be affected by the pandemic, we believe that many of the retailers will conduct resets as scheduled.
Through
the majority of the pandemic, we have been successful at avoiding disruptions to our supply chain and operations through these measures
and have been able to maintain continuity of supply for its customers. However, in the second half of 2021, we experienced certain supply
chain challenges that negatively affected our ability to supply the demands to all of our channels of trade and negatively impacted our
gross margins. While our efforts to mitigate these challenges are beginning to show positive signs, these challenges nonetheless continued
to have an impact on the first quarter of 2022.
We
believe that many of the supply chain disruptions we experienced in our operations due to the pandemic are temporary but may persist
in the near term. In
the first quarter of 2022, we experienced a more expensive operating environment throughout the business, including higher prices for
raw materials, beef, transportation, labor, and advertising than we typically experienced in 2021. We expect these inflationary pressures
to continue throughout 2022. We continue to track new developments
and ongoing impacts from the pandemic as we execute on our mitigating strategies to lessen the impact of these challenges and cost increases
including but not limited to, price increases, improving our manufacturing yields through capacity enhancements, investing in further
automation, and rationalizing and optimizing marketing spend to drive greater returns and retail velocities.
Investments
to Grow Asset Base and Strengthen Balance Sheet
Since
the consummation of the Business Combination in July 2021, we have made considerable investments to strengthen our balance sheet in light
of the uncertain macroeconomic environment. Meaningful investments made to reduce debt, grow working capital, acquire capital equipment,
and expand facilities throughout the first quarter of 2022 were a continuation of this trend. In the first quarter, we retired approximately
$6.84 million of debt and separately announced the completion of our first major expansion to our manufacturing facility in Madill, Oklahoma.
This expansion has allowed us to augment our capacities so that we can more efficiently flex our run rate production levels, if needed,
to satisfy outsized new distribution lay-in orders and/or national programs without materially straining our ordinary course day-to-day
production. Additionally, we have made considerable investments in our inventory and current assets to help service our expanded distribution
base moving forward.
Optimizing
Spend and Reducing Losses
We
materially reduced our net loss by $4.6 million in the first quarter of 2022 as compared to the fourth quarter of 2021 despite similar
macroeconomic headwinds. While we saw some improvements in our gross margins, it was more efficient spending that was the primary driver
of the reduction in net loss. We have examined every area of spending throughout our business and identified ways to drive efficiencies,
eliminate unnecessary expense, and focus on the highest and best use of each dollar. Moving forward, our optimized spending plan will
begin to materially benefit from portfolio-wide price increases that will begin to take effect in the second quarter of 2022. While we
intend to continue to invest to drive meaningful growth in net sales, we are doing so in a more disciplined manner that acknowledges
the fundamental changes in direct-to-consumer advertising markets. By monitoring our unit economics closely, maintaining an optimized
spending profile, and seeking to meaningfully grow net sales, we believe we will be able to drive further reductions in our net losses
moving forward.
21
Results
of Operations –Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
The
following table sets forth selected items in our consolidated financial data in dollar amounts and as a percentage of net sales for the
three months ended March 31, 2022 compared to the three months ended March 31, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Three
Months Ended |
|
|
|
March
31, 2022 |
|
|
March
31, 2021 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
(In
thousands) |
|
|
|
|
%
of sales |
|
|
|
|
|
%
of sales |
|
Net
sales |
|
$ |
7,421 |
|
|
|
100.0 |
% |
|
|
6,835 |
|
|
|
100.0 |
% |
Cost
of goods sold (exclusive of depreciation shown separately below) |
|
|
6,297 |
|
|
|
84.9 |
% |
|
|
4,157 |
|
|
|
60.8 |
% |
Gross
profit |
|
$ |
1,124 |
|
|
|
15.1 |
% |
|
$ |
2,678 |
|
|
|
39.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing expenses |
|
$ |
4,026 |
|
|
|
54.3 |
% |
|
$ |
6,453 |
|
|
|
94.4 |
% |
Operations
expense |
|
|
1,231 |
|
|
|
16.6 |
% |
|
|
1,060 |
|
|
|
15.5 |
% |
Salaries
and wages |
|
|
2,586 |
|
|
|
34.8 |
% |
|
|
1,402 |
|
|
|
20.5 |
% |
Depreciation
and amortization expense |
|
|
444 |
|
|
|
6.0 |
% |
|
|
395 |
|
|
|
5.8 |
% |
Gain
on disposal of fixed assets |
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
0.0 |
% |
Total
operating expenses |
|
|
8,287 |
|
|
|
111.7 |
% |
|
|
9,311 |
|
|
|
136.2 |
% |
Operating
loss |
|
|
(7,163 |
) |
|
|
(96.5 |
)% |
|
|
(6,633 |
) |
|
|
(97.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
(188 |
) |
|
|
(2.5 |
)% |
|
|
(810 |
) |
|
|
(11.9 |
)% |
PPP
loan forgiveness |
|
|
— |
|
|
|
— |
|
|
|
1,670 |
|
|
|
24.4 |
% |
Change
in fair value of Private Warrants |
|
|
45 |
|
|
|
0.6 |
% |
|
|
— |
|
|
|
— |
|
Other
income |
|
|
— |
|
|
|
0.0 |
% |
|
|
12 |
|
|
|
0.2 |
% |
Total
other income (expense) |
|
|
(143 |
) |
|
|
(1.9 |
)% |
|
|
872 |
|
|
|
12.8 |
% |
Net
loss before income taxes |
|
$ |
(7,306 |
) |
|
|
(98.5 |
)% |
|
$ |
(5,761 |
) |
|
|
(84.3 |
)% |
Net
sales. Net sales increased by $0.6 million
from $6.8 million during the three months ended March 31, 2021 to $7.4 million during the three months ended March 31, 2022 representing
growth of 8.6% for the comparable periods. The primary driver of the increase in net sales are increased sales of our products to existing
wholesale and net new sales related to additional distribution secured for 2022 at a number of key retailers.
22
However,
these gains were offset by a $1.5 million decline in our DTC e-commerce revenue. Our DTC e-commerce business generated $1.4 million in
net sales for the three months ended March 31, 2022 compared to $2.9 million for the three months ended March 31, 2021. In the latter
part of 2021, the digital advertising behind our DTC business became significantly more expensive and less effective due to industry
wide changes related to data privacy and app tracking that affected nearly all DTC advertisers. As a result, we elected to significantly
scale back digital advertising midway through the fourth quarter of 2021 and throughout the first quarter of 2022. We anticipate that
these trends in digital advertising will continue for the foreseeable future, and as such, plan to proceed with what we believe to be
a more prudent approach to DTC digital advertising spending in 2022. Additionally, the performance of our DTC e-commerce business in
the first quarter of 2022 was partially impacted by fulfillment supply chain challenges that hindered our ability to maintain in stock
percentages of our products for a period of time. As a result, many DTC orders were not fulfilled or were delayed.
Net
sales to wholesale customers were $4.9 million in the three months ended March 31, 2022 representing an increase of 85% when compared
to $2.7 million in the three months ended March 31, 2021. We added a significant number of new doors of distribution in the year ended
December 31, 2021 across most of our brands, which contributed meaningfully to our growth. Throughout 2021 we secured new distribution
with several marquee customers in the club, mass, grocery, and convenience channels. Further, we garnered expanded distribution with
a number of its existing retail relationships. We believe that outside of the new and expanded distribution, the growth in the wholesale
channel is, in part, attributable to increased sell-through velocities of our products at retailers supported by increased foot traffic
in retail stores following an easing of pandemic related restrictions and associated consumer behavior.
Private
label continues to be an important component in order to provide incremental volumes and help deepen our relationships with our retailers.
And, with limited need for marketing support, its cash conversion can be attractive. The performance of our private label business in
the fourth quarter of 2021 was negatively impacted by packaging supply chain challenges that hindered our ability to deliver orders for
our customers. Some of these challenges bled over into the first quarter of 2022 and had an effect on net sales attributable to the channel.
Net sales to private label customers for the three months ended March 31, 2022 were $1.0 million which represents a $0.2 million decline
from the prior year comparable period.
The
following table shows the net sales of the Company disaggregated by channel for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Month Period Ended |
|
|
Three
Month Period Ended |
|
|
|
March
31, 2022 |
|
|
March
31, 2021 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
(In
thousands) |
|
|
|
|
%
of sales |
|
|
|
|
|
%
of sales |
|
e-Commerce |
|
$ |
1,446 |
|
|
|
19.5 |
% |
|
$ |
2,946 |
|
|
|
43.1 |
% |
Wholesale |
|
|
4,936 |
|
|
|
66.5 |
% |
|
|
2,662 |
|
|
|
38.9 |
% |
Private
label |
|
|
1,039 |
|
|
|
14.0 |
% |
|
|
1,227 |
|
|
|
18.0 |
% |
Net
Sales |
|
$ |
7,421 |
|
|
|
100.0 |
% |
|
$ |
6,835 |
|
|
|
100.0 |
% |
Cost
of Goods Sold. Cost of goods sold increased by $2.1
million from $4.2 million in the three months ended March 31, 2021 to $6.3 million in the three months ended March 31, 2022, which was
primarily driven by increased sales volume followed by significant increases in direct labor and commodity input costs, including beef,
packaging, and other ingredients. Overall commodity beef prices have increased significantly year-over-year due to what we believe are
the direct and indirect effects of the COVID-19 pandemic, specifically labor shortages and inefficiencies in the meat processing supply
chain resulting in inflationary pressures, which may persist for the foreseeable future.
Gross
Profit. Gross profit decreased $1.6 million from $2.7
million in the three months ended March 31, 2021 to $1.1 million in the three months ended March 31, 2022. As a percent of net sales,
gross profit was 15.1% in the first quarter of 2022, compared to 39.2% in the first quarter of 2021. A few primary factors contribute
to this performance:
•As
described above, overall net sales increased by $0.6 million in the three months ended March
31, 2022 compared to the same period in 2021 while gross profit decreased by approximately
$1.6 million over the same time period, which decrease was primarily attributable to the
increase in cost of goods sold as described above.
•In
the third quarter of 2021, Stryve closed its Business Combination with Andina. In doing so,
it secured capital to support its growth initiatives. Some of these initiatives have an impact
on gross profit margin in the three months ended March 31, 2022 including, but not limited
to, trade discounts and promotional spending to support increased velocity and distribution.
•Stryve’s
wholesale customer mix of business shifted from the first quarter of 2021 to the first quarter
of 2022 with the higher margin DTC e-commerce and private label sales representing a smaller
percentage of our net sales during the first quarter of 2022. The pull back in DTC e-commerce
paired with greater volume from club and mass channels than in the prior year has resulted
in a mix shift. While we acknowledge the growth prospects of the wholesale channel, we recognize
that any mix shift away from DTC e-commerce will likely negatively influence our gross margin
profile.
23
•As
2021 progressed, we experienced increasing pressure on direct labor wage rates. These inflationary
pressures necessitated several increases to our direct labor rates throughout 2021 and again
during three months ended March 31, 2022. We are hopeful that our investments in automation
and process improvements will help to offset some of these pressures moving forward.
•Aside
from the effects of mix and increases in trade promotions, the net prices in place for our
products during the year ending December 31, 2021 were materially the same as those in place
for the prior year period. In late 2021 and early 2022, we initiated several strategies to
increase the average net price of our products sold but the impact on the three months ended
March 31, 2022 was minor as based by our estimate, as most of the strategies will begin to
take effect throughout 2022.
Operating
Expenses.
•Selling
and marketing expenses. Selling and marketing expenses
decreased by $2.5 million from $6.5 million in the three months ended March 31, 2021 to $4.0
million in the three months ended March 31, 2022. Stryve decreased its spend with respect
to its marketing efforts primarily digital media advertising and paid search in the first
quarter of 2022 compared to the same period in 2021. While digital media will continue to
be a key piece of our marketing strategy, we intend to temper this spending for the foreseeable
future and increase our focus on strategies to support retail velocities. Further, management
anticipates experiencing operating leverage on these expenses as the Company continues to
add points of retail distribution, which has the potential to facilitate more efficient marketing
spend. Other expenses contributing to the decrease relate to legal and consulting fees incurred
in the three months ended March 31, 2021 related to the Business Combination which did not
reoccur in the most recent period.
•Operations
expenses. Operations expenses increased by $0.1 million
for the three months ended March 31, 2022 as compared to the three months ended March 31,
2021. Increases in rates across most modes of transportation have contributed to the increase.
Additionally, expenses related to supplies, maintenance, training, and warehousing increased
from the first quarter of 2022 compared to the first quarter of 2021.
•Salaries
and wages. Salaries and wages increased $1.2 million
for the three months ended March 31, 2022 compared to the three months ended March 31, 2021,
increasing from $1.4 million to $2.6 million. This increase is in part attributable to retention
bonus compensation related to a prior acquisition as well as to key contributors within the
organization. We anticipate some growth in administrative headcount to accommodate the increased
reporting and compliance responsibilities of being a public company going forward.
•Depreciation
and amortization. Depreciation and amortization remained
unchanged at $0.4 million for the three months ended March 31, 2022 and 2021.
Operating
Loss. Operating loss increased by $0.6 million from
$6.6 million in the three months ended March 31, 2021 to $7.2 million in the three months ended March 31, 2022 and is primarily attributable
to the Company’s increase in expenses related to increased selling and marketing expenses as well as increased operations expense,
all of which is partially offset by growth in net sales.
Interest
Expense. Interest expense decreased by $0.6 million
from $0.8 million in the three months ended March 31, 2021 to $0.2 million in the three months ended March 31, 2022. While we relied,
in part, on debt capital to support the business throughout 2021, we significantly deleveraged the business in the first quarter of 2022
as well as upon the consummation of the Business Combination in the third quarter of 2021 thus reducing the overall interest expense
of the business year-over-year.
Net
Loss. Net loss increased $1.5 million from $5.8 million
in three months ended March 31, 2021 to $7.3 million in the three months ended March 31, 2022, with the increase primarily attributable
to a one-time benefit of $1.7 million received in the first quarter of 2021 related to the forgiveness of a Paycheck Protection Program
loan that did not occur in 2022.
24
Non-GAAP
Financial Measures
We
use non-GAAP financial measures and believe it is useful to investors as it provides additional information to facilitate comparisons
of historical operating results, identify trends in operating results, and provide additional insight on how the management team evaluates
the business. Our management team uses EBITDA and Adjusted EBITDA to make operating and strategic decisions, evaluate performance and
comply with indebtedness related reporting requirements. Below are details on this non-GAAP measure and the non-GAAP adjustments that
the management team makes in the definition of EBITDA and Adjusted EBITDA. We believe this non-GAAP measure should be considered along
with net income (loss), the most closely related GAAP financial measure. Reconciliations between EBITDA, Adjusted EBITDA, and net income
are below, and discussion regarding underlying GAAP results throughout this Management’s Discussion and Analysis of Financial
Condition and Results of Operations. The presentation of non-GAAP financial information should not be considered in isolation or as a
substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.
EBITDA.
Stryve defines EBITDA as net income
(loss) before interest expense, income tax expense (benefit), and depreciation and amortization.
Adjusted
EBITDA.
Stryve defines Adjusted EBITDA as EBITDA adjusted as necessary for certain items listed below in the
table.
The
table below provides a reconciliation of EBITDA and Adjusted EBITDA to their most directly comparable GAAP measure, which is net income
(loss) before taxes, for the three months ended March 31, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
|
Three
Month Period Ended |
|
|
Three
Month Period Ended |
|
|
|
|
March
31, 2022 |
|
|
March
31, 2021 |
|
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(In
thousands) |
|
|
|
|
|
|
|
Net
income (loss) before income taxes |
|
$ |
(7,306 |
) |
|
$ |
(5,761 |
) |
|
Interest
expense |
|
|
188 |
|
|
|
810 |
|
|
Depreciation
and amortization |
|
|
444 |
|
|
|
395 |
|
|
EBITDA |
|
$ |
(6,674 |
) |
|
$ |
(4,556 |
) |
|
Additional
Adjustments*: |
|
|
|
|
|
|
|
PPP
loan forgiveness |
|
|
— |
|
|
|
(1,670 |
) |
|
Business
combination expenses |
|
|
— |
|
|
|
884 |
|
|
Stock
based compensation expense |
|
|
328 |
|
|
|
— |
|
|
Comparability
adjustment - Public vs. Private |
|
|
— |
|
|
|
(522 |
) |
|
Adjusted
EBITDA |
|
$ |
(6,346 |
) |
|
$ |
(5,864 |
) |
|
Adjusted
EBITDA. Stryve achieved negative Adjusted EBITDA
of $(6.3) million during the three months ended March 31, 2022 compared to $(5.9) million in three months ended March 31, 2021. The presentation
of non-GAAP financial information should not be considered in isolation or as a substitute for, or superior to, the financial information
prepared and presented in accordance with GAAP.
*Additional
Adjustments to EBITDA:
PPP
Loan Forgiveness: The Company secured a Paycheck Protection
Program loan in April of 2020 which was ultimately fully forgiven in the first quarter of 2021. The forgiveness of $1.6 million of principal
and interest resulted in a gain during the three months ended March 31, 2021. This item is one-time and has been adjusted out to provide
better comparability of results.
Business
Combination Expenses: The Company signed the Business
Combination Agreement on January 28, 2021 and prepared an S-4 and S-1 filing in furtherance of the Business Combination. In doing so,
the Company incurred significant legal and professional services fees in the three months ended March 31, 2021. The Business Combination
was ultimately consummated on July 20, 2021. This one-time item has been adjusted out to provide better comparability of results.
Comparability
Adjustment - Public vs Private: For the duration of the
three month period ended March 31, 2021, Stryve was a private company. The Company consummated the Business Combination on July 20, 2021.
As a public company, the Company incurs significant expenses by virtue of being public. These public company expenses affect the comparability
of results between the comparable periods shown. Accordingly, these public company expenses have been added to the three months ended
March 31, 2021 to adjust the comparative quarter for comparative purposes. These expenses include public filing fees and preparation
services, the extra cost of directors & officers insurance for public companies, and board fees.
25
Liquidity
and Capital Resources
Overview.
We
have historically funded our operations with cash flow from operations, equity capital raises, and note payable agreements from shareholders
and private investors, in addition to bank loans. Our principal uses of cash have been debt service, capital expenditures, and investment
in working capital to fund operations. For
the three months ended March 31, 2022,
we incurred an operating loss of $7.2 million and used cash in operations of $14.1
million.
As of March 31, 2022, we have working capital of
$28.0 million which
compares favorably to the $3.2
million working
capital we maintained as of December 31, 2021 and have only approximately $0.2 million of indebtedness. On January 11, 2022, we closed
a private placement offering in which we raised $35.0 million of gross proceeds to significantly strengthen our liquidity position. We
have used a portion of the funds raised for working capital to support near term growth, capital expansion projects, including increasing
manufacturing capacity and adding manufacturing capabilities, and general corporate purposes, including marketing and sales initiatives
and repaying $6.8 million of debt.
On
May 26, 2021, the Company entered into a Purchase and Sale Agreement with OK Biltong Facility, LLC (the “Buyer”), an entity
controlled by Ted Casey, a member of the Company’s Board of Directors, pursuant to which the parties consummated a sale and leaseback
transaction (the “Sale and Leaseback Transaction). Under the terms of the Sale and Leaseback Transaction, the Company agreed to
sell its manufacturing facility and the surrounding property in Madill, Oklahoma (the “Real Property”). The Sale and Leaseback
Transaction was consummated on June 4, 2021 for a total purchase price of $7.5 million. The consummation of the Sale and Leaseback Transaction
provided the Company with net proceeds (after transaction related costs) of approximately $7.3 million. The net proceeds were used for
general corporate purposes and to retire debt facilities in an aggregate amount of $6.5 million.
In
connection with the consummation of the Business Combination, on July 20, 2021, the Company raised proceeds of $37.9 million (net of
Andina’s transaction costs and expenses). Following the Closing, Stryve retired various debt facilities for an aggregate amount
of approximately $11.1 million including principal and interest.
The
Company believes that cash from operations as well as the cash proceeds from the Business Combination, net of the $11.1 million of debt
reduction described above, combined with the proceeds from the private offering in January 2022 described above, net of the $6.8 million
of debt reduction, will be sufficient to fund the Company’s cash requirements for at least the next twelve months from the date
these financial statements are made available.
Cash
Flows. The following tables show summary cash flows
information for the nine months ended March 31, 2022 and 2021.
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ending |
|
|
Three
Months Ending |
|
|
|
March
31, 2022 |
|
|
March
31, 2021 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
(In
thousands) |
|
|
|
|
|
|
Net
cash used in operating activities |
|
$ |
(14,127 |
) |
|
$ |
(8,301 |
) |
Net
cash used in investing activities |
|
|
(693 |
) |
|
|
(127 |
) |
Net
cash provided by financing activities |
|
|
25,230 |
|
|
|
9,716 |
|
Net
increase in cash and cash equivalents |
|
$ |
10,409 |
|
|
$ |
1,289 |
|
Net
Cash used in Operating Activities. Net
cash used in operating activities increased $5.8 million from $8.3 million through the three months ended March 31, 2021 compared to
$14.1 million through the three months ended March 31, 2022. This increase is primarily attributable to the considerable investment in
net working capital during the three months ended March 31, 2022, with the balance of the increase stemming from the increase in net
loss in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.
Net
Cash used in Investing Activities. Net cash used in
investing activities increased from $0.1 million in the three months ended March 31, 2021 to $0.7 million in the three months ended March
31, 2022, representing a $0.6 million increase when comparing the same period year over year. We anticipate increased investment in manufacturing
and fulfillment assets moving forward, in order to ensure we have adequate run rate capacities to meet the potential demand for our products.
Net
Cash provided by Financing Activities. Net
cash provided by financing activities generated $15.5
million more cash for the Company in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. In the
three months ended March 31, 2022 we generated cash from financing activities of $25.2 million which included approximately $32.3 million
in net proceeds from the January Offering offset by approximately $6.8 million of cash used to retire debt in the period.
26
Debt
and credit facilities. The information below represents
an overview of the Company’s debt and prior credit facilities. The Company’s outstanding indebtedness as of March 31, 2022
and December 31, 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, |
|
|
As
of December 31, |
|
|
|
2022 |
|
|
2021 |
|
Long
term debt |
|
$ |
223 |
|
|
$ |
1,567 |
|
Short
term debt |
|
|
— |
|
|
|
2,000 |
|
Line
of credit (Note 5) |
|
|
— |
|
|
|
3,500 |
|
Total
notes payable |
|
|
223 |
|
|
|
7,067 |
|
Less:
current portion |
|
|
(140 |
) |
|
|
(3,447 |
) |
Less:
line of credit |
|
|
— |
|
|
|
(3,500 |
) |
Total
notes payable, net of current portion |
|
$ |
84 |
|
|
$ |
120 |
|
Future
minimum principal payments on the notes payable as of March 31, 2022, are as follows:
|
|
|
|
|
2022
(for the remainder of) |
|
$ |
103,627 |
|
2023 |
|
|
93,980 |
|
2024 |
|
|
18,255 |
|
2025 |
|
|
7,333 |
|
2026 |
|
|
— |
|
|
|
$ |
223,195 |
|
On
January 28, 2022, we paid off approximately $6.8 million of outstanding principal and interest owed to Origin.
Certain
Factors Affecting Our Performance
Stryve’s
management believes that the Company’s future performance will depend on many factors, including the following:
Ability
to Expand Distribution in both Online and Traditional Retail Channels. Stryve is currently growing
its consumer base through paid and organic means both online as well as by expanding its presence in a variety of physical retail distribution
channels. Online consumer acquisitions typically occur through the Company’s portfolio of DTC e-commerce websites and Amazon.com.
The Company’s online consumer acquisition program includes paid and unpaid social media, search, and display media. Stryve’s
products are also sold through a growing number of traditional retail channels where the Company has an opportunity to acquire new consumers.
Traditional retail channels include grocery chains, natural food outlets, club stores, convenience stores, and drug stores, all either
direct or through distribution partners.
Ability
to Acquire and Retain Consumers at a Reasonable Cost. Stryve’s management believes an ability
to consistently acquire and retain consumers at a reasonable cost relative to projected life-time value will be a key factor affecting
future performance. To accomplish this goal, Stryve intends to strategically allocate advertising spend between online and offline channels
favoring digital media, as well as emphasizing more targeted and measurable “direct response” digital marketing spend with
advertising focused on increasing consumer awareness and driving trial. Further, we acknowledge that changes to third-party algorithms
that may be utilized directly, or indirectly, by Stryve in its advertising efforts may impact the effectiveness of Stryve's advertising
which may increase its overall cost to acquire and retain consumers.
Ability
to Drive Repeat Usage of Our Products.
Stryve accrues substantial economic value from repeat
consumers who consistently purchase its products either online or in traditional retail. The pace of Stryve’s growth rate will
be affected by the repeat usage dynamics of existing and newly acquired customers. The Company utilizes a number of methods to drive
repeat behavior including intelligent e-mail and text campaigns, targeted digital media, and subscribe and save incentives.
Ability
to Expand Gross Margins.
Stryve’s
overall profitability will be impacted by its ability to expand gross margins through effective sourcing of raw materials, managing production
yields and drying times, controlling labor and shipping costs, as well as spreading other production-related costs over greater manufacturing
volumes. Additionally, Stryve's ability to expand gross margins will be influenced by its revenue channel and customer mix as well as
by Stryve's ability to pass price increases to its customers.
Ability
to Expand Operating Margins.
The
Company’s ability to expand operating margins will be impacted by its ability to effectively manage its fixed and variable operating
expenses as net sales increase.
27
Ability
to Manage Supply Chain and Expand Production In-line with Demand.
Stryve’s
ability to grow and meet future demand will be affected by its ability to effectively plan for and source inventory from a variety of
suppliers located inside and outside the United States. Additionally, efficiently scaling production capacity ahead of growth in net
sales will be critical to the Company’s ability to meet future demand without disruption.
Ability
to Optimize Key Components of Working Capital.
Stryve’s
ability to reduce cash burn in the near-term and eventually generate positive cash flow will be partially impacted by the Company’s
ability to effectively manage the key components of working capital which have a direct impact on the cash conversion cycle.
Seasonality.
Because Stryve is so early in its lifecycle of growth, it is difficult to discern the exact magnitude
of seasonality affecting its business. Any evidence of seasonality is not clearly discernable from the Company’s historical growth.
However, understanding potential trends in seasonality will be key in Stryve’s management of its expenses, liquidity, and working
capital.
Off-Balance
Sheet Arrangements
We
have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of March 31, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest
entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into
any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities,
or purchased any non-financial assets.
Critical
Accounting Estimates
Our
management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements
which have been prepared in accordance with GAAP. In preparing our financial statements, we make estimates, assumptions, and judgments
that can have a significant impact on our reported revenue, results of operations, and comprehensive net income or loss, as well as on
the value of certain assets and liabilities on our balance sheet during, and as of, the reporting periods. These estimates, assumptions,
and judgments are necessary and are made based on our historical experience, market trends and on other assumptions and factors that
we believe to be reasonable under the circumstances because future events and their effects on our results of operations and value of
our assets cannot be determined with certainty. These estimates may change as new events occur or additional information is obtained.
We may periodically be faced with uncertainties, the outcomes of which are not within our control and may not be known for a prolonged
period of time. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates
or assumptions.
The
critical accounting estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial
statements are described below. Our
significant accounting policies are more fully described in Note 3 to our consolidated financial statements.
Accounts
Receivable and Allowance for Doubtful Accounts, Returns, and Deductions. Accounts
receivable are customer obligations due under normal trade terms. The Company records accounts receivable at their net realizable value,
which requires management to estimate the collectability of the Company’s receivables. Judgment is required in assessing the realization
of these receivables, including the credit worthiness of each counterparty and the related aging of past due balances. Management provides
for an allowance for doubtful accounts equal to the estimated uncollectable amounts, in addition to a general provision based on historical
experience. Management provides for the customer accommodations based upon a general provision of 11% percentage of sales in addition
to known deductions. The estimates are based on collection experience and a review of trade accounts. As of March 31, 2022 and December
31, 2021, the allowance for doubtful accounts and returns and deductions totaled $1,191,552 and $1,236,497, respectively. Total bad debt
expense for the three months ended three months ended March 31, 2022 and 2021 was $55,309 and $85,598, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March 31, |
|
|
As
of December 31, |
|
(In
thousands) |
|
2022 |
|
|
2021 |
|
|
2021 |
|
|
2020 |
|
Beginning
balance |
|
$ |
1,236 |
|
|
$ |
1,603 |
|
|
$ |
1,603 |
|
|
$ |
688 |
|
Provisions |
|
|
215 |
|
|
|
109 |
|
|
$ |
1,154 |
|
|
$ |
915 |
|
Write-offs/
reversals |
|
|
(260 |
) |
|
|
(136 |
) |
|
$ |
(1,521 |
) |
|
$ |
— |
|
Ending
balance |
|
$ |
1,192 |
|
|
$ |
1,575 |
|
|
$ |
1,236 |
|
|
$ |
1,603 |
|
28
Reporting
Unit Analysis
The
Company presents a single segment for purposes of financial reporting and prepared its consolidated financial statements upon that basis.
The Company considered ASC 350-20-35-35 related to reporting unit determination and the aggregation of components into one reporting
unit.
The
economic characteristics considered were whether:
1)
The nature of the products and services are similar
2)
The type of class of customer for products and services are similar
3)
The methods used to distribute the products or provide the services are similar
4)
The manner in which an entity operates and the nature of those operations is similar
Currently,
the Company has one reporting unit due to the similarity of its components when evaluated against the aforementioned economic characteristics.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Stryve’s
future income, cash flows and fair values relevant to financial instruments are dependent upon prevalent market interest rates. Market
risk refers to the risk of loss from adverse changes in market prices and interest rates.
Concentration
of credit risk. The
balance sheet items that potentially subject the Company to concentrations of credit risk are primarily cash, accounts receivable, and
accounts payable. The Company continuously evaluates the credit worthiness of its customers’ financial condition and generally
does not require collateral. The Company maintains cash balances in bank accounts that may, at times, exceed Federal Deposit Insurance
Corporation (“FDIC”) limits of $250,000 per institution. The Company incurred no losses from such accounts and management
considers the risk of loss to be minimal.
As
of and for the three months ended March 31, 2022, customer and vendor concentrations in excess of 10% consolidated sales, purchases accounts
receivable, and accounts payable are as follows:
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
Purchases |
|
Accounts Receivable |
|
Accounts Payable |
Customer
A |
|
23% |
|
— |
|
25% |
|
— |
Customer
B |
|
12% |
|
— |
|
18% |
|
— |
Customer
C |
|
11% |
|
— |
|
18% |
|
— |
Vendor
A |
|
— |
|
11% |
|
— |
|
13% |
Vendor
B |
|
— |
|
— |
|
— |
|
13% |
Interest
rate risk. Stryve
is subject to interest rate risk in connection with borrowing based on a variable interest rate. Derivative financial instruments, such
as interest rate swap agreements and interest rate cap agreements, are not currently but may be used for the purpose of managing fluctuating
interest rate exposures that exist from Stryve’s variable rate debt obligations that are expected to remain outstanding. Interest
rate changes do not affect the market value of such debt, but could impact the amount of Stryve’s interest payments, and accordingly,
Stryve’s future earnings and cash flows, assuming other factors are held constant. Additionally, changes in prevailing market
interest rates may affect Stryve’s ability to refinance existing debt or secure new debt financing. Notwithstanding
the foregoing, management acknowledges that both foreign and domestic central bank actions as well as geopolitical uncertainty and conflict,
such as Russia's recent invasion of Ukraine, may have unpredictable effects on the Company's exposure to interest rate risk either directly
or indirectly.
Foreign
currency risk. Stryve
is exposed to changes in currency rates as a result of its revenue generated in currencies other than U.S. dollars. Revenue and profit
generated by international operations will increase or decrease compared to prior periods as a result of changes in foreign currency
exchange rates. However, the operations that are impacted by foreign currency risk are less than 5% of Stryve’s net income (loss)
for the three months ended March 31, 2022 and the 52-week period ended December 31, 2021 and therefore, the risk of this is insignificant.
Notwithstanding
the foregoing, management acknowledges that both foreign and domestic central bank actions as well as geopolitical uncertainty and conflict,
such as Russia's recent invasion of Ukraine, may have unpredictable effects on the Company's exposure to foreign currency risk either
directly or indirectly.
29
Raw
material risk. Stryve’s
profitability depends, among other things, on its ability to anticipate and react to raw material costs, primarily beef. The price of
beef and other raw materials are subject to many factors beyond Stryve’s control, including general economic conditions, inflation,
processing labor shortages, cost of feed, demand, natural disasters, weather and other factors that may affect beef supply chain participants.
Changes in the prices of beef and other raw materials have already negatively affected Stryve's results of operations, and any continued
or further changes could have a material impact on Stryve’s business, financial condition and results of operations. Notwithstanding
the foregoing, management acknowledges that both foreign and domestic central bank actions as well as geopolitical uncertainty and conflict,
such as Russia’s recent invasion of Ukraine, may have unpredictable effects on the Company's exposure to raw material commodity
risks.
Inflation
risk. Inflation
may impact Stryve’s revenue and cost of services and products, Stryve believes the effects of inflation, if any, on its business,
financial condition and results of operations have been material to date which management hopes to alleviate through mitigating strategies.
However, there can be no assurance that any mitigation strategies management employs will be effective or that its business, financial
condition and results of operations will not be materially impacted by continued inflation in the future. Notwithstanding the foregoing,
management acknowledges that both foreign and domestic central bank actions as well as geopolitical uncertainty and conflict, such as
Russia’s recent invasion of Ukraine, may have unpredictable effects on the Company's exposure to inflation risk either directly
or indirectly.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company maintains a system of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934 (the "Exchange Act") designed to ensure that the information required to be disclosed by the Company in the reports
that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission, and is accumulated and communicated to our management, including our
Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), as appropriate,
to allow timely decisions regarding required disclosure.
The
Company's management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures under the Exchange Act as of March 31, 2022, the end of the period covered by this report on
Form 10-Q. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of such date,
our disclosure controls and procedures were effective.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting, as identified in connection with the evaluation required by Rule 13a-15(d)
and Rule 15d-15(d) of the Exchange Act, that occurred during the three months ended March 31, 2022 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
30