Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
1 —BASIS OF PRESENTATION AND SIGNFICANT ACCOUNTING POLICIES
Overview
New
Age Beverages Corporation (the “Company”) was formed under the laws of the State of Washington on April 26, 2010.
The Company is a healthy beverages and lifestyles company engaged in the development and commercialization of a portfolio of organic,
natural and other better-for-you healthy beverages, liquid dietary supplements, cannabidiol (“CBD”) topical products,
and other healthy lifestyle products.
Segments
The
Company’s chief operating decision maker (the “CODM”), who is the Company’s Chief Executive Officer, allocates
resources and assesses performance based on financial information of the Company. The CODM reviews financial information presented
for each reportable segment for purposes of making operating decisions and assessing financial performance. The Company’s
CODM assesses performance and allocates resources based on the financial information of two operating segments, the Noni by NewAge
segment and the NewAge segment. These two reportable segments focus on the sale of distinctly different beverage products and
are managed separately because they have different marketing strategies, customer bases, and economic characteristics. Please
refer to Note 13 for additional information about the Company’s operating segments.
Basis
of Presentation
The
unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly-owned subsidiaries,
are prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
All intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”)
regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by U.S. GAAP for complete
financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the unaudited condensed
consolidated financial statements have been included. These unaudited condensed consolidated financial statements for the three
months ended March 31, 2020 should be read in conjunction with the Company’s audited consolidated financial statements for
the fiscal year ended December 31, 2019, included in the Company’s 2019 Annual Report on Form 10-K filed with the SEC on
March 16, 2020 and as amended on April 28, 2020 (the “2019 Form 10-K”).
The
accompanying condensed consolidated balance sheet and related disclosures as of December 31, 2019 have been derived from the Company’s
audited financial statements. The Company’s financial condition as of March 31, 2020 and operating results for the three
months ended March 31, 2020 are not necessarily indicative of the financial condition and results of operations that may be expected
for any future interim period or for the year ending December 31, 2020.
Use
of Estimates
The
preparation of financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make
judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and
accompanying notes. The Company bases its estimates and assumptions on current facts, historical experience, and various
other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and
liabilities that are not readily apparent from other sources. The Company’s significant accounting estimates include,
but are not necessarily limited to, impairment of goodwill and long-lived assets; valuation assumptions for earnout
obligations and assets acquired in business combinations; valuation assumptions for stock options, warrants and equity
instruments issued for goods or services; estimated useful lives for identifiable intangible assets and property and
equipment; allowances for sales returns, chargebacks and inventory obsolescence; deferred income taxes and the related
valuation allowances; and the evaluation and measurement of contingencies. Additionally, the full impact of COVID-19 is
unknown and cannot be reasonably estimated. However, the Company has made appropriate accounting estimates based on the facts
and circumstances available as of the reporting date. To the extent there are material differences between the
Company’s estimates and the actual results, the Company’s future consolidated results of operation will be
affected.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Recent
Accounting Pronouncements
Recently
Adopted Standards. The following recently issued accounting standards were adopted during the three months ended March 31,
2020:
In
June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU
2016-13 amends the guidance on the impairment of financial instruments. This update adds an impairment model (known as the current
expected credit losses model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity
recognizes, as an allowance, its estimate of expected credit losses. In November 2018, ASU 2016-13 was amended by ASU 2018-19,
Codification Improvements to Topic 326, Financial Instruments – Credit Losses. ASU 2018-19 clarifies that operating
lease receivables are not within the scope of Accounting Standards Codification (“ASC”) 326-20 and should instead
be accounted for under the new leasing standard, ASC 842. ASU 2016-13 and ASU 2018-19 are effective for the Company beginning
in the first quarter of 2020. The adoption of ASU 2016-13 and ASU 2018-19 did not have a material impact on the Company’s
results of operations or financial position.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework—Changes to the
Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements on fair value measurements.
ASU 2018-13 was adopted by the Company for the three months ended March 31, 2020 and did not have a material impact on the Company’s
results of operations, financial position, and related disclosures.
Standards
Required to be Adopted in Future Years. The following accounting standards are not yet effective for the Company.
In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU
2019-12 simplifies the accounting for income taxes by removing certain exceptions and making simplifications in other areas. ASU
2019-12 is effective for the Company beginning in the first quarter of 2021, with early adoption in any interim period permitted.
Management has not completed its evaluation to determine if this standard will be adopted before the first quarter of 2021, the
impact that adoption of this standard will have on the Company’s consolidated financial statements, or the method that will
be applied to adopt the standard.
No
other recently issued accounting pronouncements are expected to have a material impact on the Company’s consolidated financial
statements.
NOTE
2 — LIQUIDITY AND GOING CONCERN
As
of March 31, 2020, the Company had an accumulated deficit of $124.1 million and the Company incurred a net loss of $11.6 million
for the three months ended March 31, 2020. Net cash used in operating activities amounted to $13.5 million for the three months
ended March 31, 2020, of which approximately $13.1 million was attributable to income tax payments paid in March 2020 related
to the sale leaseback discussed in Note 5.
As
discussed in Note 6, the Company entered into the third amendment and waiver (the “Third Amendment”) to the EWB Credit
Facility in March 2020. The Third Amendment is expected to have a significant impact on the Company’s liquidity and capital
resources for the 12-month period ending March 31, 2021. The Third Amendment required the Company to deposit an initial amount
of $15.1 million in restricted cash balances with EWB that was funded in March 2020. In addition, for any future amounts borrowed
under the EWB Revolver, the Company is required to increase restricted cash deposits by the corresponding amount of the borrowings.
As
a result, the Company’s available cash and cash equivalents decreased from $60.8 million at December 31, 2019 to $27.5 million
at March 31, 2020.
As
discussed in Note 14, on April 14, 2020, the Company entered into a loan with EWB in an aggregate principal amount of approximately
$6.9 million under the Paycheck Protection Program (the “PPP Loan”) pursuant to the recently enacted U.S. Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”). This loan is unsecured, and the Company may apply to EWB
for forgiveness of the loan in accordance with the terms of the CARES Act. Also, as discussed in Note 14, during April 2020, the
Company sold an aggregate of approximately 5.3 million shares of Common Stock under the ATM Agreement for net proceeds of approximately
$7.4 million.
The
Company has begun a new product and marketing strategy to increase demand for the Company’s products. The Company is
also actively pursuing strategic alternatives relating to the U.S retail brands and the BWR division, which could
significantly improve its overall financial performance and reduce cash flow needs. As discussed in Note 14, the Company also
initiated a restructuring plan that is designed to achieve annualized selling, general and administrative cost reductions
between $5.0 million and $7.0 million.
Management
believes the existing cash resources, combined with proceeds of $6.9 million from the PPP Loan under the CARES Act, proceeds received
under the ATM Agreement subsequent to March 31, 2020, and significant cost-cutting efforts, will be sufficient to fund the Company’s
debt and lease obligations and working capital requirements through May 2021.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
3 — BUSINESS COMBINATIONS
BWR
Business Combination
The
Company completed a business combination with Brands Within Reach, LLC (“BWR”) in July 2019 that was accounted for
using the acquisition method of accounting under ASC 805, Business Combinations, and using the fair value concepts set
forth in ASC 820, Fair Value Measurement. As a result of the business combination with BWR, the Company acquired certain
key licensing and distribution rights in the United States for some of the world’s leading beverage brands. The purchase
consideration consisted of cash payments of $1.5 million and the issuance of 107,602 shares of Common Stock with an estimated
fair value of approximately $453,000.
For
the three months ended March 31, 2020, the accompanying condensed consolidated statements of operations include net revenue of
$2.1 million and a net loss of $2.3 million for the post-acquisition results of operations of BWR.
Unaudited
Pro Forma Disclosures
The
following table summarizes on an unaudited pro forma basis, the Company’s results of operations for the three months ended
March 31, 2019 giving effect to the BWR business combination as if it had occurred on January 1, 2019 (in thousands, except loss
per share amount):
Net revenue
|
|
$
|
62,764
|
|
Net loss
|
|
$
|
(1,685
|
)
|
Net loss per share- basic and diluted
|
|
$
|
(0.02
|
)
|
Weighted average number of shares of common stock outstanding- basic and diluted
|
|
|
75,334
|
|
The
pro forma financial results shown above reflect the historical operating results of the Company, including the unaudited pro forma
results of BWR as if this business combination and the related equity issuances had occurred at the beginning of the first full
calendar year preceding the acquisition date. The calculations of pro forma net revenue and pro forma net loss give effect to
the pre-acquisition operating results of BWR based on (i) the historical net revenue and net income (loss), and (ii) incremental
depreciation and amortization based on the fair value of property, equipment and identifiable intangible assets acquired and the
related estimated useful lives. The pro forma information presented above does not purport to represent what the actual results
of operations would have been for the periods indicated, nor does it purport to represent the Company’s future results of
operations.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Business
Combination Liabilities
On
December 21, 2018, the Company entered into a business combination with Morinda. The purchase consideration included the issuance
of 43,804 shares of Series D Preferred Stock (the “Preferred Stock”) providing for the potential payment of up to
$15.0 million (the “Milestone Dividend”) if the Adjusted EBITDA of Morinda was at least $20.0 million for the year
ended December 31, 2019. If the Adjusted EBITDA of Morinda was less than $20.0 million, the Milestone Dividend was reduced whereby
no Milestone Dividend was payable if actual Adjusted EBITDA was $17.0 million or lower. Adjusted EBITDA of Morinda for the year
ended December 31, 2019 was less than $17.0 million and, accordingly, no Milestone Dividend was payable to the holders of the
Preferred Stock. The Preferred Stock also provided for dividends at a rate of 1.5% per annum of the Milestone Dividend amount.
The Company may choose to pay the Milestone Dividend and /or the annual dividend in cash or in kind, provided that if the Company
chooses to pay in kind, the shares of Common Stock issued as payment therefore must be registered under the Securities Act of
1933, as amended (the “Securities Act”). The Preferred Stock terminated on April 15, 2020 and the cash dividend of
approximately $0.3 million was paid on May 7, 2020.
As
of March 31, 2020 and December 31, 2019, the following is a summary of purchase consideration payable to the former stockholders
of Morinda, and outstanding earnout obligations related to business combinations with Morinda in December 2018 and the Marley
Beverage Company (“Marley”) in June 2017 (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Payables to former Morinda stockholders:
|
|
|
|
|
|
|
|
|
Excess Working Capital (“EWC”) payable in
|
|
|
|
|
|
|
|
|
July 2020, net of discount
|
|
$
|
5,360
|
|
|
$
|
5,283
|
|
Earnout under Series D preferred stock
|
|
|
288
|
|
|
|
225
|
|
Marley earnout obligation
|
|
|
-
|
(1)
|
|
|
-
|
(1)
|
Total
|
|
$
|
5,648
|
|
|
$
|
5,508
|
|
|
(1)
|
The
Company was previously obligated to make a one-time earnout payment of $1.25 million
over a period of two years beginning at such time that revenue for the Marley reporting
unit was equal to or greater than $15.0 million during any trailing twelve calendar month
period. As of December 31, 2019, the Company determined that revenue for the Marley reporting
unit was not expected to exceed the $15.0 million earnout threshold and, accordingly,
there was no fair value related to this liability. The Company terminated its license
agreement with Marley as of March 31, 2020 to eliminate this obligation.
|
NOTE
4 — OTHER FINANCIAL INFORMATION
Inventories
Inventories
consisted of the following as of March 31, 2020 and December 31, 2019 (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
10,035
|
|
|
$
|
12,848
|
|
Work-in-process
|
|
|
1,665
|
|
|
|
872
|
|
Finished goods, net
|
|
|
21,957
|
|
|
|
22,998
|
|
Total inventories
|
|
$
|
33,657
|
|
|
$
|
36,718
|
|
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Other
Accrued Liabilities
As
of March 31, 2020 and December 31, 2019, other accrued liabilities consisted of the following (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Accrued commissions
|
|
$
|
8,754
|
|
|
$
|
8,914
|
|
Accrued compensation and benefits
|
|
|
5,999
|
|
|
|
5,868
|
|
Accrued marketing events
|
|
|
6,660
|
|
|
|
4,568
|
|
Deferred revenue
|
|
|
3,370
|
|
|
|
1,358
|
|
Income taxes payable
|
|
|
3,090
|
|
|
|
15,227
|
|
Current portion of operating lease liabilities
|
|
|
5,724
|
|
|
|
5,673
|
|
Other accrued liabilities
|
|
|
8,363
|
|
|
|
7,843
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
41,960
|
|
|
$
|
49,451
|
|
Depreciation
and Amortization Expense
Depreciation
expense related to property and equipment amounted to $1.0 million and $0.9 million for the three months ended March 31, 2020
and 2019, respectively. Amortization expense related to identifiable intangible assets was $0.9 million and $1.3 million for the
three months ended March 31, 2020 and 2019, respectively.
NOTE
5 — LEASES
Sale
Leaseback
On
March 22, 2019, the Company entered into an agreement with a major Japanese real estate company resulting in the sale for approximately
$57.1 million of the land and building in Tokyo that serves as the corporate headquarters of the Company’s Japanese subsidiary.
Concurrently with the sale, the Company entered into a lease of this property for a term of 27 years with the option to terminate
the lease any time after seven years. The monthly lease cost is ¥20.0 million (approximately $185,000 based on the exchange
rate as of March 31, 2020) for the initial seven-year period of the lease term. Presented below is a summary of the selling price
and resulting gain on sale calculation (in thousands):
Gross selling price
|
|
$
|
57,129
|
|
Less commissions and other expenses
|
|
|
(1,941
|
)
|
Less repair obligations
|
|
|
(1,675
|
)
|
Net selling price
|
|
|
53,513
|
|
Cost of land and building sold
|
|
|
(29,431
|
)
|
Total gain on sale
|
|
|
24,082
|
|
Portion of gain related to above-market rent concession
|
|
|
(17,640
|
)
|
|
|
|
|
|
Recognized gain on sale
|
|
$
|
6,442
|
|
The
Company determined that $17.6 million of the $24.1 million gain on the sale of this property was the result of above-market rent
inherent in the leaseback arrangement. The remainder of the gain of $6.4 million was attributable to the highly competitive process
among the entities that bid to purchase the property, and is included in gain from sale of property and equipment in the accompanying
condensed consolidated statement of operations for the three months ended March 31, 2019.
The
$17.6 million portion of the gain related to above-market rent is being accounted for as a deferred lease financing obligation.
Accordingly, the operating lease payments are allocated to (i) reduce the operating lease liability, (ii) reduce the principal
portion of the deferred lease financing obligation, and (iii) to recognize imputed interest expense at an incremental borrowing
rate of 3.5% on the deferred lease financing obligation over the 20-year lease term. The present value of the future lease payments
amounted to a gross operating lease liability of $31.9 million. After deducting the $17.6 million deferred lease financing obligations,
the Company recognized an initial ROU asset and operating lease liability of approximately $14.3 million.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Operating
Leases
The
Company leases various office and warehouse facilities, vehicles and equipment under non-cancellable operating lease agreements
that expire between April 2020 and March 2039. The Company has made accounting policy elections (i) to not apply the recognition
requirements for short-term leases and (ii) for facility leases, when there are lease and non-lease components, such as common
area maintenance charges, to account for the lease and non-lease components as a single lease component. For the three months
ended March 31, 2020 and 2019, the Company had operating lease expense of $2.5 million and $2.3 million, respectively. As of March
31, 2020 and December 31, 2019, the weighted average remaining lease term under operating leases was 12.3 and 12.5 years, respectively.
As of March 31, 2020 and December 31, 2019, the weighted average discount rate for ROU operating lease liabilities was 5.5% and
5.6%, respectively.
Future
Lease Payments
As
of March 31, 2020, future payments under operating lease agreements are as follows (in thousands):
Year Ending December 31,
|
|
|
|
|
|
|
|
Remainder of 2020
|
|
$
|
6,436
|
|
2021
|
|
|
7,266
|
|
2022
|
|
|
5,877
|
|
2023
|
|
|
5,389
|
|
2024
|
|
|
5,222
|
|
Thereafter
|
|
|
28,729
|
|
|
|
|
|
|
Total operating lease payments
|
|
|
58,919
|
|
Less imputed interest
|
|
|
(18,060
|
)(1)
|
|
|
|
|
|
Present value of operating lease payments
|
|
$
|
40,859
|
|
|
(1)
|
Calculated
based on the term of the respective leases using discount rates ranging from 2.0% to
10.0%.
|
NOTE
6 — DEBT
Summary
of Debt
As
of March 31, 2020 and December 31, 2019, debt consisted of the following (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
EWB Credit Facility:
|
|
|
|
|
|
|
|
|
Term loan, net of discount of $637 and $448 as of
|
|
|
|
|
|
|
|
|
March 31, 2020 and December 31, 2019, respectively
|
|
$
|
13,738
|
|
|
$
|
14,302
|
|
Revolver
|
|
|
-
|
|
|
|
9,700
|
|
Installment notes payable
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,745
|
|
|
|
24,010
|
|
Less current maturities
|
|
|
(1,504
|
)
|
|
|
(11,208
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
$
|
12,241
|
|
|
$
|
12,802
|
|
Future
Debt Maturities
As
of March 31, 2020, the scheduled future maturities of long-term debt, exclusive of discount accretion, are as follows:
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Year Ending December 31,
|
|
|
|
|
|
|
|
Remainder of 2020
|
|
$
|
1,129
|
|
2021
|
|
|
1,503
|
|
2022
|
|
|
1,500
|
|
2023
|
|
|
10,250
|
|
|
|
|
|
|
Total
|
|
$
|
14,382
|
|
EWB
Credit Facility
On
March 29, 2019, the Company entered into a Loan and Security Agreement (the “EWB Credit Facility”) with East West
Bank (“EWB”). The EWB Credit Facility matures on March 29, 2023 and provides for (i) a term loan in the aggregate
principal amount of $15.0 million, which may be increased to $25.0 million subject to the satisfaction of certain conditions (the
“EWB Term Loan”) and (ii) a $10.0 million revolving loan facility (the “EWB Revolver”). The
obligations of the Company under the EWB Credit Facility are secured by substantially all assets of the Company and guaranteed
by certain subsidiaries of the Company.
Borrowings
outstanding under the EWB Credit Facility initially provided for interest at the prime rate plus 0.50%. As of December 31, 2019,
the prime rate was 4.75% and the contractual rate applicable to outstanding borrowings under the EWB Credit Facility was 5.25%.
Pursuant to the Third Amendment discussed below, the interest rate applicable to outstanding borrowings under the EWB Credit Facility
increased from 0.5% to 2.0% in excess of the prime rate beginning on March 13, 2020. As of March 31, 2020, the prime rate was
3.25% and the contractual rate applicable to outstanding borrowings under the EWB Credit Facility was 5.25%. Payments under the
EWB Term Loan were interest-only through September 30, 2019, followed by monthly principal payments of $125,000 plus interest
through the stated maturity date of the EWB Term Loan.
The
EWB Credit Facility requires compliance with certain financial and restrictive covenants and includes customary events of default.
Key financial covenants include maintenance of minimum Adjusted EBITDA and a maximum Total Leverage Ratio (all as defined and
set forth in the EWB Credit Facility). As of December 31, 2019, the Company was not in compliance with the financial covenants
related to the EWB Credit Facility. On March 13, 2020, the Company entered into the Third Amendment to the EWB Credit Facility
(the “Third Amendment”) that included a waiver of non-compliance with all financial covenants. As of March 31, 2020,
the Company was in compliance with all of the terms under the EWB Credit Facility, as amended. In addition to the change in interest
rate discussed above, the Third Amendment modified the Credit Facility as follows:
●
|
The
Company was required to make an initial deposit of $15.1 million in restricted cash accounts designated by EWB. The future
requirement to maintain restricted cash will be reduced by the amount of future principal payments under the EWB Term Loan.
As of March 31, 2020, the Company had made deposits in the restricted cash accounts for the entire $15.1 million.
|
●
|
For
any future amounts borrowed under the EWB Revolver, the Company is required to increase restricted cash deposits by the corresponding
amount of the borrowings.
|
●
|
Less
stringent requirements are applicable for future compliance with the minimum adjusted EBITDA covenant, the maximum total leverage
ratio, and the fixed charge coverage ratio. Additionally, compliance with the maximum total leverage ratio and the fixed charge
coverage ratio have been delayed until June 30, 2021.
|
●
|
The
existing provision related to “equity cures” that may be employed to maintain compliance with financial covenants
was increased from $5.0 million to $15.0 million for the year ending December 31, 2020, and to $10.0 million per year for
each calendar year thereafter.
|
●
|
The
Company is required to obtain equity infusions for at least $15.0 million for the first six months of 2020, of which gross
proceeds of $8.5 million were received for the three months ended March 31, 2020 as discussed in Note 7, and gross
proceeds of $7.6 million were received after March 31, 2020 as discussed in Note 14. Additional equity infusions that result
in gross proceeds of $13.9 million must be received by December 31, 2020.
|
The
Company evaluated the terms of the Third Amendment and determined it should be accounted for as a modification, whereby additional
debt discount and issuance costs of approximately $0.2 million were incurred.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
7 — STOCKHOLDERS’ EQUITY
On
April 30, 2019, the Company entered into an At the Market Offering Agreement (“ATM Agreement”) with Roth Capital Partners,
LLC (the “Agent”), pursuant to which the Company may offer and sell from time to time up to an aggregate of $100 million
in shares of the Company’s Common Stock (the “Placement Shares”) through the Agent. The Agent is acting as sales
agent and is required to use commercially reasonable efforts to sell on the Company’s behalf all of the Placement Shares
requested to be sold by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between
the Agent and the Company.
The
Company has no obligation to sell any of the Placement Shares under the ATM Agreement. The Company intends to use the net proceeds
from the offering for general corporate purposes, including working capital. Under the terms of the ATM Agreement, the Company
agreed to pay the Agent a commission equal to 3.0% of the gross proceeds from the gross sales price of the Placement Shares up
to $30 million, and 2.5% of the gross proceeds from the gross sales price of the Placement Shares in excess of $30 million. In
addition, the Company has agreed to pay certain expenses incurred by the Agent in connection with the offering. Through March
31, 2020, an aggregate of approximately 10.9 million shares of Common Stock were sold for gross proceeds of approximately $29.3
million. For the three months ended March 31, 2020, an aggregate of 4.9 million shares were sold for gross proceeds of $8.5 million.
Total commissions and fees were deducted for $0.2 million for the three months ended March 31, 2020. As discussed in Note 14,
on May 8, 2020, the ATM Agreement was amended and restated to eliminate the termination date of April 30, 2020. As amended and
restated, the ATM Agreement will terminate when all of the Placement Shares have been sold, or earlier by the Company upon five
business days’ notice to the Agent, at any time by the Agent, or by the mutual agreement of the parties.
NOTE
8 — STOCK OPTIONS AND WARRANTS
Stock
Option Activity
The
following table sets forth stock option activity under the Company’s stock option plans for the three months ended March
31, 2020 (shares in thousands):
|
|
Shares
|
|
|
Price
(1)
|
|
|
Term
(2)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
|
|
3,551
|
|
|
$
|
2.65
|
|
|
|
8.7
|
|
Grants to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees
|
|
|
417
|
|
|
|
1.79
|
|
|
|
|
|
Non-employees
|
|
|
10
|
|
|
|
1.77
|
|
|
|
|
|
Forfeited
|
|
|
(93
|
)
|
|
|
3.79
|
|
|
|
|
|
Exercised
|
|
|
(2
|
)
|
|
|
1.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period
|
|
|
3,883
|
(3)
|
|
|
2.53
|
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested, end of period
|
|
|
1,415
|
(3)
|
|
|
2.45
|
|
|
|
7.3
|
|
|
(1)
|
Represents
the weighted average exercise price.
|
|
(2)
|
Represents
the weighted average remaining contractual term until the stock options expire.
|
|
(3)
|
As
of March 31, 2020, the closing price of the Company’s Common Stock was $1.39 per
share resulting in no intrinsic value associated with any outstanding stock options.
|
For
the three months ended March 31, 2020, the valuation assumptions for stock options granted to employees and non-employees under
the Company’s equity incentive plans were estimated on the date of grant using the BSM option-pricing model with
the following weighted-average assumptions:
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Grant date closing price of Common Stock
|
|
$
|
1.79
|
|
Expected life (in years)
|
|
|
5.8
|
|
Volatility
|
|
|
104
|
%
|
Dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
1.2
|
%
|
Based
on the assumptions set forth above, the weighted-average grant date fair value per share for stock options granted for the three
months ended March 31, 2020 and 2019 was $1.43 and $4.24, respectively. The BSM model requires various subjective assumptions
that represent management’s best estimates of the fair value of the Company’s Common Stock, volatility, risk-free
interest rates, expected term, and dividend yield. The expected term represents the weighted-average period that options granted
are expected to be outstanding giving consideration to vesting schedules. Because the Company does not have an extended history
of actual exercises, the Company has estimated the expected term using a simplified method which calculates the expected term
as the average of the time-to-vesting and the contractual life of the awards. The Company has never declared or paid cash dividends
and does not plan to pay cash dividends in the foreseeable future; therefore, the Company used an expected dividend yield of zero.
The risk-free interest rate is based on U.S. Treasury rates in effect for maturities based on the expected term of the grant.
The expected volatility is based on the historical volatility of the Company’s Common Stock for the period beginning in
August 2016 when its shares were first publicly traded through the grant date of the respective stock options.
Restricted
Stock Activity
The
following table sets forth activity related to grants of restricted stock under the Company’s stock option plans for the
three months ended March 31, 2020 (in thousands):
|
|
Equity-Classified Awards
|
|
|
Liability-Classified Awards (1)
|
|
|
|
Number of
|
|
|
Unvested
|
|
|
Number of
|
|
|
Unvested
|
|
|
|
Shares
|
|
|
Compensation
|
|
|
Shares
|
|
|
Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
2,123
|
|
|
$
|
4,605
|
|
|
|
37
|
|
|
$
|
67
|
|
Shares issued to Board members
|
|
|
339
|
(2)
|
|
|
600
|
(2)
|
|
|
-
|
|
|
|
-
|
|
Unvested awards granted to employees with service vesting criteria
|
|
|
206
|
(3)
|
|
|
365
|
(3)
|
|
|
-
|
|
|
|
-
|
|
Forfeitures
|
|
|
(2
|
)
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
Fair value adjustments and other
|
|
|
-
|
|
|
|
(75
|
)
|
|
|
(1
|
)
|
|
|
(17
|
)(1)
|
Vested shares and expense
|
|
|
(203
|
)(4)
|
|
|
(726
|
)(4)
|
|
|
-
|
(4)
|
|
|
(6
|
)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
2,463
|
|
|
$
|
4,760
|
|
|
|
36
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value, March 31, 2020
|
|
$
|
3,424
|
(5)
|
|
|
|
|
|
$
|
51
|
(5)
|
|
|
|
|
|
(1)
|
Certain
awards granted to employees in China are not permitted to be settled in shares, which requires classification as a liability
in the Company’s condensed consolidated balance sheets. This liability is adjusted based on the closing price of the
Company’s Common Stock at the end of each reporting period until these awards vest. As of March 31, 2020 and December
31, 2019, the cumulative amount of compensation expense recognized is based on the progress toward vesting and the total fair
value of the respective awards on those dates.
|
|
(2)
|
Represents
grants to members of the Board of Directors whereby the shares of Common Stock will be issued upon vesting, which occurs one
year after the grant date. The fair value of the shares was recorded based on the closing price for the Company’s Common
Stock of $1.77 per share on the grant date.
|
|
(3)
|
Represents
restricted stock awards that generally vest over three years with fair value determined based on the closing price of the
Company’s Common Stock on the respective grant dates.
|
|
(4)
|
The
“Number of Shares” column reflects shares that vested due to achievement of service conditions during the three
months ended March 31, 2020. The “Unvested Compensation” column reflects the stock-based compensation expense
recognized for both vested and unvested awards during the period.
|
|
(5)
|
The
intrinsic value is based on the closing price of the Company’s Common Stock of $1.39 per share on March 31, 2020.
|
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Stock-Based
Compensation Expense
Substantially
all stock-based compensation expense is included in general and administrative expenses in the accompanying condensed consolidated
statements of operations. The table below summarizes stock-based compensation expense related to stock options and restricted
stock awards for the three months ended March 31, 2020 and 2019, and the unrecognized compensation expense as of March 31, 2020
and 2019 (in thousands):
|
|
Expense Recognized For
|
|
|
Unrecognized Expense
|
|
|
|
Three Months Ended March 31,
|
|
|
as of March 31:
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan-based stock options awards
|
|
$
|
625
|
|
|
$
|
1,315
|
|
|
$
|
4,515
|
|
|
$
|
4,309
|
|
Plan-based restricted stock awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-classified
|
|
|
726
|
|
|
|
1,353
|
|
|
|
4,760
|
|
|
|
3,213
|
|
Liability-classified
|
|
|
6
|
|
|
|
565
|
|
|
|
44
|
|
|
|
1,920
|
|
Non-plan equity-classified restricted stock awards
|
|
|
-
|
|
|
|
54
|
|
|
|
-
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,357
|
|
|
$
|
3,287
|
|
|
$
|
9,319
|
|
|
$
|
9,452
|
|
As
of March 31, 2020, unrecognized stock-based compensation expense is expected to be recognized on a straight-line basis over a
weighted-average period of approximately 2.2 years for stock options, 2.0 years for equity-classified restricted stock awards,
and 1.8 years for liability-classified restricted stock awards.
Warrants
As
of March 31, 2020 and 2019, the Company had warrants outstanding for 0.3 million and 0.1 million shares of Common Stock, respectively.
For the three months ended March 31, 2020 and 2019, no warrants were granted, exercised or expired.
NOTE
9 — INCOME TAXES
The
Company’s provision for income taxes for the three months ended March 31, 2020 and 2019 resulted in income tax expense of
$0.7 million and an income tax benefit of $1.7 million, respectively. The effective tax rate as a percentage of pre-tax losses
for the three months ended March 31, 2020 and 2019 was negative 7% and 51%, respectively, compared to the U.S. federal statutory
rate of 21%. The negative effective tax rate for the three months ended March 31, 2020 was primarily due to foreign income tax
expense on profitable foreign operations and the impact of the domestic valuation allowance offsetting domestic income tax benefits.
The difference between the effective tax rate for the first quarter of 2019 and the U.S. federal statutory rate was primarily
attributable to losses of foreign subsidiaries.
Interim
income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for
discrete tax items in the period in which they occur. Although the Company believes its tax estimates are reasonable, the Company
can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its
historical income tax provisions and accruals. Such differences could have a material impact on the Company’s income tax
provision and operating results in the period in which the Company makes such determination.
The
total outstanding balance for liabilities related to unrecognized tax benefits was $1.5 million as of March 31, 2020 and December
31, 2019. The Company does not anticipate that unrecognized tax benefits will significantly increase or decrease within the next
twelve months.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
10 —CONTINGENCIES
Litigation,
Claims and Assessments
The
Company’s operations are subject to numerous governmental rules and regulations in each of the countries it does business.
These rules and regulations include a complex array of tax and customs regulations as well as restrictions on product ingredients
and claims, the commissions paid to the Company’s independent product consultants (“IPCs”), labeling and packaging
of products, conducting business as a direct-selling business, and other facets of manufacturing and selling products. In some
instances, the rules and regulations may not be fully defined under the law or are otherwise unclear in their application. Additionally,
laws and regulations can change from time to time, as can their interpretation by the courts, administrative bodies, and the tax
and customs authorities in each country. The Company actively seeks to be in compliance, in all material respects, with the laws
of each of the countries in which it does business and expects its IPCs to do the same. The Company’s operations are often
subject to review by local country tax and customs authorities and inquiries from other governmental agencies. No assurance can
be given that the Company’s compliance with governmental rules and regulations will not be challenged by the authorities
or that such challenges will not result in assessments or required changes in the Company’s business that could have a material
impact on its business, consolidated financial statements and cash flow.
The
Company has various non-income tax contingencies in several countries. Such exposure could be material depending upon the ultimate
resolution of each situation. As of March 31, 2020 and December 31, 2019, the Company has recorded a current liability under ASC
450, Contingencies, of approximately $1.9 million and $0.9 million, respectively.
From
time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business. Although
the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome
of these ordinary course matters will not have a material adverse effect on its business. Regardless of the outcome, litigation
can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other
factors.
COVID-19
Pandemic
In
December 2019, a novel strain of coronavirus known as COVID-19 was reported to have surfaced in China, and by March 2020 the spread
of the virus had resulted in a world-wide pandemic. The U.S. economy has been largely shut down by mass quarantines and government
mandated stay-in-place orders (the “Orders”) to halt the spread of the virus. These Orders have required some of the
Company’s employees to work from home when possible, and other employees have been entirely prevented from performing their
job duties until the Orders are relaxed or lifted. These Orders have adversely impacted restaurants, hotels, stadiums
and airports in the United States, whereby that line of the Company’s distribution business has been negatively impacted
since March 2020. The world-wide response to the pandemic has resulted in a significant downturn in economic activity and there
is no assurance that government stimulus programs will successfully restore the economy to the levels that existed before the
pandemic. If an economic recession or depression is sustained, it could have a material adverse effect on the Company’s
business as consumer demand for its products could decrease.
In
foreign jurisdictions, which accounted for approximately 70% of the Company’s net revenue for the three months ended
March 31, 2020, the impact of the pandemic did not have a significant impact on net revenue through March 31, 2020. While the
Company’s direct-to-consumer selling model typically relies heavily on the use of its IPC sales force in close contact with
customers, the pandemic has required alternative selling approaches such as through social media. As long as Orders are in place
around the world, no assurance can be provided that the Company will be able to avoid future reductions in net revenue using alternative
selling approaches that avoid direct contact with customers.
In
certain jurisdictions, the Orders are beginning to be relaxed but considerable uncertainty remains about the ultimate impact on
the Company’s business. Even if the Orders are lifted, there is no assurance that they will not be reinstated if the spread
of COVID-19 resumes. While the current disruption to the Company’s business is expected to be temporary, the long-term financial
impact on the Company’s business cannot be reasonably estimated at this time.
NOTE
11 —NET LOSS PER SHARE
Net
loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the
period. The calculation of diluted net loss per share includes dilutive stock options, unvested restricted stock awards,
and other Common Stock equivalents computed using the treasury stock method, in order to compute the weighted average number of
shares outstanding. For the three months ended March 31, 2020 and 2019, basic and diluted net loss per share were the same since
all Common Stock equivalents were anti-dilutive. As of March 31, 2020 and 2019, the following potential Common Stock equivalents
were excluded from the computation of diluted net loss per share since the impact of inclusion was anti-dilutive (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Equity incentive plan awards:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
3,883
|
|
|
|
2,759
|
|
Unissued and unvested restricted stock awards
|
|
|
2,499
|
|
|
|
1,227
|
|
Common stock purchase warrants
|
|
|
311
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,693
|
|
|
|
4,089
|
|
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
NOTE
12 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
Fair
Value Measurements
Fair
value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction
between market participants on the measurement date. When determining fair value, the Company considers the principal or most
advantageous market in which it transacts and considers assumptions that market participants would use when pricing the asset
or liability. The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value
into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant
to the fair measurement:
Level
1—Quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement
date
Level
2—Other than quoted prices included in Level 1 that are observable for the asset and liability, either directly or indirectly
through market collaboration, for substantially the full term of the asset or liability
Level
3—Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is little, if any market activity for the asset or liability at measurement
date
As
of March 31, 2020 and December 31, 2019, the fair value of the Company’s cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, and accrued liabilities approximated their carrying values due to the short-term nature of these
instruments. Cash equivalents consist of short-term certificates of deposit that are classified as Level 2. The recorded amounts
for the debt obligations in Notes 3 and 7 also approximated fair value due to the short-term maturities, variable nature of the
interest rates and/or since the instruments had been recently negotiated.
Recurring
Fair Value Measurements
Recurring
measurements of the fair value of assets and liabilities as of March 31, 2020 and December 31, 2019 were as follows:
|
|
As of March 31, 2020
|
|
|
As of December 31, 2019
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnout under Series D preferred stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
288
|
|
|
$
|
288
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
225
|
|
|
$
|
225
|
|
Interest rate swap liability
|
|
|
-
|
|
|
|
425
|
|
|
|
-
|
|
|
|
425
|
|
|
|
-
|
|
|
|
99
|
|
|
|
-
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
425
|
|
|
$
|
288
|
|
|
$
|
713
|
|
|
$
|
-
|
|
|
$
|
99
|
|
|
$
|
225
|
|
|
$
|
324
|
|
Valuation
assumptions for the earnout under the Series D preferred stock are set forth in Note 3. The interest rate swap agreement provides
for a total notional amount of $10.0 million at a fixed interest rate of approximately 5.4% through May 1, 2023, in exchange for
a floating rate indexed to the prime rate plus 0.50%, and is classified within Level 2 of the fair value hierarchy. The Company’s
policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or
change in circumstances that caused the transfer. During the three months ended March 31, 2020 and 2019, the Company had no transfers
of its assets or liabilities between levels of the fair value hierarchy.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Significant
Concentrations
A
significant portion of the Noni by NewAge business is conducted in foreign markets, exposing the Company to the risks of trade
or foreign exchange restrictions, increased tariffs, foreign currency fluctuations and similar risks associated with foreign operations.
For the three months ended March 31, 2020 and 2019, approximately 70% and 72%, respectively, of the Company’s
consolidated net revenue was generated outside the United States, primarily in the Asia Pacific market. Most of the Noni by NewAge’s
products have a component of the Noni plant, Morinda Citrifolia (“Noni”) as a common element. Tahitian Noni®
Juice, MAX and other noni-based beverage products comprise over 80% of net revenue of the Noni by NewAge segment. However,
if consumer demand for these products decreases significantly or if the Company ceases to offer these products without a suitable
replacement, the Company’s consolidated financial condition and operating results would be adversely affected. The Company
purchases fruit and other Noni-based raw materials from French Polynesia, but these purchases of materials are from a wide variety
of individual suppliers with no single supplier accounting for more than 10% of its raw material purchases during the three months
ended March 31, 2020. However, as the majority of the raw materials are consolidated and processed at the Company’s plant
in Tahiti, the Company could be negatively affected by certain governmental actions or natural disasters if they occurred in that
region of the world. For the three months ended March 31, 2020 and 2019, no single customer accounted for 10% or more of the Company’s
consolidated net revenue.
Financial
instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted
cash, and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash at high-quality financial
institutions. Cash deposits, including those held in foreign branches of global banks, may exceed the amount of insurance provided
on such deposits. As of March 31, 2020, the Company had cash and cash equivalents with two financial institutions in the United
States with balances of $13.4 million and $1.4 million, and two financial institutions in China with balances of $8.3 million
and $8.0 million. As of December 31, 2019, the Company had cash and cash equivalents with two financial institutions in the United
States with balances of $22.2 million and $1.4 million, and two financial institutions in China with balances of $6.6 million
and $3.6 million. The Company has never experienced any losses related to its investments in cash, cash equivalents and restricted
cash.
Generally,
credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer
base and their dispersion across different geographies and industries. The Company performs ongoing credit evaluations on certain
customers and generally does not require collateral on accounts receivable. The Company maintains reserves for potential bad debts.
NOTE
13 — SEGMENTS AND GEOGRAPHIC CONCENTRATIONS
Reportable
Segments
The
Company follows segment reporting in accordance with ASC Topic 280, Segment Reporting. The Company’s operating segments
consist of the Noni by NewAge segment and the NewAge segment.
The
Noni by NewAge segment is engaged in the development, manufacturing, and marketing of Tahitian Noni® Juice, MAX and other
noni beverages as well as other nutritional, cosmetic and personal care products. The Noni by NewAge segment has manufacturing
operations in Tahiti, Germany, Japan, the United States, and China. The Noni by NewAge segment’s products are sold and distributed
in more than 60 countries using IPC’s through its direct to consumer selling network and ecommerce business model. Approximately
80% of the net revenue of the Noni by NewAge segment is generated in the key Asia Pacific markets of Japan, China, Korea, Taiwan,
and Indonesia.
The
NewAge segment markets and sells a portfolio of healthy beverage brands including XingTea, Búcha® Live Kombucha, Coco-Libre,
Evian, Nestea, Illy Coffee and Volvic. These products are distributed through the Company’s Direct Store Distribution (“DSD”)
network and a hybrid of other routes to market throughout the United States and in a few countries around the world. The NewAge
brands are sold in all channels of distribution including hypermarkets, supermarkets, pharmacies, convenience, gas and other outlets.
The NewAge segment distributes beverages to retail customers in Colorado and surrounding states, and sells beverages to wholesale
distributors, key account owned warehouses and international accounts using several distribution channels.
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
Net
revenue by reporting segment for the three months ended March 31, 2020 and 2019, was as follows (in thousands):
Segment
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Noni by NewAge
|
|
$
|
50,110
|
|
|
$
|
48,222
|
|
NewAge
|
|
|
13,583
|
|
|
|
10,085
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
63,693
|
|
|
$
|
58,307
|
|
Gross
profit by reporting segment for the three months ended March 31, 2020 and 2019, was as follows (in thousands):
Segment
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Noni by NewAge
|
|
$
|
39,606
|
|
|
$
|
37,705
|
|
NewAge
|
|
|
1,918
|
|
|
|
871
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
41,524
|
|
|
$
|
38,576
|
|
Assets
by reporting segment as of March 31, 2020 and December 31, 2019, were as follows (in thousands):
Segment
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Noni by NewAge
|
|
$
|
186,610
|
|
|
$
|
201,600
|
|
NewAge
|
|
|
42,618
|
|
|
|
49,530
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
229,228
|
|
|
$
|
251,130
|
|
Depreciation
and amortization expense by reporting segment for the three months ended March 31, 2020 and 2019, was as follows (in thousands):
Segment
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Noni by NewAge
|
|
$
|
1,719
|
|
|
$
|
1,695
|
|
NewAge
|
|
|
160
|
|
|
|
541
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
1,879
|
|
|
$
|
2,236
|
|
Cash
payments for capital expenditures for property and equipment and identifiable intangible assets by reporting segment for the three
months ended March 31, 2020 and 2019, were as follows (in thousands):
Segment
|
|
2020
|
|
|
2019
|
|
|
Noni by NewAge
|
|
$
|
1,467
|
|
|
$
|
116
|
|
NewAge
|
|
|
124
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
1,591
|
|
|
$
|
411
|
|
Geographic
Concentrations
The
Company attributes net revenue to geographic regions based on the location of its customers’ contracting entity. The following
table presents net revenue by geographic region for the three months ended March 31, 2020 and 2019 (in thousands):
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
United States of America
|
|
$
|
19,385
|
|
|
$
|
16,455
|
|
Japan
|
|
|
20,867
|
|
|
|
20,700
|
|
China
|
|
|
14,975
|
|
|
|
13,155
|
|
Other countries
|
|
|
8,466
|
|
|
|
7,997
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
63,693
|
|
|
$
|
58,307
|
|
NEW
AGE BEVERAGES CORPORATION
Notes
to Unaudited Condensed Consolidated Financial Statements
As
of March 31, 2020 and December 31, 2019, the net carrying value of property and equipment located outside of the United States
amounted to approximately $22.6 million and $22.1 million, respectively.
NOTE
14 — SUBSEQUENT EVENTS
ATM
Agreement
On
May 8, 2020, the ATM Agreement discussed in Note 7 was amended and restated to eliminate the previous termination date of April
30, 2020. As amended and restated, the ATM Agreement will terminate (i) when all of the Placement Shares have been sold, (ii)
if we elect to terminate upon five business days’ notice to the Agent, (iii) at any time by the Agent, or (iv) by the mutual
agreement of the parties. During April 2020 the Company sold an aggregate of approximately 5.3 million shares of Common Stock
under the ATM Agreement for net proceeds of approximately $7.4 million.
PPP
Loan
On
April 14, 2020, the Company entered into the PPP Loan with EWB in an aggregate principal amount of approximately $6.9 million
pursuant to the CARES Act. The PPP Loan bears interest at a fixed rate of 1.0% per annum, with the first six months of interest
deferred, has a term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration. The Company may
apply to the lender for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs,
covered rent and mortgage obligations, and covered utility payments incurred by the Company during the eight-week period beginning
on April 10, 2020, calculated in accordance with the terms of the CARES Act. To the extent that all or part of the PPP Loan is
not forgiven, the Company will be required to pay interest at 1.0%, and commencing in October 2020 principal and interest payments
will be required through the maturity date in April 2022.The terms of the PPP Loan provide for customary events of default including,
among other things, payment defaults, breach of representations and warranties, and insolvency events. The PPP Loan may be accelerated
upon the occurrence of an event of default.
Employment
Agreements
On
May 8, 2020, the Company entered into employment agreements with three executive officers that provide for aggregate annual base
compensation of $1.7 million plus potential for annual performance bonuses ranging between 50% and 100% of annual base
compensation. The agreements expire on January 1, 2023 and provide for annual renewal periods thereafter. If the employment agreements
are terminated by the Company before the expiration date, the Company will be required to make severance payments of between 9
and 18 months of base compensation and health insurance benefits, plus the entire performance bonus that would have been otherwise
payable for the year in which termination occurs. If termination occurs in connection with a change of control, the Company is
required to make (i) severance payments of between 150% and 200% of annual base compensation plus the performance bonus applicable
in the year in which termination occurs, and (ii) payments for up to 18 months of health insurance benefits.
Restructuring
In
April 2020, the Company initiated a restructuring plan that is designed to achieve annualized selling, general and administrative
cost reductions between $5.0 million and $7.0 million. This restructuring plan is primarily focused on reductions in marketing
personnel and consulting resources. No assurance can be provided that the restructuring plan will be successful in achieving the
intended cost reductions.