The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of the unaudited
condensed consolidated financial statements.
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
General
Tattooed Chef, Inc. was originally incorporated
in Delaware on May 4, 2018 under the name of Forum Merger II Corporation (“Forum”), as a special purpose acquisition company
(“SPAC”) for the purpose of effecting a merger, capital stock exchange, asset acquisitions, stock purchase, reorganization
or similar business combination with one or more business.
On October 15, 2020 (the “Closing Date”),
Forum consummated the transactions contemplated within the Agreement and Plan of Merger dated June 11, 2020 as amended on August 10, 2020
(the “Merger Agreement”), by and among Forum, Myjojo, Inc., a Delaware corporation (“Myjojo (Delaware)”), Sprout
Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Forum (“Merger Sub”), and Salvatore Galletti, in
his capacity as the holder representative (the “Holder Representative”). The transactions contemplated by the Merger Agreement
are referred to herein as the “Transaction”.
Upon the consummation of the Transaction, Merger
Sub merged with and into Myjojo (Delaware) (the “Merger”), with Myjojo (Delaware) surviving the merger. Immediately upon the
completion of the Transaction, Myjojo (Delaware) became a direct wholly owned subsidiary of Forum. Following the Closing Date, Forum changed
its name to Tattooed Chef, Inc. (“Tattooed Chef”). Tattooed Chef’s common stock began trading on the Nasdaq under the
symbol “TTCF” on October 16, 2020.
Tattooed Chef, Inc. and its subsidiaries, (collectively,
the “Company”) are principally engaged in the manufacturing of plant-based foods including, but not limited to, acai and smoothie
bowls, zucchini spirals, riced cauliflower, vegetable bowls and cauliflower crust pizza primarily in the United States and Italy.
About the Subsidiaries
Myjojo, Inc. was an S corporation formed under
the laws of California (“Myjojo (California)”) on February 26, 2019 to facilitate a corporate reorganization of Ittella International
Inc. On March 27, 2019, Salvatore Galletti, the sole stockholder of Ittella International, Inc. contributed all of his share ownership
of Ittella International, Inc. to Myjojo (California) in exchange for 100% interest in the latter, becoming Myjojo (California)’s
sole stockholder.
On May 21, 2020, Myjojo (Delaware) was formed
with Salvatore Galletti owning all of the shares of common stock. On May 27, 2020, Myjojo, Inc. (California) merged into Myjojo, Inc.,
(Delaware) with Myjojo, Inc. (Delaware) issuing shares of common stock to Salvatore Galletti, the sole stockholder of Myjojo (California).
Ittella International, Inc. was formed in California
as a tax pass-through entity and subsequently converted on April 10, 2019 to a limited liability company, Ittella International, LLC (“Ittella
International”). On April 15, 2019, UMB Capital Corporation (“UMB”), a financial institution, acquired a 12.50% non-controlling
interest in Ittella International (Note 3).
Ittella’s Chef, Inc. was incorporated under
the laws of the State of California on July 20, 2017 as a qualified Subchapter S subsidiary and a wholly owned subsidiary of Ittella International.
Ittella’s Chef, Inc. was formed as a tax passthrough entity for purposes of holding Ittella International’s 70% ownership
interest in Ittella Italy, S.R.L. (“Ittella Italy”). On March 15, 2019, Ittella’s Chef, Inc. was converted to a limited
liability company, Ittella’s Chef, LLC (“Ittella’s Chef”).
In connection with the Transaction and as a condition
to the Closing, Myjojo (Delaware) entered into a Contribution Agreement with the minority members of Ittella International and the minority
shareholders of Ittella Italy. Under the Contribution Agreement, the minority holders contributed all of their equity interests in Ittella
International to Myjojo (Delaware) and Ittella Italy to Ittella’s Chef in exchange for Myjojo (Delaware) stock (the “Restructuring”).
The Restructuring was consummated prior to the Transaction. The shares of Myjojo (Delaware) were exchanged for shares of Forum’s
common stock upon consummation of the Transaction.
On May 14, 2021, Tattooed Chef acquired New Mexico
Food Distributors, Inc. (“NMFD”) and Karsten Tortilla Factory, LLC (“Karsten”) in an all-cash transaction for
approximately $34.09 million (collectively, the “NMFD Transaction”). NMFD and Karsten were privately held companies based
in Albuquerque, New Mexico. NMFD produces and sells frozen and ready-to-eat New Mexican food products to retail and food service customers
through its network of distributors in the United States. NMFD processes its products in two leased facilities located in New Mexico.
See Note 10 Business combination and asset purchases.
Basis of Consolidation. The condensed consolidated
financial statements include the accounts of Tattooed Chef and its subsidiaries in which Tattooed Chef has a controlling interest directly
or indirectly, and variable interest entities for which the Company is the primary beneficiary. All intercompany accounts and transactions
have been eliminated in consolidation.
Basis of Presentation. The accompanying
unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q
and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures
normally included in financial statements prepared in accordance with GAAP have been condensed, consolidated or omitted, pursuant to the
rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary
for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary
for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31,
2020 as filed with the SEC on March 19, 2021, which contains the audited financial statements and notes thereto. The financial information
as of December 31, 2020 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2020. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative
of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
The Transaction was accounted for as a reverse
recapitalization in accordance with GAAP (the “Reverse Recapitalization”). Under this method, Forum was treated as the “acquired”
company (“Accounting Acquiree”) and Myjojo (Delaware), the accounting acquirer, was assumed to have issued stock for the net
assets of Forum, accompanied by a recapitalization.
The net assets of Forum were stated at historical
cost, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the
reverse recapitalization were those of Myjojo (Delaware). The shares and corresponding capital amounts and earnings per share available
for common stockholders, prior to the reverse recapitalization, have been retroactively restated.
Revision of Previously Issued Financial Statements for Correction
of Immaterial Errors.
The Company identified errors in its previously
issued annual financial statements that were determined to be individually, and in the aggregate, quantitatively and qualitatively immaterial
based on its analysis of Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. These immaterial
errors have been corrected in the accompanying consolidated balance sheet as of December 31, 2020, and the consolidated statements
of operations and comprehensive income, stockholders’ equity for the three and six months ended June 30, 2020 and cash
flows for the six months ended June 30, 2020. The nature of these error corrections is as follows:
| |
● |
In further consideration of the guidance in Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, the Company concluded that a provision in the warrant agreement related to certain settlement methods specific to the Private Placement Warrants precludes the Private Placement Warrants from being accounted for as components of equity. As the Private Placement Warrants meet the definition of a derivative as contemplated in ASC 815, the Private Placement Warrants should have been recorded as derivative liabilities on the consolidated balance sheet and measured at fair value upon recognition on the Closing Date and at each reporting date in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in the consolidated statement of operations and comprehensive income in the period of change. Therefore, the Company concluded that it is appropriate to revise the classification of the Private Placement Warrants as of and for the year ended December 31, 2020. |
| | ● | The Company revised the accompanying consolidated balance sheet and statement of stockholders’ equity as of December 31, 2020 to reflect the correction of an immaterial error related to the presentation of 81,087 treasury shares. The treasury shares are now presented separately from common stock shares. This revision has an immaterial impact on the Company’s previously reported net income, earnings per share, or stockholders’ equity. |
| | ● | The Company revised the accompanying consolidated statements of equity and operations and comprehensive income for the year ended December 31, 2020 to reflect the correction of an immaterial error related to the grant of 825,000 stock awards to Harrison Co. (“Harrison”) on October 15, 2020 as consideration for advisory services provided by Harrison to facilitate the successful completion of the Transaction (see Note 18). The stock awards were fully vested on grant date, and therefore a weighted average 174,041 shares should have been included in basic and diluted outstanding shares when calculating earnings per share for the year ended December 31, 2020. In addition, the fair value of the stock awards issued in the amount of $20.54 million should have been included as a reduction to the “Reverse Recapitalization” line item and an increase by the same amount to the “Transaction costs, net of tax” line item. Both items are included within the Company’s additional paid-in capital for the year ended December 31, 2020. The Company also identified a $4.0 million deferred tax asset (with the corresponding offset to additional paid-in capital) that should have been recorded in connection with this grant. The revision has no impact on the Company’s previously reported net income but reduced the earnings per share for the year ended December 31, 2020. The impact of the tax consequences associated with the grant have been reflected in the balance sheet and statement of stockholders’ equity. |
| | | |
| | ● | The Company revised the accompanying condensed consolidated statements of operations and comprehensive income for the period ended September 30, 2020 to reflect the correction of an immaterial error for amounts previously not reflected in the comprehensive income attributable to noncontrolling interest. This revision has no impact on the Company’s net income, retained earnings, or earnings per share. |
| | | |
| | ● | The Company identified errors related to inventoriable costs and the classification of certain expense accounts that primarily impacted revenue, cost of goods sold and operating expenses. |
| | ● | The Company identified a classification error between accounts receivable and deferred revenue, which affected the balance sheet as of December 31, 2020. |
The following table summarizes the effect of the revision on each financial
statement line item as of the dates, and for the periods ended, indicated:
| (In thousands) | |
Consolidated Balance Sheet | |
| As of December 31, 2020 | |
As Originally
Reported | | |
Revisions | | |
Re-
classification | | |
As Revised | |
| Accounts receivable | |
$ | 17,991 | | |
$ | (1,710 | ) | |
$ | - | | |
$ | 16,281 | |
| Inventory | |
| 38,660 | | |
| (658 | ) | |
| - | | |
| 38,002 | |
| Prepaid expenses and other current assets | |
| 18,240 | | |
| 176 | | |
| - | | |
| 18,416 | |
| TOTAL CURRENT ASSETS | |
| 206,470 | | |
| (2,192 | ) | |
| - | | |
| 204,278 | |
| Deferred income taxes, net | |
| 43,525 | | |
| 4,024 | | |
| - | | |
| 47,549 | |
| TOTAL ASSETS | |
| 266,683 | | |
| 1,832 | | |
| - | | |
| 268,515 | |
| Accounts payable | |
| 25,391 | | |
| - | | |
| (1,316 | ) | |
| 24,075 | |
| Accrued expenses | |
| 2,961 | | |
| 649 | | |
| - | | |
| 3,610 | |
| Deferred revenue | |
| 1,711 | | |
| (1,711 | ) | |
| - | | |
| - | |
| Other current liabilities | |
| 87 | | |
| - | | |
| 1,316 | | |
| 1,403 | |
| TOTAL CURRENT LIABILITIES | |
| 30,349 | | |
| (1,062 | ) | |
| - | | |
| 29,287 | |
| Warrant liabilities | |
| - | | |
| 5,184 | | |
| - | | |
| 5,184 | |
| TOTAL LIABILITIES | |
| 32,339 | | |
| 4,122 | | |
| - | | |
| 36,461 | |
| Additional paid-in capital | |
| 170,799 | | |
| (2,351 | ) | |
| - | | |
| 168,448 | |
| Retained earnings | |
| 63,537 | | |
| 61 | | |
| - | | |
| 63,598 | |
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | |
| 234,344 | | |
| (2,290 | ) | |
| - | | |
| 232,054 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| 266,683 | | |
| 1,832 | | |
| - | | |
| 268,515 | |
| | |
Condensed Consolidated Statements of | |
| (In thousands, except EPS) | |
Operations and Comprehensive Income | |
| | |
As Originally | | |
| | |
| |
| For the three months ended September 30, 2020 | |
Reported | | |
Revisions | | |
As Revised | |
| Revenue | |
$ | 40,962 | | |
$ | 2 | | |
$ | 40,964 | |
| Cost of goods sold | |
| 37,180 | | |
| (447 | ) | |
| 36,733 | |
| Gross profit | |
| 3,782 | | |
| 449 | | |
| 4,231 | |
| Operating expense | |
| 7,187 | | |
| 433 | | |
| 7,620 | |
| Loss from operations | |
| (3,405 | ) | |
| 16 | | |
| (3,389 | ) |
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | |
| (2,768 | ) | |
| 16 | | |
| (2,752 | ) |
| INCOME TAX BENEFIT (EXPENSE) | |
| (492 | ) | |
| (1 | ) | |
| (493 | ) |
| Net income (loss) | |
| (3,260 | ) | |
| 15 | | |
| (3,245 | ) |
| LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |
| (160 | ) | |
| 2 | | |
| (158 | ) |
| NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC. | |
| (3,100 | ) | |
| 13 | | |
| (3,087 | ) |
| Basic net loss per share | |
| (0.11 | ) | |
| - | | |
| (0.11 | ) |
| Diluted net loss per share | |
| (0.11 | ) | |
| - | | |
| (0.11 | ) |
| Comprehensive income | |
| (3,844 | ) | |
| 15 | | |
| (3,829 | ) |
| Less: income (loss) attributable to the noncontrolling interest | |
| 57 | | |
| (158 | ) | |
| (101 | ) |
| Comprehensive income attributable to Tattooed Chef, Inc. stockholders | |
| (3,901 | ) | |
| 173 | | |
| (3,728 | ) |
| | |
Condensed Consolidated Statements of | |
| (In thousands, except EPS) | |
Operations and Comprehensive Income | |
| | |
As Originally | | |
| | |
| |
| For the nine months ended September 30, 2020 | |
Reported | | |
Revisions | | |
As Revised | |
| Revenue | |
$ | 108,896 | | |
$ | 7 | | |
$ | 108,903 | |
| Cost of goods sold | |
| 92,126 | | |
| (507 | ) | |
| 91,619 | |
| Gross profit | |
| 16,770 | | |
| 514 | | |
| 17,284 | |
| Operating expense | |
| 11,645 | | |
| 945 | | |
| 12,590 | |
| Income from operations | |
| 5,125 | | |
| (431 | ) | |
| 4,694 | |
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | |
| 5,669 | | |
| (431 | ) | |
| 5,238 | |
| Net income (loss) | |
| 3,894 | | |
| (432 | ) | |
| 3,462 | |
| LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |
| 1,201 | | |
| (53 | ) | |
| 1,148 | |
| NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC. | |
| 2,693 | | |
| (379 | ) | |
| 2,314 | |
| Basic net income per share | |
| 0.10 | | |
| (0.02 | ) | |
| 0.08 | |
| Diluted net income per share | |
| 0.10 | | |
| (0.02 | ) | |
| 0.08 | |
| Comprehensive income | |
| 3,693 | | |
| (432 | ) | |
| 3,261 | |
| Less: income (loss) attributable to the noncontrolling interest | |
| 91 | | |
| 1,148 | | |
| 1,239 | |
| Comprehensive income attributable to Tattooed Chef, Inc. stockholders | |
| 3,602 | | |
| (1,580 | ) | |
| 2,022 | |
| (In thousands) | |
Condensed Consolidated Statements of
Stockholders’ Equity (Deficit) | |
| For the three months ended September 30, 2020 | |
As originally
reported | | |
Revisions | | |
As revised | |
| | |
| | |
| | |
| |
| Redeemable noncontrolling interest beginning balance | |
$ | 43,900 | | |
| (85 | ) | |
$ | 43,815 | |
| Net income in redeemable noncontrolling interest | |
| (442 | ) | |
| 2 | | |
| (440 | ) |
| Redeemable noncontrolling interest ending balance | |
| 43,900 | | |
| (83 | ) | |
| 43,817 | |
| Retained earnings beginning balance | |
| (28,853 | ) | |
| (603 | ) | |
| (29,456 | ) |
| Net income in retained earnings | |
| (3,100 | ) | |
| 13 | | |
| (3,087 | ) |
| Retained earnings ending balance | |
| (36,675 | ) | |
| (590 | ) | |
| (37,265 | ) |
| Total Stockholders’ equity beginning balance | |
| (27,882 | ) | |
| (601 | ) | |
| (28,483 | ) |
| Total Stockholders’ equity ending balance | |
| (36,006 | ) | |
| (588 | ) | |
| (36,594 | ) |
| (In thousands) | |
Condensed Consolidated Statements of
Stockholders’ Equity (Deficit) | |
| For the nine months ended September 30, 2020 | |
As originally reported | | |
Revisions | | |
As revised | |
| | |
| | |
| | |
| |
| Redeemable noncontrolling interest beginning balance | |
$ | 6,930 | | |
| (30 | ) | |
$ | 6,900 | |
| Net income in redeemable noncontrolling interest | |
| 251 | | |
| (53 | ) | |
| 198 | |
| Redeemable noncontrolling interest ending balance | |
| 43,900 | | |
| (83 | ) | |
| 43,817 | |
| Retained earnings beginning balance | |
| 1,265 | | |
| (209 | ) | |
| 1,056 | |
| Net income in retained earnings | |
| 2,693 | | |
| (379 | ) | |
| 2,314 | |
| Retained earnings ending balance | |
| (36,675 | ) | |
| (590 | ) | |
| (37,265 | ) |
| Total Stockholders’ equity beginning balance | |
| 3,146 | | |
| (209 | ) | |
| 2,937 | |
| Total Stockholders’ equity ending balance | |
| (36,006 | ) | |
| (588 | ) | |
| (36,594 | ) |
| (In thousands) | |
Condensed Consolidated Statements of
Cash Flows | |
| | |
As Originally | | |
| | |
| |
| For the nine months ended September 30, 2020 | |
Reported | | |
Revisions | | |
As revised | |
| Cash Flows from Operating Activities: | |
| | |
| | |
| |
| Net income | |
$ | 3,894 | | |
$ | (432 | ) | |
$ | 3,462 | |
| Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
| Inventory | |
| (9,934 | ) | |
| 432 | | |
| (9,502 | ) |
| Net cash provided by operating activities | |
| 1,820 | | |
| - | | |
| 1,820 | |
Restatement of Previously Issued Financial
Statements
In connection with the preparation of the consolidated
financial statements as of and for the year ended December 31, 2021 included in the Form 10-K filed with the Securities and Exchange Commission
(the “SEC”) on March 16, 2022, the Company identified errors related to (i) deferred tax assets resulting from the reverse
recapitalization transaction that occurred in 2020 and related valuation allowance; (ii) classification among accounts receivable and
deferred revenue; and (iii) other immaterial previously uncorrected adjustments. Amounts depicted as “As Restated” throughout
the accompanying condensed consolidated financial statements and footnotes include the impact of the restatement, as well as the impact
of the adoption of ASC 842, Leases as of January 1, 2021 to the quarter and nine months ended September 30, 2021. See Note 24 to the consolidated
financial statements and Item 8 of the Form 10-K as aforementioned.
The table below sets forth the condensed consolidated
financial statements, including as originally reported, the impacts resulting from ASC 842 adoption, the adjustments from the restatement,
the reclassification, and the as restated balances for the quarterly period ended September 30, 2021 (in thousands):
| | |
Condensed consolidated balance sheet | |
As of September 30, 2021
(in thousands, Unaudited) | |
As Reported | | |
Adoption of
ASC 842 | | |
Adjustments | | |
As Restated | |
| Accounts receivable, net | |
$ | 24,469 | | |
| - | | |
| (1,314 | ) | |
$ | 23,155 | |
| Prepaid expenses and other current assets | |
| 8,256 | | |
| (39 | ) | |
| - | | |
| 8,217 | |
| TOTAL CURRENT ASSETS | |
| 207,472 | | |
| (39 | ) | |
| (1,314 | ) | |
| 206,119 | |
| Property, plant and equipment, net | |
| 39,669 | | |
| (2,900 | ) | |
| - | | |
| 36,769 | |
| Operating lease right-of-use asset, net | |
| - | | |
| 5,766 | | |
| - | | |
| 5,766 | |
| Finance lease right-of-use asset, net | |
| - | | |
| 5,683 | | |
| - | | |
| 5,683 | |
| Goodwill | |
| 19,351 | | |
| (1,378 | ) | |
| - | | |
| 17,973 | |
| Other assets | |
| 1,731 | | |
| (1,444 | ) | |
| - | | |
| 287 | |
| TOTAL ASSETS | |
$ | 268,402 | | |
| 5,688 | | |
| (1,314 | ) | |
$ | 272,776 | |
| Notes payable, current portion | |
| 400 | | |
| - | | |
| 2,863 | | |
| 3,263 | |
| Deferred revenue | |
| 634 | | |
| - | | |
| (634 | ) | |
| - | |
| Forward contract derivative liability | |
| 1,788 | | |
| - | | |
| (136 | ) | |
| 1,652 | |
| Finance lease liabilities, current | |
| 2,863 | | |
| - | | |
| (2,863 | ) | |
| - | |
| Operating lease liabilities, current | |
| - | | |
| 1,203 | | |
| - | | |
| 1,203 | |
| Other current liabilities | |
| 911 | | |
| (67 | ) | |
| - | | |
| 844 | |
| TOTAL CURRENT LIABILITIES | |
| 38,441 | | |
| 1,136 | | |
| (770 | ) | |
| 38,807 | |
| Operating lease, net of current portion | |
| - | | |
| 4,622 | | |
| - | | |
| 4,622 | |
| TOTAL LIABILITIES | |
| 42,411 | | |
| 5,758 | | |
| (770 | ) | |
| 47,399 | |
| Additional paid in capital | |
| 233,223 | | |
| - | | |
| 4,024 | | |
| 237,247 | |
| Retained earnings | |
| (6,332 | ) | |
| (70 | ) | |
| (4,568 | ) | |
| (10,970 | ) |
| Total equity | |
| 225,991 | | |
| (70 | ) | |
| (544 | ) | |
| 225,377 | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 268,402 | | |
| 5,688 | | |
| (1,314 | ) | |
$ | 272,776 | |
| | |
Condensed consolidated statements of operations and comprehensive income (loss) | |
For Three Months Ended September 30, 2021
(in thousands except per share amounts, Unaudited) | |
As Reported | | |
Adoption of
ASC 842 | | |
Adjustments | | |
As Restated | |
| REVENUE | |
$ | 58,780 | | |
| - | | |
| (425 | ) | |
$ | 58,355 | |
| GROSS PROFIT | |
| 5,944 | | |
| - | | |
| (425 | ) | |
| 5,519 | |
| OPERATING EXPENSES | |
| 13,604 | | |
| 41 | | |
| 42 | | |
| 13,687 | |
| (LOSS) INCOME FROM OPERATIONS | |
| (7,660 | ) | |
| (41 | ) | |
| (467 | ) | |
| (8,168 | ) |
| Other (expense) income | |
| (724 | ) | |
| - | | |
| 136 | | |
| (588 | ) |
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | |
| (8,429 | ) | |
| (41 | ) | |
| (331 | ) | |
| (8,801 | ) |
| NET (LOSS) INCOME | |
| (8,174 | ) | |
| (41 | ) | |
| (331 | ) | |
| (8,546 | ) |
| NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC. | |
$ | (8,174 | ) | |
| (41 | ) | |
| (331 | ) | |
$ | (8,546 | ) |
| NET (LOSS) INCOME PER SHARE | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| (0.10 | ) | |
| - | | |
| - | | |
| (0.10 | ) |
| Diluted | |
| (0.10 | ) | |
| - | | |
| - | | |
| (0.10 | ) |
| Comprehensive (loss) income | |
| (8,982 | ) | |
| (41 | ) | |
| (331 | ) | |
| (9,354 | ) |
| Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders | |
$ | (8,982 | ) | |
| (41 | ) | |
| (331 | ) | |
$ | (9,354 | ) |
| | |
Condensed consolidated statements of operations and comprehensive income (loss) | |
For Nine Months Ended September 30, 2021
(in thousands except per share amounts, Unaudited) | |
As Reported | | |
Adoption of
ASC 842 | | |
Adjustments | | |
As Restated | |
| REVENUE | |
$ | 161,972 | | |
| - | | |
| (878 | ) | |
$ | 161,094 | |
| COST OF GOODS SOLD | |
| 140,304 | | |
| - | | |
| (226 | ) | |
| 140,078 | |
| GROSS PROFIT | |
| 21,668 | | |
| - | | |
| (652 | ) | |
| 21,016 | |
| OPERATING EXPENSES | |
| 44,853 | | |
| 70 | | |
| (621 | ) | |
| 44,302 | |
| (LOSS) INCOME FROM OPERATIONS | |
| (23,185 | ) | |
| (70 | ) | |
| (31 | ) | |
| (23,286 | ) |
| Other (expense) income | |
| (2,496 | ) | |
| - | | |
| (40 | ) | |
| (2,536 | ) |
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | |
| (25,840 | ) | |
| (70 | ) | |
| (71 | ) | |
| (25,981 | ) |
| INCOME TAX EXPENSE | |
| (44,255 | ) | |
| - | | |
| (4,024 | ) | |
| (48,279 | ) |
| NET (LOSS) INCOME | |
| (70,095 | ) | |
| (70 | ) | |
| (4,095 | ) | |
| (74,260 | ) |
| (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC. | |
$ | (70,095 | ) | |
| (70 | ) | |
| (4,095 | ) | |
$ | (74,260 | ) |
| NET (LOSS) INCOME PER SHARE | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| (0.86 | ) | |
| - | | |
| (0.05 | ) | |
| (0.91 | ) |
| Diluted | |
| (0.86 | ) | |
| - | | |
| (0.05 | ) | |
| (0.91 | ) |
| Comprehensive (loss) income | |
| (71,004 | ) | |
| (70 | ) | |
| (4,095 | ) | |
| (75,169 | ) |
| Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders | |
$ | (71,004 | ) | |
| (70 | ) | |
| (4,095 | ) | |
$ | (75,169 | ) |
| For Three Months Ended September 30, 2021 | |
Condensed consolidated statements of stockholders’ equity | |
| (in thousands, Unaudited) | |
As Reported | | |
Adjustments | | |
As Restated | |
| Additional Paid-In Capital beginning balance | |
$ | 231,359 | | |
| 4,024 | | |
$ | 235,383 | |
| Additional Paid-In Capital ending balance | |
| 233,223 | | |
| 4,024 | | |
| 237,247 | |
| Retained earnings (Deficit) beginning balance | |
| 1,842 | | |
| (4,266 | ) | |
| (2,424 | ) |
| Net loss in retained earnings (Deficit) | |
| (8,174 | ) | |
| (372 | ) | |
| (8,546 | ) |
| Retained earnings (Deficit) ending balance | |
| (6,332 | ) | |
| (4,638 | ) | |
| (10,970 | ) |
| Total Stockholders’ equity beginning balance | |
| 233,109 | | |
| (242 | ) | |
| 232,867 | |
| Total Stockholders’ equity ending balance | |
| 225,991 | | |
| (614 | ) | |
| 225,377 | |
| For Nine Months Ended September 30, 2021 | |
Condensed consolidated statements
of stockholders’ equity | |
| (in thousands, Unaudited) | |
As Reported | | |
Adjustments | | |
As Restated | |
| Additional Paid-In Capital beginning balance | |
$ | 164,424 | | |
| 4,024 | | |
$ | 168,448 | |
| Additional Paid-In Capital ending balance | |
| 233,223 | | |
| 4,024 | | |
| 237,247 | |
| Retained earnings (Deficit) beginning balance | |
| 64,071 | | |
| (473 | ) | |
| 63,598 | |
| Net loss in retained earnings (Deficit) | |
| (70,095 | ) | |
| (4,165 | ) | |
| (74,260 | ) |
| Retained earnings (Deficit) ending balance | |
| (6,332 | ) | |
| (4,638 | ) | |
| (10,970 | ) |
| Total Stockholders’ equity beginning balance | |
| 228,503 | | |
| 3,551 | | |
| 232,054 | |
| Total Stockholders’ equity ending balance | |
| 225,991 | | |
| (614 | ) | |
| 225,377 | |
| | |
Condensed consolidated statements of cash flows | |
For Nine Months Ended September 30, 2021
(in thousands, Unaudited) | |
As Reported | | |
Adoption of
ASC 842 | | |
Adjustments | | |
As Restated | |
| CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| | |
| | |
| |
| Net (loss) income | |
$ | (70,095 | ) | |
| (70 | ) | |
| (4,095 | ) | |
$ | (74,260 | ) |
| Adjustments to reconcile net (loss) income to net cash from operating activities: | |
| | | |
| | | |
| | | |
| | |
| Depreciation and amortization | |
| 2,514 | | |
| 39 | | |
| - | | |
| 2,553 | |
| Deferred taxes, net | |
| 43,525 | | |
| - | | |
| 4,024 | | |
| 47,549 | |
| Non-cash lease cost | |
| - | | |
| 59 | | |
| - | | |
| 59 | |
| Changes in operating assets and liabilities: | |
| | | |
| | | |
| | | |
| | |
| Accounts receivable | |
| (3,450 | ) | |
| - | | |
| (397 | ) | |
| (3,847 | ) |
| Prepaid expenses and other assets | |
| (3,090 | ) | |
| 39 | | |
| - | | |
| (3,051 | ) |
| Accrued expenses | |
| 1,841 | | |
| - | | |
| (649 | ) | |
| 1,192 | |
| Deferred revenue | |
| (1,077 | ) | |
| - | | |
| 1,077 | | |
| - | |
| Other current liabilities | |
| 289 | | |
| (67 | ) | |
| 40 | | |
| 262 | |
| Net cash used in operating activities | |
| (33,125 | ) | |
| - | | |
| - | | |
| (33,125 | ) |
Reclassifications. Reclassifications of
certain prior period amounts to conform to the current period presentation. Reclassifications have no impact on net income (loss) and
do not relate to errors and are included here in order to conform the presentation across the periods presented.
Fair Value of Financial Instruments. Certain
assets and liabilities are required to be recorded at fair value on a recurring basis. Fair value is determined based on the exchange
price that would be received for an asset or transferred for a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants. The carrying amounts of cash, accounts receivables,
accounts payable and certain notes payable approximate fair value because of the short maturity and/or variable rates associated with
these instruments. Long-term notes payable as of September 30, 2021 and December 31, 2020 approximate its fair value as the interest rates
are indexed to market rates. The Company categorizes the inputs to the fair value measurements into three levels based on the lowest level
input that is significant to the fair value measurement in its entirety. These levels are:
| Level 1 - |
Inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company is able to access at the measurement date. |
| |
|
| Level 2 - |
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, and can reference interest rates, yield curves, implied volatilities and credit spreads. |
| |
|
| Level 3 - |
Inputs are unobservable data points for the asset or liability, and include situations where there is limited, if any, market activity for the asset or liability. |
Cash. The Company’s cash may be in
excess of amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts.
Foreign Currency. The Company’s functional
currency is the United States dollar for its U.S. entities. Ittella Italy’s functional currency is the Euro. Transactions in currency
other than the functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. Transaction gains
and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of
each entity are included in the results of operations in income from operations as incurred.
The accompanying condensed consolidated financial
statements are expressed in United States dollars. Assets and liabilities of foreign operations are translated at period-end rates of
exchange. Revenues, costs and expenses are translated at average rates of exchange prevailing during the period. Equity adjustments resulting
from translating foreign currency financial statements are accumulated as a separate component of stockholders’ equity.
The Company conducts business globally and is
therefore exposed to adverse movements in foreign currency exchange rates, specifically the Euro to US dollar. To limit the exposure related
to foreign currency changes, the Company entered into foreign currency exchange forward contracts starting in 2020. The Company does not
enter into contracts for speculative purposes.
In February 2020, the Company entered into a trading
facility for derivative forward contracts. Under this facility, the Company has access to open foreign exchange forward contract instruments
to purchase a specific amount of funds in Euros and to settle, on an agreed-upon future date, in a corresponding amount of funds in United
States dollars. During the nine months ended September 30, 2021 and 2020, the Company entered into foreign currency exchange forward contracts
to purchase 55.36 million Euros and 37.79 million Euros, respectively. The notional amounts of these derivatives are $66.80 million and
$42.81 million for the nine months ended September 30, 2021 and 2020, respectively.
These derivatives are not designated as hedging
instruments. Gains and losses on the contracts are included in other income net, and substantially offset foreign exchange gains and losses
from the short-term effects of foreign currency fluctuations on assets and liabilities, such as purchases, receivables and payables, which
are denominated in currencies other than the functional currency of the reporting entity. These derivative instruments generally have
maturities of up to nine months.
Accounts Receivable. Trade receivables
are customer obligations due under normal trade terms requiring payment generally within 7 to 45 days from the invoice date. The Company’s
allowance for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is
not collectible. This analysis includes assessing a default probability to customers’ receivable balances, which is influenced by
several factors, including (i) current market conditions, (ii) periodic review of customer credit worthiness, and (iii) review of customer
receivable aging and payment trends.
Inventory. Inventory consists of raw materials
and packaging materials, work in process and finished goods. Inventories are carried at the lower of cost or net realizable value on a
weighted average basis. Inventory is initially measured at cost and consists of the sum of the applicable expenditures and charges directly
and indirectly incurred to bring products to their existing condition and location. These costs include purchase costs and any other charges
necessary to prepare the items for production. For work in process and finished goods, these costs normally include those incurred directly
or indirectly in the production of inventory (i.e., direct labor and production overheads or conversion costs), and other expenses (i.e.,
inbound freight, transportation and handling charges, taxes and duties).
Overhead costs are allocated to the units produced
within the reporting period, while abnormal costs are charged to current operations as incurred. The Company monitors the remaining utility
of its inventory and writes down inventory for excess or obsolescence as appropriate.
Property, Plant and Equipment. Property,
plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property, plant
and equipment is calculated using the straight-line method over the useful lives of the assets, which range from 5 to 15 years for machinery
and equipment, 5 to 7 years for furniture and fixtures, 20 to 33.5 years for buildings, and 3 to 10 years for computer equipment. Leasehold
improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Repairs and maintenance
are expensed as incurred. Renewals and enhancements are capitalized and depreciated over the remaining life of the specific property unit.
When the Company retires or disposes of property, plant or equipment, the cost and accumulated depreciation are removed from the Company’s
accounts and any resulting gain or loss is reflected in the condensed consolidated statements of operations and comprehensive income (loss).
Goodwill. The Company evaluates and tests
the recoverability of goodwill for impairment at least annually, or more frequently if circumstances indicate that goodwill may not be
recoverable. The Company performs the impairment testing by first assessing qualitative factors to determine whether the existence of
events or circumstances leads to a determination that it is more likely than not that the fair value of its reporting unit (currently
only one reporting unit) is less than its carrying amount (“Qualitative Assessment”). In assessing the qualitative factors,
the Company considers the impact of certain key factors including macroeconomic conditions, industry and market considerations, management
turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance. If the Company determines
that it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount, the Company tests for
impairment by comparing the estimated fair value of the reporting unit with its carrying amount. The Company estimates the fair value
of the reporting unit using a “step one” analysis using a fair-value-based approach based on a discounted cash flow analysis
of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. Any excess of the carrying amount of the reporting unit’s goodwill over its fair value is recognized as an impairment loss,
and the carrying value of goodwill is written down. No goodwill impairment was recorded during the three and nine months ended September
30, 2021.
Long-Lived and Intangible Assets. Intangible
assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with indefinite lives
are not amortized but instead, are reviewed for impairment. Intangible assets and long-lived assets are reviewed for impairment at the
asset group level whenever events or changes in circumstances indicate that the carrying amount of such asset group may not be recoverable.
Recoverability of assets within an asset group to be held and used is measured by a comparison of the carrying amount of an asset group
to the future undiscounted net cash flows expected to be generated by the asset group. If such asset groups are considered to be impaired,
an impairment is recognized to the extent that these assets are stated based upon their fair value. This analysis differs from the Company’s
goodwill analysis in that the impairment for these assets is only deemed to have occurred if the sum of the forecasted undiscounted future
cash flows of these intangible assets is less than their carrying values. The estimate of long-term undiscounted cash flows includes long-term
forecasts of revenue growth, gross margins, and operating expenses, and requires significant judgment and assumptions. An impairment loss
may exist when the estimated undiscounted cash flows attributable to the assets are less than the carrying amount of the assets. No impairment
was recorded during the three and nine months ended September 30, 2021 and 2020.
Warrants. The Public Warrants are considered
freestanding equity-classified instruments due to their detachable and separately exercisable features and meet the indexation criteria
in ASC 815-40-15-7C. Accordingly, the Public Warrants are presented as a component of Stockholders’ Equity in accordance with ASC
815-40-25. All of the public warrants have been exercised as of September 30, 2021. See note 17. The agreements with respect to the Company’s
Private Placement Warrants include provisions related to determining settlement amounts that preclude the Private Placement Warrants from
being accounted for as components of equity. As these warrants meet the definition of a derivative as contemplated in ASC 815-40, the
Private Placement Warrants are recorded as derivative liabilities on the condensed consolidated balance sheets and measured at fair value
at inception (on the Closing Date) and at each reporting date in accordance with ASC 820, with changes in fair value recognized in the
condensed consolidated statements of operations and other comprehensive income (loss) in the period of change.
Revenue Recognition (As Restated). The
Company recognizes revenue in accordance with ASC Topic 606. The Company’s principal business is the manufacturing of plant-based
foods including, but not limited to, acai and smoothie bowls, zucchini spirals, riced cauliflower, vegetable bowls and cauliflower crust
pizza primarily in the United States and Italy. Revenue recognition is determined by (a) identifying the contract, or contracts, with
a customer; (b) identifying the performance obligation in each contract; (c) determining the transaction price;(d) allocating the transaction
price to the performance obligation in each contract; and (e) recognizing revenue when, or as, the Company satisfies performance obligations
by transferring the promised goods or services. Each unit of product delivered is determined as a separate performance obligation and
in the event there is more than one unit of a product ordered, there will be multiple performance obligations satisfied under the same
contract. When control of the promised products and services are transferred to the Company’s customers, the Company recognizes
revenue in the amount that reflects the consideration the Company expects to receive in exchange for these products and services.
Control generally transfers to the customer when
the product is shipped or delivered to the customer based upon applicable shipping terms. Customer contracts generally do include more
than one performance obligation and the performance obligations in the Company’s contracts are satisfied within one year. No payment
terms beyond one year are granted at contract inception.
The Company disaggregates revenue based on the
type of products sold to its customers – private label, Tattooed Chef and other. The other revenue stream constitutes sale of similar
food products directly to customers through a third-party vendor and the Company acts as a principal in these transactions.
Some contracts also include some form of variable
consideration. The most common forms of variable consideration include slotting fees, trade discounts, promotional programs, and demonstration
costs. Variable consideration is treated as a reduction in revenue when product revenue is recognized. Depending on the specific type
of variable consideration, the Company uses either the expected value or most likely amount method to determine the variable consideration.
The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements,
historical experience, and any recent changes in the market.
The Company generally does not have unbilled receivable
balances arising from transactions with customers. The Company does not capitalize contract inception costs as contracts are generally
one year or less and the Company does not incur significant fulfillment costs requiring capitalization.
The Company recognizes shipping and handling costs related to products
transferred to the end customer as fulfillment cost and includes these costs in cost of goods sold upon delivery of the product to the
customer.
The Company enters into certain arrangements with
its customers to provide inventory for promotional purposes (“Promotional Items”). Such arrangements are not tied to immediate
or future sales of any particular product. Instead, the Company will occasionally offer these Promotional Items in a targeted way to increase
product awareness. Since a Promotional Item does not provide a material right, it is not considered a distinct performance obligation.
As such, the cost of the Promotional Item is not presented within cost of goods sold and is instead treated as an operating expense.
Cost of Sales. Cost of sales consists of
the costs of raw materials utilized in the manufacture process, co-packing or repacking fees, in-bound freight charges, internal transfer
costs, cold storage expenses incurred prior to the manufacture of the Company’s finished products, and out-bound freight to transfer
the finished goods to the end customers. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization
and payroll costs that relate to the direct manufacture by the Company.
Operating Expenses. Operating expenses
include selling expenses, cold storage expenses after manufacture, as well as expenses for advertising, sampling costs, costs for merchandise
displays, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional
service fees (including legal fees), depreciation and other general and administrative costs.
Sales and Marketing Expenses (As Restated).
The Company expenses costs associated with sales and marketing as incurred. Sales and marketing expenses were $5.67 million and $1.59
million for the three months ended September 30, 2021 and 2020, respectively, and $20.50 million and $4.39 million for the nine months
ended September 30, 2021 and 2020, respectively. Sales and marketing expenses are included in operating expenses in the condensed consolidated
statements of operations and comprehensive income (loss).
Interest Expense. Interest expense includes
interest primarily related to the amortization of deferred financing costs, the Company’s notes payable and line of credit.
Deferred Financing Costs. Deferred financing
costs include fees associated with the Company’s line of credit agreement. Such fees are amortized on a straight-line basis over
the term of the related line of credit agreement as a component of interest expense, which approximates the effective interest rate method,
in accordance with the terms of the agreement. Deferred financing costs were $0.08 million at both September 30, 2021 and December 31,
2020 and are recorded as a component of other assets in the accompanying condensed consolidated balance sheets. Amortization expense of
deferred financing costs were $0.00 million and $0.01 million during the three months ended September 30, 2021 and 2020, respectively.
Amortization expense of deferred financing costs were $0.00 million and $0.03 million during the nine months ended September 30, 2021
and 2020, respectively.
Stock-based Compensation. The Company measures
compensation expense for stock options and other stock awards in accordance with ASC 718, Compensation — Stock Compensation.
Stock-based compensation is measured at fair value on the grant date and recognized as compensation expense over the requisite service
period. The Company accounts for forfeitures when they occur. Generally, the Company issues stock options and other stock awards to employees
with service-based and/or performance-based vesting conditions. For awards with only service-based vesting conditions, the Company records
compensation cost for these awards using the straight-line method. For awards with performance-based vesting conditions, the Company recognizes
compensation cost on a tranche-by-tranche basis (the accelerated attribution method) over the expected service period.
Under the provisions of ASC 718, Compensation—Stock
Compensation, the Company measures stock-based awards granted to non-employees based on the fair value of the award on the date on
which the related service is completed. Compensation expense is recognized over the period during which services are rendered by non-employees
until service is completed.
Income Taxes. As part of the process of
preparing its condensed interim consolidated financial statements, the Company is required to estimate its provision for income taxes
in each of the tax jurisdictions in which it conducts business, in accordance with the Income Tax Topic 740 of the ASC (“ASC 740”).
The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various
jurisdictions in which it earns income. Income taxes are accounted for using an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax
basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect
of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be
realized. The factors used to assess the likelihood of realization include the Company’s forecast of the reversal of temporary differences,
future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure
to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and
could result in an increase in the Company’s effective tax rate on future earnings.
ASC 740 prescribes a recognition threshold and
a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position must first be determined to be more likely to be sustained based solely on
its technical merits, and if so, then measured to be the largest benefit that has a greater than 50% likelihood of being sustained upon
examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020, respectively.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued
for the payment of interest and penalties as of September 30, 2021 or December 31, 2020. The Company is currently not aware of any issues
under review that could result in significant payment, accruals, or material deviation from its tax position. The Company is subject to
income tax examinations by major taxing authorities since inception. See Note 15 for more information on the Company’s accounting
for income taxes.
Accumulated Other Comprehensive Income (Loss).
Accumulated other comprehensive loss is defined as the change in equity resulting from transactions from non-owner sources. Other
comprehensive income consisted of gains and losses associated with changes in foreign currency as a result of the translation of the financial
results of the Company’s Italian subsidiary.
Use of Estimates. The preparation of condensed
consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from these
estimates.
Concentrations of Credit Risk (As Restated).
The Company grants credit, generally without collateral, to customers primarily in the United States. Consequently, the Company is
subject to potential credit risk related to changes in business and economic factors in this geographical area. No external suppliers
accounted for more than 10% of the Company’s cost of goods sold during the period ended September 30, 2021 and 2020.
Three customers accounted for 64% and 87% of the Company’s revenue
during the three months ended September 30, 2021 (as restated) and 2020, respectively.
| Customer | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Customer A | |
| 20 | % | |
| 36 | % |
| Customer C | |
| 33 | % | |
| 30 | % |
| Customer B | |
| 11 | % | |
| 21 | % |
Three customers accounted for 77% and 87% of the Company’s revenue
during the nine months ended September 30, 2021 (as restated) and 2020, respectively.
| Customer | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Customer C | |
| 35 | % | |
| 36 | % |
| Customer A | |
| 31 | % | |
| 34 | % |
| Customer B | |
| 11 | % | |
| 17 | % |
Customers accounting for more than 10% of the Company’s accounts
receivable as of September 30, 2021 (as restated) and December 31, 2020 were:
| | |
September 30, | | |
December 31, | |
| Customer | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Customer A | |
| 21 | % | |
| 24 | % |
| Customer B | |
| * | | |
| 10 | % |
| Customer C | |
| 28 | % | |
| 53 | % |
| Customer D | |
| 15 | % | |
| ** | |
| * | Customer B accounted for less than 10% of accounts receivable as of September 30, 2021. However, customer B accounted for 10% as of
December 31, 2020 and as such was included in the disclosure above for comparison purposes. |
| ** | Customer D is a new customer in 2021, accounted for 15% as of September 30, 2021 and as such was included in the disclosure above
for comparison purposes. |
Segment Information. The Company manages
its operations on a company-wide basis as one operating segment, thereby making determinations as to the allocation of resources to the
business as a whole rather than on a segment-level basis. Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the Chief Operating Decision Maker (“CODM”) in making
decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the
CODM. To date, the Company’s CODM has made such decisions and assessed performance at the Company-level.
Long-lived assets consist of property, plant and equipment, net of
depreciation, and are categorized based on geographic location as follows:
| | |
September 30, | | |
December 31, | |
| Definite Lived Intangible Assets (in thousands) | |
2021 | | |
2020 | |
| Italy | |
$ | - | | |
$ | - | |
| United States - tradenames | |
| 179 | | |
| - | |
| Total | |
$ | 179 | | |
$ | - | |
| | |
Remaining | |
| Definite Lived Intangible Assets | |
useful life | |
| Description: | |
| |
| Tradenames | |
| 1.75 | |
| | |
September 30, | | |
December 31, | |
| Long Lived Assets (in thousands) | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Italy | |
$ | 15,744 | | |
$ | 9,113 | |
| United States | |
| 21,025 | | |
| 6,970 | |
| Total | |
$ | 36,769 | | |
$ | 16,083 | |
COVID-19 Pandemic. The novel coronavirus
(“COVID-19”), which was categorized by the World Health Organization as a pandemic in March 2020, continues to significantly
impact the United States and the rest of the world and has altered the Company’s business environment and the overall working conditions.
Despite partial remote working conditions, the Company’s business
activities have continued to operate with minimal interruptions.
However, the pandemic may adversely affect the
Company’s suppliers and could impair its ability to obtain raw material inventory in the quantities or of a quality the Company
desires. The Company currently sources a material amount of its raw materials from Italy. Though the Company is not dependent on any single
Italian grower for its supply of a certain crop, events (including the pandemic) generally affecting these growers could adversely affect
the Company’s business. If the Company is unable to manage its supply chain effectively and ensure that its products are available
to meet consumer demand, operating costs could increase, and sales and profit margins could decrease.
On March 27, 2020, the Coronavirus Aid, Relief,
and Economic Security Act (“CARES Act”) was enacted. The CARES Act, among other things, includes provisions relating to refundable
payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax
credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions and
technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the Small Business
Administration’s Paycheck Protection Programs that are forgivable in certain situations to promote continued employment, as well
as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company has elected not to apply for
a Paycheck Protection Program loan. The Company has analyzed the provisions of the CARES Act and determined it did not have a material
impact on the Company’s financial condition, results of operations or cash flows for the periods presented.
The extent to which this pandemic could adversely
impact the Company’s future business, financial condition and results of operations is dependent upon various factors, many of which
are highly uncertain and outside the control of the Company.
Earnings per share. Basic earnings per
share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding
during the period. The weighted-average number of common shares outstanding during the period includes common stock but is exclusive of
certain unvested stock awards that have no economic or participating rights. Diluted earnings per share is computed by dividing the net
income by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents
are only included when their effect is dilutive. The Company’s potentially dilutive securities which include outstanding stock options
and restricted stock awards under the Company’s equity incentive plan and warrants have been considered in the computation of diluted
earnings per share.
Emerging Growth Company (“EGC”).
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts EGCs from being required to
comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of
1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange
Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that
when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, can
adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of its financial
statements with another public company, which is neither an EGC nor an EGC which has opted out of using the extended transition period,
difficult or impossible because of the potential differences in accounting standards used. As of December 31, 2021, the Company will lose
EGC status and be required to adopt standards on the public company timeframe.
2. RECENT ACCOUNTING PRONOUNCEMENTS (As restated for the adoption of ASC 842)
In December 2019, the FASB issued Accounting Standards
Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”),
as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or
improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions
to the general principles of Topic 740, Income Taxes, and simplification in several other areas. ASU 2019-12 is effective for annual
reporting periods beginning after December 15, 2020, and interim periods therein. The Company adopted the new standard on January 1, 2021,
the first day of the reporting year. One of the amendments eliminates a limitation on the amount of income tax benefit that can be recognized
in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The adoption of this standard did not have a
material impact on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021.
In March 2020, the FASB issued ASU 2020-04, Facilitation
of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides guidance for contract modifications
and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. Interest on
borrowings under the Company’s revolving credit facility is calculated based upon LIBOR. ASU 2020-04 was issued on March 12, 2020
and may be applied prospectively through December 31, 2022. This guidance has had no material effect on the Company’s condensed
consolidated financial statements for the nine months ended September 30, 2021.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842) (“ASU 2016-02” or “Topic 842”). The purpose of ASU 2016-02 is to provide financial statement
users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 resulted
in the recognition of a right-of-use asset and a lease liability for all leases. New disclosure requirements included qualitative and
quantitative information about the amounts recorded in the financial statements. The original guidance required application on a modified
retrospective basis with adjustments to the earliest comparative period presented. In August 2018, the FASB issued ASU No. 2018-11, “Targeted
Improvements to ASC 842,” which included an option to not restate comparative periods in transition and elect to use the effective
date of ASU No. 2016-02 as the date of initial application, which the Company elected. As the Company will lose EGC status as of December
31, 2021, the Company was required to apply the provisions of ASU 2016-02 beginning with the annual reporting period ended December 31,
2021 with an effective date as of January 1, 2021. Accordingly, these financial statements have been adjusted to reflect the adoption
of Topic 842. See Note 13.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13
(“ASU 2016-13”) regarding ASC Topic 326, Financial Instruments - Credit Losses, which modifies the measurement of expected
credit losses of certain financial instruments. The Company will be required to use a forward-looking expected credit loss model for accounts
receivables, loans, and other financial instruments. The amendments will become effective for the Company for periods beginning after
December 15, 2021. Adoption of the standard will be applied using a modified retrospective approach. The Company is currently evaluating
the impact the adoption of ASU 2016-13 will have on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06,
Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU
2020-06”), which simplifies the accounting for convertible instruments. ASU 2020-06 removes certain accounting models that separate
the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt
feature qualifies as a derivative under ASC 815 or for convertible debt issued at a substantial premium. ASU 2020-06 is effective for
fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and early adoption is permitted in
annual reporting periods ending after December 15, 2020. The Company is currently evaluating the impact this guidance may have on its
condensed consolidated financial statements and related disclosures.
3. REDEEMABLE NONCONTROLLING INTEREST
On April 15, 2019, UMB contributed $6.00 million
to acquire 6,000 units for a 12.5% ownership interest in Ittella International. The Company incurred issuance costs of $0.13 million resulting
in net consideration received of $5.87 million.
Per the terms of Ittella International’s
operating agreement, UMB was provided with a put right which could have caused Ittella International to purchase all, but not less than
all of UMB units upon notice (“Put Notice”). UMB could have provided the Put Notice to Ittella International at any time for
any reason after April 15, 2024. If Ittella International did not accept the price proposed in the Put Notice, the consideration to be
paid by Ittella International to UMB for the units that were the subject of the Put Notice will be the fair market value of the units
as established by a third party appraisal, subject to a floor for the fair value at 85%. If the fair value was less than 85% of the consideration
proposed by UMB in their Put Notice, UMB may have chosen to abandon the transfer. The put right constituted a redemption feature and therefore
UMB’s noncontrolling interest (the “Redeemable Noncontrolling Interest”) was classified as temporary equity (mezzanine)
in the accompanying condensed consolidated financial statements.
The Redeemable Noncontrolling Interest was initially
measured at fair value, which has been determined by the Company to equal the consideration received from UMB, net of transaction costs.
The Redeemable Noncontrolling Interest was not
redeemable until April 2024; however, it was probable of becoming redeemable with the passage of time. Therefore, the subsequent measurement
of the Redeemable Noncontrolling Interest at each reporting date was determined as the higher of (1) the initial carrying amount, increased
or decreased for the Redeemable Noncontrolling Interest’s share of net income and other comprehensive income, or (2) the redemption
value, which was determined to be fair value per the terms of Ittella International’s operating agreement above. In determining
the measurement method of redemption value, the Company elected to accrete changes in the redemption value over the period from the date
of issuance to the earliest redemption date (i.e. April 2024) of the instrument using the effective interest method. Changes in the redemption
value are considered to be changes in accounting estimates. Redemption value was determined using a combination of the market approach
and income approach. Under the market approach, the Company estimated fair value based on market multiples of EBITDA of comparable companies.
Under the income approach, the Company measured fair value based on a projected cash flow method using a discount rate determined by its
management to be commensurate with the risk inherent in its then-current business model.
There was no Redeemable Noncontrolling Interest for the three and
nine months ended September 30, 2021. Changes in the carrying value of the Redeemable Noncontrolling Interest were as follows for
the three months ended September 30, 2020:
| | |
Amount | |
| Redeemable Noncontrolling Interest as of July 1, 2020 | |
$ | 43,815 | |
| Net loss attributable to redeemable noncontrolling interest | |
| (440 | ) |
| Accretion to redeemable noncontrolling interest | |
| 442 | |
| Redeemable Noncontrolling Interest as of September 30, 2020 | |
$ | 43,817 | |
Changes in the carrying value of the Redeemable Noncontrolling Interest
were as follows for the nine months ended September 30, 2020:
| | |
Amount | |
| Redeemable Noncontrolling Interest as of January 1, 2020 | |
$ | 6,900 | |
| Net income attributable to redeemable noncontrolling interest | |
| 198 | |
| Accretion to redeemable noncontrolling interest | |
| 36,719 | |
| Redeemable Noncontrolling Interest as of September 30, 2020 | |
$ | 43,817 | |
All Redeemable Noncontrolling Interest classified
as mezzanine equity were reclassified to permanent equity in connection with the contribution of UMB’s 12.5% equity interests in
Ittella International to Myjojo (Delaware) in exchange for Myjojo (Delaware)’s common stock and were subsequently exchanged for
Forum Class A common stock upon consummation of the Transaction (see Note 1).
4. REVENUE RECOGNITION
Nature of Revenues
Substantially all of the Company’s revenue
from contracts with customers consist of the sale of plant-based foods including, but not limited to, acai and smoothie bowls, zucchini
spirals, riced cauliflower, vegetable bowls and cauliflower crust pizza in the United States and is recognized at a point in time in an
amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Each unit of food product sold
to the customer is the performance obligation. Revenue from the sale of frozen food products is recognized upon the transfer of control
to the customer. Control generally transfers to the customer when the product is shipped or delivered to the customer based upon applicable
shipping terms.
The Company disaggregates revenue based on the
type of products sold to its customers – private label, Tattooed Chef and other. The other revenue stream constitutes sale of similar
food products directly to customers through third-party vendors and the Company acts as a principal in these transactions. All sales are
recorded within revenue on the accompanying condensed consolidated statements of operations and comprehensive income (loss). The Company
does not have any contract assets or contract liabilities as of September 30, 2021 and 2020.
Revenue streams for the three months ended September 30, 2021 (as restated)
and 2020 were as follows:
| | |
2021 | | |
2020 | |
| Revenue Streams (in thousands) | |
Revenue | | |
% Total | | |
Revenue | | |
% Total | |
| | |
(As Restated) | | |
| | |
| | |
| |
| Tattooed Chef | |
$ | 35,034 | | |
| 60 | % | |
$ | 22,629 | | |
| 55 | % |
| Private Label | |
| 22,952 | | |
| 39 | % | |
| 18,106 | | |
| 44 | % |
| Other revenues | |
| 369 | | |
| 1 | % | |
| 229 | | |
| 1 | % |
| Total | |
$ | 58,355 | | |
| | | |
$ | 40,964 | | |
| | |
| Revenue streams for the nine months ended September 30, 2021 (as restated) and 2020 were as follows: |
|
| | |
2021 | | |
2020 | |
| Revenue Streams (in thousands) | |
Revenue | | |
% Total | | |
Revenue | | |
% Total | |
| | |
(As Restated) | | |
| | |
| | |
| |
| Tattooed Chef | |
$ | 103,683 | | |
| 64 | % | |
$ | 60,643 | | |
| 55 | % |
| Private Label | |
| 56,391 | | |
| 35 | % | |
| 47,495 | | |
| 44 | % |
| Other revenues | |
| 1,020 | | |
| 1 | % | |
| 765 | | |
| 1 | % |
| Total | |
$ | 161,094 | | |
| | | |
$ | 108,903 | | |
| | |
Significant Judgments
Generally, the Company’s contracts with
customers comprise a written quote and customer purchase order or statement of work and are governed by the Company’s trade terms
and conditions. In certain instances, it may be further supplemented by separate pricing agreements. All products are sold on a standalone
basis; therefore, when more than one product is included in a purchase order, the Company has observable evidence of the stand-alone selling
price. Contracts do not contain a significant financing component as payment terms on invoiced amounts are typically between 7 to 45 days,
based on the Company’s credit assessment of individual customers, as well as industry expectations. Product returns are not significant.
The contracts with customers do not include any additional performance obligations related to warranties and material rights.
From time to time, the Company may offer incentives
to its customers considered to be variable consideration including discounts and demonstration costs. Customer incentives considered to
be variable consideration are recorded as a reduction to revenue as part of the transaction price based on the agreement at the time of
the transaction. Customer incentives are allocated entirely to the single performance obligation of transferring product to the customer.
| 5. | ACCOUNTS RECEIVABLE, NET |
Accounts receivable are reduced by an allowance
for an estimate of amounts that are uncollectible. The Company’s receivables are significantly derived from customers in the United
States. The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer’s financial
condition, (ii) the amount of credit the customer requests, and (iii) the customer’s actual payment history (which includes disputed
invoice resolution). The Company does not require its customers to post a deposit or supply collateral. The Company’s allowance
for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible.
This analysis includes assessing a default probability to customers’ receivable balances, which is influenced by several factors,
including (i) current market conditions, (ii) periodic review of customer credit worthiness, and (iii) review of customer receivable aging
and payment trends.
The Company evaluates the creditworthiness of
its customers regularly and estimates the collectability of current and non-current accounts receivable based on historical bad debt experience,
current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including
during the ongoing COVID-19 pandemic, the Company’s estimates and judgments with respect to the collectability of its receivables
are subject to greater uncertainty than in more stable periods. The Company writes off accounts receivable whenever they become uncollectible,
and any payments subsequently received on such receivables are recorded as bad debt recoveries in the period the payment is received.
Credit losses from continuing operations have consistently been within management’s expectations. The allowance for doubtful accounts
was $0.42 million and $0 million as of September 30, 2021 and December 31, 2020, respectively.
6. INVENTORY
Inventory consists of the following (in thousands):
| | |
September 30, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| Raw materials | |
$ | 16,327 | | |
$ | 16,534 | |
| Work-in-process | |
| 3,993 | | |
| 5,040 | |
| Finished goods | |
| 21,001 | | |
| 13,424 | |
| Packaging | |
| 3,950 | | |
| 3,004 | |
| Total | |
$ | 45,271 | | |
$ | 38,002 | |
| 7. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
The following table provides additional information related to the
Company’s prepaid expenses and other current assets (in thousands):
| | |
September 30, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Prepaid advertising expenses | |
$ | 4,406 | | |
$ | - | |
| Prepaid expenses, other | |
| 2,471 | | |
| 1,897 | |
| Tax credits | |
| 1,275 | | |
| 1,884 | |
| Warrants receivable (see Note 17) | |
| - | | |
| 13,542 | |
| Other current assets | |
| 65 | | |
| 1,093 | |
| Total | |
$ | 8,217 | | |
$ | 18,416 | |
8. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant and equipment consists of the following (in thousands)
:
| | |
September 30, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Building | |
$ | 4,836 | | |
$ | 2,574 | |
| Leasehold improvements | |
| 3,915 | | |
| 2,106 | |
| Machinery and equipment | |
| 27,122 | | |
| 12,526 | |
| Computer equipment | |
| 536 | | |
| 187 | |
| Furniture and fixtures | |
| 161 | | |
| 109 | |
| Land | |
| 752 | | |
| - | |
| Construction in progress | |
| 5,478 | | |
| 1,533 | |
| | |
| 42,800 | | |
| 19,035 | |
| Less: accumulated depreciation | |
| (6,031 | ) | |
| (2,952 | ) |
| Property, plant, and equipment, net | |
$ | 36,769 | | |
$ | 16,083 | |
Approximately $4.0 million out of the $5.5 million
construction in progress is the manufacturing equipment for the newly acquired entity, NMFD (see note 10). The Company expects to have
the equipment installed and used for production by the end of March 2022.
The Company recorded depreciation expense for the three months ended
September 30, 2021 and 2020 of $1.07 million and $0.22 million, respectively. The Company recorded depreciation expense for the nine months
ended September 30, 2021 and 2020 of $2.51 million and $0.69 million, respectively.
9. INTANGIBLE ASSETS, NET
Intangible assets consist of the following as of (in thousands):
| | |
September 30, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Tradenames | |
$ | 220 | | |
$ | - | |
| Less: accumulated amortization | |
| (41 | ) | |
| - | |
| Net | |
$ | 179 | | |
$ | - | |
The estimated useful lives of the identifiable definite-lived intangible
assets acquired in the NMFD Transaction were determined to be two years.
The Company recorded amortization expense of $0.03
million and $0 million, respectively, for the three months ended September 30, 2021 and 2020. The Company recorded amortization expense
of $0.04 million and $0 million, respectively, for the nine months ended September 30, 2021 and 2020.
Estimated future amortization expense for the definite-lived intangible
assets is as follows (in thousands):
| Three months ended December 31, 2021 | |
$ | 28 | |
| 2022 | |
| 110 | |
| 2023 | |
| 41 | |
| Total | |
$ | 179 | |
10. BUSINESS COMBINATION AND ASSET PURCHASES (As Restated)
New Mexico Food Distributors, Inc. (NMFD) and Karsten Acquisition
On May 14, 2021, the Company acquired all outstanding
stock of NMFD, a distributor and manufacturer of frozen and ready-to-eat New Mexico food products for a total purchase price amounting
to $28.91 million. In addition, the Company acquired all of the membership interests of Karsten for a total purchase price of $5.18 million.
The NMFD Transaction met the definition of an acquisition of a business in accordance with ASC 805, Business Combinations, and
is accounted for under the acquisition method of accounting.
Though the purchase agreements for each of NMFD
and Karsten were executed as legally separate transactions, each were entered into contemporaneously and in contemplation of the other.
As such, the transactions noted above were accounted for on a combined basis and were viewed to represent a single integrated event.
Under the acquisition method of accounting, the
assets acquired and liabilities assumed by the Company in connection with the NMFD Transaction were initially recorded at their respective
fair values. The Company made an election under Section 338(h)(10) to treat the NMFD Transaction as an asset acquisition for income tax
purposes, which allows for any goodwill recognized to be tax deductible and amortized over a 15-year statutory life. The Company considered
the potential impact to the depreciation and amortization expense as a result of the fair values assigned to the acquired assets. The
excess of the purchase price over the fair value of assets acquired and liabilities assumed of approximately $17.97 million was recorded
as goodwill.
Transaction costs of $0.47 million were incurred
in relation to the acquisition of which $0.07 million pertained to reimbursement of costs incurred by the sellers and included as part
of the purchase consideration. The remaining $0.40 million was recorded to operating expense within the consolidated condensed statement
of operations for the nine months ended September 30, 2021. The Company did not record any operating expense related to the transaction
costs for the three months ended September 30, 2021.
The following table summarizes the provisional fair value of assets
acquired and liabilities assumed in the NMFD Transaction as of the date of acquisition:
| | |
Amount | |
| | |
(As Restated) | |
| Purchase consideration | |
$ | 34,091 | |
| Assets acquired and liabilities assumed | |
| | |
| Cash | |
$ | 173 | |
| Accounts receivable | |
| 3,567 | |
| Inventory | |
| 2,267 | |
| Prepaid expenses and other current assets | |
| 122 | |
| Operating lease, ROU asset | |
| 207 | |
| Property, plant and equipment | |
| 9,819 | |
| Finance lease, ROU assets * | |
| 5,749 | |
| Other noncurrent assets | |
| 29 | |
| Intangible assets – tradenames | |
| 220 | |
| Accounts payable | |
| (2,833 | ) |
| Accrued expenses | |
| (78 | ) |
| Operating lease liability | |
| (207 | ) |
| Note payable * | |
| (2,917 | ) |
| Goodwill | |
| 17,973 | |
| Total assets acquired and liabilities assumed | |
$ | 34,091 | |
| * | In December 2015 (prior to the NMFD and Karsten Acquisition), NMFD and Karsten entered into an agreement
to purchase an industrial revenue bond (“IRB”) issued by Bernalillo County, New Mexico (“Bernalillo”) to be used
to finance the costs of the constructing, renovating and equipping of the manufacturing plant and concurrently, assigned ownership of
the manufacturing plant including building and land (“Property”) to Bernalillo as consideration for the purchase of the IRB,
as well as entered into a lease agreement to lease the Property from Bernalillo (“Lease”). The Lease provides NMFD the option
to purchase the Property for $1 following the payoff of the Lease. The sale of the Property to Bernalillo and concurrent leaseback of
the Property in December 2015 did not meet the sale-leaseback accounting requirements as a result of NMFD’s and Karsten’s
continuous involvement with the Property and thus, the IRB was not recorded as a sale but as a financing obligation, with the Property
remaining on NMFD’s financial statements. The Lease and the IRB have the same counterparty, therefore a right of offset exists so
long as NMFD continues to make rent payments under the terms of the Lease. |
On May 14, 2021, the balance of the IRB asset
and the lease obligation to Bernalillo were $2.92 million and $2.92 million, respectively. Upon the acquisition of NMFD and Karsten, the
Company received all rights and assumed obligations related to the IRB, the Property and the Lease. Under business combination accounting
literature and prior to the adoption of ASC 842, the transaction involving the IRB and the Lease should not be reassessed and, therefore,
the failed sale-leaseback accounting should be reflected in the Company’s purchase accounting. There were no changes to the right
of offset as a result of the acquisition and, thus, the lease obligation was offset against the IRB asset and is presented net on the
Company’s consolidated balance sheet with no impact to the consolidated operations of income or consolidated cash flow statements.
The leased assets are accounted for as a right of use (“ROU”) asset under ASC 842 and the fair value of the ROU asset was
determined to be $5.7 million. As such, the lease for the land and the building will be presented on the consolidated balance sheet as
an ROU asset of $5.7 million. The Note payable bears interest at 3.8% and has a maturity date of December 29, 2025. The note payable balance
is reflected at the present value of future principal payments. The Company recognized the entire balance as a current liability due to
noncompliance with certain financing covenants. See Note 16.
The excess of purchase consideration over the
fair value of the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributable to the assembled workforce
and expanded market opportunities. Goodwill was assigned to the Company’s single reporting unit. The fair value assigned to the
assets acquired and liabilities assumed are based on management’s estimates and assumptions, which are preliminary, are based on
provisional amounts and may be subject to change as additional information is received. The Company expects to finalize the valuation
of these assets not later than one year from the acquisition date.
The estimated useful lives of the identifiable
definite-lived intangible assets acquired in the NMFD Transaction were determined to be two years.
The following unaudited pro forma financial information
presents the combined results of operations for each of the periods presented as if the NMFD Transaction had occurred as of January 1,
2020.
| (in thousands except share and per share amounts) | |
Three Months Ended | | |
Nine Months Ended | |
| (Unaudited) | |
September 30, | | |
September 30, | |
| | |
2021 | | |
2020 | | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| | |
(As Restated) | | |
| |
| Net Revenue - pro forma combined | |
$ | 58,355 | | |
$ | 49,141 | | |
$ | 173,935 | | |
$ | 129,512 | |
| Net (Loss) Income - pro forma combined | |
| (8,546 | ) | |
| (3,336 | ) | |
| (74,362 | ) | |
| 1,907 | |
| Weighted Average Shares: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 81,957,170 | | |
| 28,324,038 | | |
| 81,404,348 | | |
| 28,324,038 | |
| Diluted | |
| 82,011,216 | | |
| 28,324,038 | | |
| 81,548,673 | | |
| 28,324,038 | |
| Net Income (Loss) per Share: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | (0.10 | ) | |
$ | (0.12 | ) | |
$ | (0.91 | ) | |
$ | 0.07 | |
| Diluted | |
$ | (0.10 | ) | |
$ | (0.12 | ) | |
$ | (0.91 | ) | |
$ | 0.07 | |
Esogel S.R.L. and Ferdifin S.p.A. Asset Acquisitions
In April 2021, the Company entered into asset
purchase agreements with Esogel S.R.L. (“Esogel”) and Ferdifin S.p.A. (“Ferdifin”) in Italy to purchase the machinery
and equipment owned by Esogel for $2.71 million and the land and building owned by Ferdifin for $2.17 million. The allocation of the total
costs (including related transaction costs) relating to these assets acquisitions is as follows:
| Assets acquired – Esogel | |
| |
| Specialized machinery – facility | |
$ | 2,168 | |
| Machinery and equipment | |
| 534 | |
| Other | |
| 10 | |
| Total assets acquired – Esogel | |
$ | 2,712 | |
| | |
| | |
| Assets acquired – Ferdifin | |
| | |
| Building | |
$ | 1,396 | |
| Land | |
| 776 | |
| Total assets acquired – Ferdifin | |
$ | 2,172 | |
11. DERIVATIVE INSTRUMENTS
The Company enters into foreign currency exchange
forward contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency
inventory purchases, receivables and payables. The Company’s primary objective in holding derivatives is to reduce the volatility
of earnings and cash flows associated with changes in foreign currency exchange rates. The Company’s derivatives expose the Company
to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company does, however, seek
to mitigate such risks by limiting its counterparties to major financial institutions, and management does not expect material losses
as a result of defaults by counterparties.
The fair values of the Company’s derivative
instruments classified as Level 2 financial instruments and the line items within the accompanying condensed consolidated balance sheets
to which they were recorded are summarized as of September 30, 2021 (as restated) and December 31, 2020, follows (in thousands):
| | |
| |
September 30, | | |
December 31, | |
| | |
Balance Sheet Line Item | |
2021 | | |
2020 | |
| Derivatives not designated as hedging instruments: | |
| |
| (As Restated) | | |
| | |
| Foreign currency derivatives | |
Prepaid expenses and other current assets | |
$ | - | | |
$ | 1,042 | |
| Foreign currency derivatives | |
Forward contract derivative liability | |
| 1,652 | | |
| - | |
| Total | |
| |
$ | 1,652 | | |
$ | 1,042 | |
The effect on the accompanying condensed consolidated
statements of operations and comprehensive income (loss) of derivative instruments not designated as hedges is summarized as follows (in
thousands):
| | |
| |
Three months | | |
Nine months | |
| | |
| |
ended | | |
ended | |
| | |
Line Item in Statements | |
September 30, | | |
September 30, | |
| | |
of Operations | |
2021 | | |
2021 | |
| Derivatives not designated as hedging instruments: | |
| |
(As Restated) | | |
(As Restated) | |
| Foreign currency derivatives | |
Other income (expense) | |
$ | (717 | ) | |
$ | (2,694 | ) |
| Total | |
| |
$ | (717 | ) | |
$ | (2,694 | ) |
| | |
| |
Three months | | |
Nine months | |
| | |
| |
ended | | |
ended | |
| | |
Line Item in Statements | |
September 30, | | |
September 30, | |
| | |
of Operations | |
2020 | | |
2020 | |
| Derivatives not designated as hedging instruments: | |
| |
| | |
| |
| Foreign currency derivatives | |
Other income (expense) | |
$ | 825 | $ | |
| 1,113 | |
| Total | |
| |
$ | 825 | $ | |
| 1,113 | |
Unrealized and realized (losses) gains on forward
currency derivatives for the three months ended September 30, 2021 and 2020 were $(0.72) million and $0.83 million, respectively. Unrealized
and realized (losses) gains on forward currency derivatives for the nine months ended September 30, 2021 and 2020 were $(2.69) million
and $1.11 million, respectively. The Company has notional amounts of $55.19 million and $45.60 million on outstanding derivatives as of
September 30, 2021 and December 31, 2020, respectively.
12. FAIR VALUE MEASUREMENTS
Contingent Consideration Liabilities – Holdback Shares
As part of the Transaction (Note 1), an additional
5,000,000 shares of Forum’s common stock (the “Holdback Shares”) were placed into escrow, to be released to certain
Myjojo (Delaware) stockholders upon satisfaction, within the first three years after the Closing Date, of the following conditions: (i)
if the trading price of the Company’s common stock equaled or exceeded $12.00 on any 20 trading days in any 30-day trading period
(the “$12.00 Share Price Trigger”), then 2,500,000 additional Holdback Shares were to be released to certain Myjojo (Delaware)
stockholders or (ii) if the trading price of the Company’s common stock equaled or exceeded $14.00 on any 20 trading days in any
30-day trading period (each of such $14.00 trigger and the $12.00 Share Price Trigger, a “Share Price Trigger”), then 2,500,000
Holdback Shares were to be released to certain Myjojo (Delaware) stockholders. If a change in control occurred within the first three
years after the Closing, all Holdback Shares not previously released were to be released to certain Myjojo (Delaware) stockholders. If
the conditions to release of the Holdback Shares were not satisfied within the first three years following the Closing Date, the Holdback
Shares would be forfeited. On November 16, 2020, both Share Price Trigger events for the issuance of the Holdback Shares occurred and,
accordingly, the Company released from escrow and delivered the 5,000,000 Holdback Shares to the Myjojo (Delaware) stockholders (other
than Pizzo Food Srls (“Pizzo”) and Myjojo (Delaware)’s Chief Operating Officer).
The Company recognized and measured a contingent
consideration liability associated with Holdback Shares at a fair value of $120.35 million, determined using a probability-weighted discounted
cash flow model. Significant inputs used in the model includes certain financial metric growth rates, volatility rates, projections associated
with the applicable contingency, the interest rate, and the related probabilities and payment structure in the Merger Agreement, which
are not observable in the market and are therefore considered to be Level 3 inputs.
On November 16, 2020, the contingencies were met
and accordingly the Holdback Shares were released. The remeasured fair value of the liability was $83.15 million based on the public share
price on release date and was charged against additional paid-in capital. The change in fair value during the period resulted in a gain
on settlement of the contingent consideration derivative of $37.20 million and was recorded within “other income” in the condensed
consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2020.
Sponsor Earnout Shares Subject to Transfer Restrictions
In accordance with the Sponsor Earnout Letter
entered into by and among Forum Investor II, LLC (the “Sponsor”), Forum and the Holder Representative, the Sponsor agreed
that at the Closing Date, the Sponsor placed 2,500,000 Founder Shares (as that term is defined in the Sponsor Earnout Letter) held by
it (the “Sponsor Earnout Shares”) into escrow. The vesting, release and forfeiture terms of the Sponsor Earnout Shares were
the same as the vesting, release and forfeiture terms applicable to the Holdback Shares, with 50% of the Sponsor Earnout Shares vesting
at each Share Price Trigger, and all Sponsor Earnout Shares released if a change of control occurred, in each case, within the first three
years after the Closing. If the conditions to the release of any Sponsor Earnout Shares were not satisfied on or prior to the date that
it is finally determined that the Myjojo (Delaware) stockholders are not entitled to or eligible to receive any further Holdback Releases
(as that term is defined in the Sponsor Earnout Letter) pursuant to the Merger Agreement, the Sponsor Earnout Shares were to be forfeited
by the Sponsor after such date, and returned to the Company for immediate cancellation. In November 2020, both Share Price Trigger events
for the issuance of the Holdback Shares occurred and, accordingly, the Company released from escrow and returned the 2,500,000 Sponsor
Earnout Shares to the Sponsor.
The
multiple settlement provisions of the Holdback Shares and Sponsor Earnout Shares constituted derivative instruments under ASC 815, which
must be classified as asset or liability instruments at their fair value at the Closing Date, and subsequently remeasured with changes
in fair value recognized in earnings. At the Closing Date, the fair value of the contingent consideration relating to the Holdback Shares
amounted to $120.35 million. The derivative liability was remeasured with changes in fair value recognized in earnings of $37.20 million
upon release of the Holdback Shares to the certain stockholders in November 2020. The fair value of the Sponsor Earnout Shares was $0
at the Closing Date and $0 upon the release date.
The
Company recognized and measured an asset associated with the Sponsor Earnout Shares at a fair value of $0 at the Closing Date, determined
using a probability-weighted discounted cash flow model. Significant inputs used in the models includes certain financial metric growth
rates, volatility rates, projections associated with the applicable contingency, the interest rate, and the related probabilities and
payment structure in the contingent consideration arrangement, which are not observable in the market and are therefore considered to
be Level 3 inputs.
The
Sponsor Earnout Shares were released on November 16, 2020 based on the remeasured fair value on the release date of $0, as none of the
Sponsor Earnout Shares were forfeited on that date. No gain or loss was recorded by the Company in connection with the Sponsor Earnout
Shares.
Warrant
Liabilities
The
Private Placement Warrants (see Note 1) are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant
liabilities on the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception (“initial
measurement”), which is at the Closing Date, and on a recurring basis (“subsequent remeasurement”), with changes in
fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive
income (loss).
Initial
Measurement
The
fair value of the Private Placement Warrants was initially measured at fair value on October 15, 2020, the Closing Date.
Subsequent
Measurement
At
each reporting period or upon exercise of the Private Placement Warrants, the Company remeasures the Private Placement Warrants at their
fair values with the change in fair value reported to current operations within the statements of operations and other comprehensive
income (loss). During the nine months ended September 30, 2021, Private Placement Warrants totaling 278,542 were settled, resulting in
an aggregate loss on settlements of $0.17 million.
For
the three months and the nine months ended September 30, 2021, the change in the fair value of the warrant liabilities charged to current
operations resulted in a gain of $0.21 million and $0.16 million, respectively.
Fair
Value Measurement
The
fair value of the Private Placement Warrants was determined to be $10.41 per warrant as of September 30, 2021, using Monte Carlo simulations
and certain Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected
life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied
volatility from its traded warrants and historical volatility of select peers’ common stock with a similar expected term of the
Private Placement Warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield on the grant date with a maturity
similar to the expected remaining term of the warrants. The expected term of the Private Placement Warrants is assumed to be equivalent
to their remaining contractual term. The dividend rate is based on the historical rate, which the Company estimated to remain at zero.
The
following table provides quantitative information regarding the inputs to the fair value measurement of the Private Placement Warrants
as of each measurement date:
| | |
October 15, | | |
| | |
| |
| | |
2020 | | |
| | |
| |
| | |
(Initial | | |
December 31, | | |
September 30, | |
| Input | |
Measurement) | | |
2020
| | |
2021 | |
| | |
| | |
| | |
| |
| Risk-free interest rate | |
| 0.32 | % | |
| 0.34 | % | |
| 0.79 | % |
| Expected term (years) | |
| 5 | | |
| 4.79 | | |
| 4.04 | |
| Expected volatility | |
| 35.00 | % | |
| 35.00 | % | |
| 55.00 | % |
| Exercise price | |
$ | 11.50 | | |
$ | 11.50 | | |
$ | 11.50 | |
| Fair value of warrants | |
$ | 13.85 | | |
$ | 12.72 | | |
$ | 10.41 | |
On
October 15, 2020, the fair value of the Private Placement Warrants was determined to be $13.85 per warrant, or an aggregate value of
$9.07 million for 655,000 outstanding warrants.
On
December 31, 2020, the fair value of the Private Placement Warrants was determined to be $12.72 per warrant, or an aggregate value of
$5.18 million for 407,577 outstanding warrants.
On
September 30, 2021, the fair value of the Private Placement Warrants was determined to be $10.41 per warrant, or an aggregate value of
$1.34 million for 129,035 outstanding warrants.
The
following table presents the changes in the fair value of warrant liabilities:
| | |
Private
Placement | |
| | |
| |
| Fair
value at initial measurement on October 15, 2020 | |
$ | 9,072 | |
| Exercise
of Private Placement Warrants | |
| (2,696 | ) |
| Change
in fair value (1) | |
| (1,192 | ) |
| Fair
value as of December 31, 2020 | |
$ | 5,184 | |
| Exercise
of Private Placement Warrants | |
| (3,674 | ) |
| Change
in fair value (1) | |
| (167 | ) |
| Fair
value as of September 30, 2021 | |
$ | 1,343 | |
| (1) | Changes
in fair value are recognized in change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive
income (loss). |
13.
LEASES
As
of September 30, 2021, the Company’s primary leasing activities were related to office space, production and storage facilities
and certain Company vehicles and equipment. In connection with the NMFD acquisition in May 2021, the Company assumed several operating
leases and a finance lease (the “Karsten Lease”) (see Note 10). The Karsten Lease provides the Company the option to purchase
the leased facility for $1.00 (one dollar) following the payoff of the lease obligation balance. The leased facility was accounted for
as a finance lease ROU asset in connection with the NMFD Transaction under ASC 842 (see Note 10).
Significant
assumptions and judgments were made in the application of GAAP for leases, including those related to the lease discount rate. The interest
rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, when the interest
rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is estimated to approximate the
interest rate on a collateralized basis with similar terms of the lease payments at commencement date, and in similar economic environments.
Upon
adoption, ASC 842, Leases had an impact in the Company’s consolidated balance sheet and in its consolidated statement of operations.
As part of the transition, the Company elected the following practical expedients:
| ● | Package
of practical expedients which eliminates the need to reassess (1) whether any expired or existing contracts are or contain leases; (2)
the lease classification for any expired or existing leases; and (3) the initial direct costs for any existing leases. |
| ● | The
practical expedient whereby the lease and non-lease components will not be separated for all classes of assets. |
| ● | Not
to recognize ROU assets and corresponding lease liabilities with a lease term of 12 months or less from the lease commencement date for
all class of assets. |
For
existing leases, the Company did not elect the use of hindsight and did not reassess lease term upon adoption. The Company leases office
and manufacturing facilities, equipment and vehicles under various operating arrangements. Certain of the leases are subject to escalation
clauses and renewal periods. The Company recognizes lease expense, including predetermined fixed escalations, on a straight-line basis
over the initial term of the lease from the time that the Company controls the leased property.
The
Company adjusted the adoption date opening ROU asset balance by $0.04 million and $0.03 million previously recorded as deferred rent
liabilities and prepaid expenses, respectively. On January 1, 2021, the Company recorded $4.16 million in operating lease ROU assets
and $4.17 million in operating lease liabilities. The adoption of ASC 842 had no significant impact on the Company’s statement
of operations.
The
components of lease costs are as follows:
| | |
| |
Three months | | |
Nine months | |
| (in thousands) | |
Statement of Operations Location | |
Ended September 30, 2021 | |
| Operating leases: | |
| |
| | |
| |
| Lease cost | |
Cost of goods sold | |
$ | 280 | | |
$ | 671 | |
| Lease cost | |
Operating expenses | |
| 76 | | |
| 211 | |
| Operating lease cost | |
| |
| 356 | | |
| 882 | |
| Finance leases: | |
| |
| | | |
| | |
| Amortization of right-of use assets | |
Operating expenses | |
| 43 | | |
| 66 | |
| Interest on IRB lease note payable | |
Interest expenses | |
| 28 | | |
| 41 | |
| Finance lease cost | |
| |
| 71 | | |
| 107 | |
| Other: | |
| |
| | | |
| | |
| Variable lease cost | |
Cost of goods sold | |
| 447 | | |
| 1,290 | |
| Variable lease cost | |
Operating expenses | |
| 6 | | |
| 10 | |
| Variable lease cost* | |
| |
| 453 | | |
| 1,300 | |
| Total lease cost | |
| |
$ | 880 | | |
$ | 2,289 | |
| * | Variable
lease cost primarily consists of month to month rent, charges based on usage and maintenance. |
The
Company’s rent expense amounted to $0.53 million and $1.48 million for the three months and nine months ended September 30, 2020,
respectively.
Supplemental
balance sheet information as of September 30, 2021 related to leases are as follows:
| | |
| |
September 30, | |
| (in thousands) | |
| |
2021
| |
| Assets | |
Balance Sheet Location | |
| | |
| ROU assets-Finance lease** | |
Finance lease right-of-use asset, net | |
$ | 5,749 | |
| Less: accumulated amortization | |
Finance lease right-of-use asset, net | |
| (66 | ) |
| Finance lease right-of-use assets, net | |
Finance lease right-of-use asset, net | |
| 5,683 | |
| ROU assets-Operating lease | |
Operating lease right-of-use assets | |
| 6,476 | |
| Less: accumulated amortization | |
Operating lease right-of-use assets | |
| (710 | ) |
| Operating lease right-of-use assets, net | |
Operating lease right-of-use assets | |
| 5,766 | |
| Total Lease ROU assets | |
| |
$ | 11,449 | |
| Liabilities | |
| |
| | |
| Current: | |
| |
| | |
| Operating lease liabilities, current | |
Operating lease liabilities, current | |
$ | (1,203 | ) |
| Finance lease liability** | |
** | |
| (2,851 | ) |
| Long term: | |
| |
| | |
| Operating lease liabilities, noncurrent | |
Operating lease liabilities, noncurrent | |
| (4,622 | ) |
| Total Lease liabilities | |
| |
$ | (8,676 | ) |
| ** | The
finance lease ROU asset and liability under an IRB arrangement were acquired and assumed through NMFD acquisition (see Note 11). The
finance lease liability was offset with IRB assets. The amounts of the finance lease liability and IRB assets were the same as the balance
of note payable (see Note 16). |
Supplemental
cash flow information related to leases was as follows:
| | |
Nine months
ended | |
| | |
September 30, | |
| (in thousands) | |
2021 | |
| Operating cash flows paid for operating leases | |
$ | (660 | ) |
| Financing cash flows paid for note payable related to IRB lease | |
| (66 | ) |
| | |
| | |
| Non-cash investing and financing activities: | |
| | |
| ROU assets obtained in exchange for lease obligations: | |
| | |
| Operating lease | |
| 2,313 | |
The
following table represents the weighted-average remaining lease term and discount rates for operating lease as of September 30, 2021:
| | |
Operating
Leases | | |
Finance
Leases | |
| Weighted-average remaining lease term (years) | |
| 7.66 | | |
| 4.00 | |
| Weighted-average discount rate | |
| 4.0%-5.3% | | |
| 3.8 | % |
The
following table reconciles the undiscounted future lease payments for operating leases to the operating leases recorded in the condensed
consolidated balance sheet at September 30, 2021:
| (in thousands) | |
Operating
Leases | |
| Three months ended December 31, 2021 | |
$ | 355 | |
| 2022 | |
| 1,363 | |
| 2023 | |
| 1,144 | |
| 2024 | |
| 856 | |
| 2025 | |
| 820 | |
| 2026 and thereafter | |
| 2,581 | |
| Total lease payments | |
$ | 7,119 | |
| Less imputed interest | |
| 1,294 | |
| Present value of future lease payments | |
$ | 5,825 | |
| Current Lease liabilities | |
| 1,203 | |
| Noncurrent Lease liabilities | |
| 4,622 | |
14.
ACCRUED EXPENSES
The
following table provides additional information related to the Company’s accrued expenses as of (in thousands):
| | |
September 30, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Accrued customer incentives | |
$ | 1,345 | | |
$ | 1,524 | |
| Accrued payroll | |
| 1,601 | | |
| 1,471 | |
| Accrued commission | |
| 1,450 | | |
| 108 | |
| Other accrued expenses | |
| 484 | | |
| 507 | |
| Total | |
$ | 4,880 | | |
$ | 3,610 | |
15.
INCOME TAXES
The
following table presents the provision for income taxes and the effective tax rate for the three months ended September 30, 2021 (as
restated) and September 30, 2020 in thousands:
| | |
September 30, | | |
September 30, | |
| | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Income tax benefit (expense) | |
$ | 255 | | |
$ | (493 | ) |
| Effective tax rate | |
| (2.9 | )% | |
| 17.9 | % |
The
following table presents the provision for income taxes and the effective tax rate for the nine months ended September 30, 2021 (as restated)
and September 30, 2020 in thousands:
| | |
September 30, | | |
September 30, | |
| | |
2021 | | |
2020 | |
| | |
(As Restated) | | |
| |
| Income tax benefit (expense) | |
$ | (48,279 | ) | |
$ | (1,776 | ) |
| Effective tax rate | |
| 185.8 | % | |
| (33.9 | )% |
As
of each reporting period, management assesses the available positive and negative evidence to estimate whether sufficient future taxable
income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated
was the cumulative loss incurred over the three-year periods ended June 30 and September 30, 2021. Such objective evidence limits the
ability to consider other subjective evidence, such as our projections for future growth.
Based
on this evaluation, a full valuation allowance was recorded on the net deferred tax asset of $51.24 million as of June 30, 2021. Management
has determined that there is sufficient negative evidence to conclude that it is more likely than not that the net deferred tax asset
will not be realizable. The Company therefore continues to maintain a full valuation allowance for the period ended September 30, 2021.
The
income tax (benefit) expense for the three and nine months ended September 30, 2021 was primarily attributable to foreign income tax
expenses on the Company’s foreign income in Italy and the expense recorded in the second quarter relating to a full valuation allowance
on the net deferred tax asset.
The
Company also believes that quarterly effective tax rates will vary from the fiscal 2021 effective tax rate as a result of recording a
full valuation allowance, recognizing the income tax effects of items that the Company cannot anticipate such as the changes in tax laws,
tax amounts associated with foreign earnings at rates different from the United States federal statutory rate, the tax impact of stock-based
compensation. The Company’s foreign earnings on Italian operations are subject to foreign taxes applicable to its income derived
in Italy.
As
of September 30, 2021, the Company had no open tax examinations by any taxing jurisdiction in which it operates. The taxing authorities
of the most significant jurisdictions are the United States Internal Revenue Service and the California Franchise Tax Board and the Agenzia
delle Entrate. The statute of limitations for which the Company’s tax returns are subject to examination are as follows: Federal
2017-2020, California 2016-2020, and Italy 2016-2020.
16.
INDEBTEDNESS
Debt
consisted of the following (in thousands):
| | |
September
30,
2021 | | |
December
31,
2020 | |
| | |
(As Restated) | | |
| |
| Notes payable | |
$ | 5,890 | | |
$ | 2,101 | |
| Notes payable to related parties (Note 19) | |
| 7 | | |
| 66 | |
| Revolving credit facilities | |
| 3,317 | | |
| 22 | |
| Total debt | |
| 9,214 | | |
| 2,189 | |
| Less: current portion | |
| (6,587 | ) | |
| (199 | ) |
| | |
| | | |
| | |
| Total long-term portion – net | |
$ | 2,627 | | |
$ | 1,990 | |
Revolving
credit facility
The
Company is party to a revolving line of credit agreement, which has been amended from time to time, pursuant to which a credit facility
has been extended to the Company until January 25, 2022 (the “Credit Facility”). The Credit Facility provides the Company
with up to $25.00 million in revolving credit. Under the Credit Facility, the Company may borrow up to (a) 90% of the net amount of eligible
accounts receivable; plus, (b) the lower of: (i) sum of: (1) 50% of the net amount of eligible inventory; plus (2) 45% of the net amount
of eligible in-transit inventory; (ii) $10.00 million; or (iii) 50% of the aggregate amount of revolving loans outstanding, minus (c)
the sum of all reserves. Under the Credit Facility: (i) the Company’s fixed charge coverage ratio may not be less than 1.10:1.00,
and (ii) the Company may make dividends or distributions in shares of stock of the same class and also distributions for the payment
of taxes. As of December 31, 2020, the Company was in compliance with all terms and conditions of its Credit Facility. As of September
30, 2021, the Company was not in compliance with the fixed charge coverage ratio term of the credit facility. This noncompliance has
no impact on the Company’s borrowing capacity and financial condition.
The
revolving line of credit bears interest at the sum of (i) the greater of (a) the daily Prime Rate, or (b) LIBOR plus 2%; and (ii) 1%.
The
revolving line of credit has an arrangement associated with it wherein all collections from collateralized receivables are deposited
into a collection account and applied to the outstanding balance of the line of credit on a daily basis. The funds in the collection
account are earmarked for payment towards the outstanding line of credit and given the Company’s obligation to pay off the outstanding
balance on a daily basis, the balance is classified as a current liability on the Company’s condensed consolidated balance sheets
as of September 30, 2021 and December 31, 2020. The balance on the credit facility was $2.62 million and $0.02 million as of September
30, 2021 and December 31, 2020, respectively.
The
Credit Facility included a capital expenditure loan (“Capex Loan”) in the amount of up to $1.89 million that functions to
reimburse the Company for certain qualified expenses related to the Company’s purchase of capital equipment. All borrowings against
this loan are payable on a straight-line basis over 5 years and accrue interest at the greater of (a) the daily Prime Rate or (b) the
daily LIBOR Rate plus 4%. The loan was paid off in full with the proceeds from the Transaction. The balance on the Capex Loan was $0
million as of both September 30, 2021 and December 31, 2020.
In
March 2021, Ittella Italy entered into a line of credit with a financial institution in the amount of 0.60 million Euros. The balance
on the credit facility was $0.69 million (0.60 million Euro) as of September 30, 2021.
Notes
payable
In
May 2021, Ittella Italy entered into a promissory note with a financial institution in the amount of 1.00 million Euros. The note accrues
interest at 1.014% and has a maturity date of May 28, 2025, when the full principal and interest are due. The balance on the promissory
note was 0.94 million Euro ($1.09 million USD) and 0 million Euro ($0 million USD) as of September 30, 2021 and December 31, 2020, respectively.
On
January 6, 2020, Ittella Properties, LLC, a variable interest entity (“VIE”) (see Note 21), refinanced all of its existing
debt with a financial institution in the amount of $2.10 million (the “Note”). The Note accrues interest at 3.60% and has
a maturity date of January 31, 2035. Financial covenants of the Note include a minimum fixed charge coverage ratio of 1.20 to 1.00. As
of September 30, 2021, the Company was in compliance with all terms and conditions of the Note. The outstanding balance on the Note was
$1.94 million and $2.02 million as of September 30, 2021 and December 31, 2020, respectively.
In
connection with the NMFD Transaction in May 2021 (see Note 10), the Company assumed a note payable in the amount of $2.92 million. The
note payable bears interest at 3.8% per annum and has a maturity date of December 29, 2025. Under the note payable, NMFD must maintain
a minimum fixed charge coverage ratio of 1.20:1.00, assessed semi-annually as of June 30th and December 31st of each calendar year beginning
December 31, 2021, and the Company must, on a consolidated basis, maintain a funded debt to EBITDA ratio not to exceed four to one, tested
semi-annually as of June 30 and December 31, with the first test to begin June 30, 2021. The outstanding balance of the note payable
was $2.86 million and classified as a current liability due to noncompliance with above financing covenants as of September 30, 2021.
Future
minimum principal payments due on the notes payable, including notes payable to related parties, for periods subsequent to September
30, 2021 are as follows (in thousands) (As Restated):
| Three months ended December 31, 2021 | |
$ | 3,475 | |
| 2022 | |
| 3,214 | |
| 2023 | |
| 408 | |
| 2024 | |
| 415 | |
| 2025 | |
| 275 | |
| 2026 | |
| 132 | |
| Thereafter | |
| 1,295 | |
| Total | |
$ | 9,214 | |
17.
STOCKHOLDERS’ EQUITY
The
condensed consolidated statements of changes in equity reflect the Reverse Recapitalization as of October 15, 2020. Since Myjojo (Delaware)
was determined to be the accounting acquirer in the Reverse Recapitalization, all periods prior to the consummation of the Transaction
reflect the balances and activity of Myjojo (Delaware) (other than shares which were retroactively restated in connection with the Transaction).
Further,
the Company issued awards to certain officers and all of its directors pursuant to the Tattooed Chef, Inc. 2020 Incentive Award Plan
(“Director Awards”) on December 17, 2020 (see Note 18). Salvatore Galletti received 4,935 shares of common stock of the Company
as part of the Director Awards. Such shares together with the shares that Salvatore Galletti received as a result of the Transaction
and the release of the Holdback Shares from escrow, resulted in Salvatore Galletti having approximately 38.33% (including the shares
of Company common stock held by Project Lily LLC, which is controlled by Mr. Galletti) of the voting power of the capital stock of the
Company as of September 30, 2021.
On
June 1, 2021, the Company issued 825,000 shares of common stock of the Company to the principals of Harrison & Co (“Harrison”)
as consideration for advisory services provided by Harrison to facilitate the successful completion of the Transaction (see Note 1).
The total consideration to Harrison included a $4.00 million success fee that was paid in cash upon closing of the Transaction and the
right to 825,000 shares of common stock of the Company to be issued between May 1, 2021 and June 30, 2021. The shares were considered
share-based compensation to non-employees and were classified as equity instruments as of October 15, 2020 (and therefore, not subject
to remeasurement). The fair value of the share-based consideration on the date of the Transaction amounted to $20.73 million. The share-based
consideration was fully vested upon consummation of the Transaction and there were no future service conditions. The fair value of the
shares is also included as Transaction costs and recognized within additional paid-in capital as a reduction to the total amount of equity
raised on the Closing Date.
Preferred
Stock
The
Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting
and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30,
2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Common
Stock
The
Company is authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001 per share. Holders of common stock are
entitled to one vote for each share. As of September 30, 2021, there were 81,982,392 shares issued and outstanding.
Noncontrolling
Interest
Prior
to the consummation of the Transaction, noncontrolling interest in Ittella Italy was included as a component of stockholders’ equity
on the accompanying condensed consolidated balance sheets. Noncontrolling interest in Ittella International contained a redemption feature
and was included as mezzanine equity on the accompanying condensed consolidated balance sheets (Note 3). The share of income attributable
to noncontrolling interest was included as a component of net income in the accompanying consolidation statements of operations and comprehensive
income prior to the Transaction.
As
discussed in Note 3, all noncontrolling interest were converted into Myjojo (Delaware)’s common shares, which were subsequently
exchanged for the Company’s common shares in the Transaction.
The
following schedule discloses the components of the Company’s changes in other comprehensive income attributable to noncontrolling
interest for the three months ended September 30, 2020 (in thousands):
| | |
2020 | |
| Net income attributable to noncontrolling interest in Ittella Italy | |
$ | 282 | |
| Net loss attributable to noncontrolling interest in Ittella International | |
| (440 | ) |
| Increase in noncontrolling interest due to foreign currency translation | |
| 57 | |
| Change in net comprehensive income attributable to noncontrolling interest for the three months ended September 30 | |
$ | (101 | ) |
The
following schedule discloses the components of the Company’s changes in other comprehensive income attributable to noncontrolling
interest for the nine months ended September 30, 2020 (in thousands):
| | |
2020 | |
| Net income attributable to noncontrolling interest in Ittella Italy | |
$ | 950 | |
| Net income attributable to noncontrolling interest in Ittella International | |
| 198 | |
| Increase in noncontrolling interest due to foreign currency translation | |
| 91 | |
| | |
| | |
| Change in net comprehensive income attributable to noncontrolling interest for the nine months ended September 30 | |
$ | 1,239 | |
Warrants
In
connection with Forum’s initial public offering (IPO) and issuance of Private Placement Units in August 2018, Forum issued Units
consisting of common stock with attached warrants as follows:
| 1. | Public Warrants – Forum issued 20,000,000 Units at a price of $10.00 per Unit, each Unit consisting of one share of common stock of Forum and one redeemable warrant. |
| 2. | Private Placement Warrants – Forum issued 655,000 Private Placement Units, each consisting of one share of common stock and one warrant to the Sponsor, Jefferies LLC and EarlyBirdCapital, Inc. |
Each
Public Warrant and Private Placement Warrant (together, the “Warrants”) entitled the holder to purchase one share of common
stock at an exercise price of $11.50.
The
Public Warrants contained a redemption feature that provided the Company the option to call the Public Warrants for redemption 30 days
after notice to the holder when any of conditions described in the following paragraph were met, and to require that any Public Warrant
holder who desired to exercise his, her or its Public Warrant prior to the redemption date do so on a “cashless basis,” by
converting each Public Warrant for an equivalent number of shares of common stock, determined by dividing (i) the product of the number
of shares of common stock underlying the Warrants, multiplied by the difference between the exercise price and the “Fair Market
Value”, and (ii) the Fair Market Value (defined as the average last sale price of the common stock for the ten trading days ending
on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Public Warrants).
The
Public Warrants became exercisable upon the occurrence of certain events (“trigger events”), which included the completion
of the Transaction. Once the Public Warrants became exercisable, the Company could redeem the Public Warrants in whole, at a price of
$0.01 per warrant within 30 days after a written notice of redemption, and if, and only if, the reported last sale price of the Company’s
common stock equaled or exceeded $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before
the Company sent the notice of redemption to the holder.
The
Private Placement Warrants are identical to the Public Warrants, except that so long as they are held by the Sponsor, an underwriter
of Forum’s IPO, or any of their permitted transferees, the Private Placement Warrants: (i) may be exercised for cash or on a cashless
basis; (ii) may not be transferred, assigned, or sold 30 days after the completion of a defined business combination except to a permitted
transferee who enters into a written agreement with the Company agreeing to be bound by the transfer restrictions, and (iii) are not
redeemable by the Company.
A
Warrant may be exercised only during the “Exercise Period” commencing on the later of: (i) the date that is 30 days after
the first date on which Forum completes its initial business combination; or (ii) 12 months from the date of the closing of the IPO,
and terminating on the earlier to occur (x) five years after Forum completes its initial business combination; (y) the liquidation of
the Company or, the Redemption Date (as that term is defined in the Warrant Agreement), subject to any applicable conditions as set forth
in the Warrant Agreement. The Company in its sole discretion may extend the duration of the Warrants by delaying the expiration date,
provided it give at least 20 days prior written notice of any such extension to the registered holders of the Warrants.
As
discussed in Note 1, Forum completed a business combination, which is one of the trigger events for exercisability of the Warrants.
Warrant
activity is as follows:
| | |
Public Warrants | | |
Private Placement Warrants | |
| Issued and outstanding as of October 15, 2020 | |
| 20,000,000 | | |
| 655,000 | |
| Exercised | |
| (5,540,316 | ) | |
| (247,423 | ) |
| Issued and outstanding as of December 31, 2020 | |
| 14,459,684 | | |
| 407,577 | |
| Exercised | |
| (14,459,684 | ) | |
| (278,542 | ) |
| Issued and outstanding as of September 30, 2021 | |
| - | | |
| 129,035 | |
The
Public Warrants were considered freestanding equity-classified instruments due to their detachable and separately exercisable features.
Accordingly, the Public Warrants were presented as a component of Stockholders’ Equity in accordance with ASC 815-40-25.
As
discussed in Note 12, the Private Placement Warrants are considered freestanding liability-classified instruments under ASC 815-40-25.
18.
EQUITY INCENTIVE PLAN
On
October 15, 2020, the Company’s Tattooed Chef, Inc. 2020 Incentive Plan (the “Plan”) became effective and permits the
granting of equity awards of up to 5,200,000 common shares to executives, employees and non-employee directors, with the maximum number
of common shares to be granted in a single fiscal year, when taken together with any cash fees paid to the non-employee director during
that year in respect of his or her service as a non-employee director, not exceeding $100,000 in total value to any non-employee director.
Awards available for grant under the Plan include Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted
Stock, Restricted Stock Units, Other Share-based Awards, Other Cash-based Awards and Dividend Equivalents. Shares issued under the Plan
may be newly issued shares or reissued treasury shares.
Options
maybe granted at a price per share not less than 100% of the fair market value at the date of grant. Options granted generally vest over
a period of three years, subject to the grantee’s continued service with the Company through the scheduled vested date and expire
no later than 10 years from the grant date.
Stock
Options
Stock
options under the Plan are generally granted with a strike price equal to 100% of the fair market value of the stock on the date of grant,
with a three-year vesting period and a grant life of 10 years. The strike price may be higher than the fair value of the stock on the
date of the grant but cannot be lower.
The
table below summarizes the stock option activity in the Plan for the three months ended September 30, 2021:
| | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
| | |
Average | | |
| |
| | |
| | |
Weighted | | |
Remaining | | |
| |
| | |
Number of | | |
Average | | |
Contractual | | |
Intrinsic | |
| | |
Awards | | |
Exercise | | |
Terms | | |
Value | |
| | |
Outstanding | | |
Price | | |
(Years) | | |
(in thousands) | |
| Balance at June 30, 2021 | |
| 1,040,300 | | |
$ | 22.88 | | |
| 9.57 | | |
$ | - | |
| Granted | |
| 555,000 | | |
| 18.31 | | |
| | | |
| | |
| Cancelled and forfeited | |
| (1,500 | ) | |
| 24.69 | | |
| | | |
| | |
| Exercised | |
| - | | |
| - | | |
| | | |
| | |
| Balance at September 30, 2021 | |
| 1,593,800 | | |
$ | 21.30 | | |
| 9.51 | | |
$ | - | |
| Exercisable at September 30, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
The
table below summarizes the stock option activity in the plan for the nine months ended September 30, 2021:
| | |
| | |
| | |
Weighted | | |
| |
| | |
| | |
| | |
Average | | |
| |
| | |
| | |
Weighted | | |
Remaining | | |
| |
| | |
Number of | | |
Average | | |
Contractual | | |
Intrinsic | |
| | |
Awards | | |
Exercise | | |
Terms | | |
Value | |
| | |
Outstanding | | |
Price | | |
(Years) | | |
(in thousands) | |
| Balance at December 31, 2020 | |
| 773,300 | | |
$ | 24.64 | | |
| 9.98 | | |
$ | - | |
| Granted | |
| 825,000 | | |
| 18.15 | | |
| | | |
| | |
| Cancelled and forfeited | |
| (4,500 | ) | |
| 24.69 | | |
| | | |
| | |
| Exercised | |
| - | | |
| - | | |
| | | |
| | |
| Balance at September 30, 2021 | |
| 1,593,800 | | |
$ | 21.30 | | |
| 9.51 | | |
$ | - | |
| Exercisable at September 30, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
There
were no options exercised during the three and nine months ended September 30, 2021.
Compensation
expense is recorded on a straight-line basis over the vesting period, which is the requisite service period, beginning on the grant date.
The compensation expense is based on the fair value of each option grant using the Black-Scholes option pricing model. During the three
and nine months ended September 30, 2021, the Company recorded in the aggregate $0.73 million and $1.78 million, respectively, of share-based
compensation expense related to stock options, which is included in SG&A expenses in the Company’s consolidated statements
of operations. As of September 30, 2021 and December 31, 2020, the Company had stock-based compensation expense of $8.47 million and
$5.65 million, respectively, related to unvested stock options not yet recognized that are expected to be recognized over an estimated
weighted average period of approximately three years.
The
fair value of each option grant was estimated on the grant date using the Black-Scholes option pricing model with the following weighted
average assumptions for the three and nine months ended September 30, 2021:
| | |
Three months | | |
Nine months | |
| | |
ended | | |
ended | |
| | |
September 30, | | |
September 30, | |
| | |
2021 | | |
2021 | |
| Dividend yield | |
| 0.00 | % | |
| 0.00 | % |
| Expected volatility | |
| 34.01 | % | |
| 33.99 | % |
| Risk-free interest rate | |
| 1.04 | % | |
| 1.11 | % |
| Expected term (in years) | |
| 6 | | |
| 6 | |
Expected
term—This represents the weighted-average period the stock options are expected to remain outstanding based upon expected exercise
and expected post-vesting termination.
Risk-free
interest rate—The assumption is based upon the observed U.S. treasury rate appropriate for the expected life of the employee stock
options.
Expected
volatility—The expected volatility assumption is based upon the weighted-average historical daily price changes of our common stock
over the most recent period equal to the expected option life of the grant based on the contractual term of the awards, adjusted for
activity which is not expected to occur in the future. Dividend yield—The dividend yield assumption is based on our history and
expectation of dividend payouts.
The
fair value of granted stock options was $3.50 million and $5.17 million for the three and nine months ended September 30, 2021, respectively.
Any
option granted under the Plan may include tandem Stock Appreciation Rights (“SARs”). SARs may also be awarded to eligible
persons independent of any option. The strike price per common share for each SAR shall not be less than 100% of the fair value of the
shares determined as of the date of grant.
Restricted
Stock and Restricted Stock Units
Restricted
Stock Units (“RSUs”) are convertible into shares of Company common stock upon vesting on a one-to-one basis. Restricted stock
has the same rights as other issued and outstanding shares of Company common stock except they are not entitled to dividends until the
awards vest. Restrictions also limit the sale or transfer of the RSUs or restricted stock during the vesting period. Any unvested portion
of the restricted stock and RSUs shall be terminated and forfeited upon termination of employment or service of the grantee.
Director
restricted stock activity under the Plan for the three months ended September 30, 2021 is as follows:
| | |
Employee Director
Awards | | |
Non-Employee Director
Awards | |
| | |
Number of Shares | | |
Weighted-
Average
Fair Value | | |
Number of
Shares | | |
Weighted-
Average
Fair Value | |
| Balance at June 30, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
| Granted | |
| - | | |
| - | | |
| 4,918 | | |
| 22.08 | |
| Vested | |
| - | | |
| - | | |
| (4,918 | ) | |
| 22.08 | |
| Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
| Non-vested restricted stock at September 30, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Director
restricted stock activity under the Plan for the nine months ended September 30, 2021 is as follows:
| | |
Employee Director
Awards | | |
Non-Employee Director
Awards | |
| | |
Number of Shares | | |
Weighted-
Average
Fair Value | | |
Number of
Shares | | |
Weighted-
Average
Fair Value | |
| Balance at December 31, 2020 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
| Granted | |
| - | | |
| - | | |
| 20,134 | | |
| 19.70 | |
| Vested | |
| - | | |
| - | | |
| (20,134 | ) | |
| 19.70 | |
| Forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
| Non-vested restricted stock at September 30, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
For
the three months ended September 30, 2021, there was no restricted stock activity for non-director employee and consultant under the
Plan.
Non-director
employee and consultant restricted stock activity under the Plan for the nine months ended September 30, 2021 is as follows:
| | |
Employee Awards | | |
Non-Employee Awards | |
| | |
| | |
Weighted- | | |
| | |
Weighted- | |
| | |
Number of | | |
Average | | |
Number of | | |
Average | |
| | |
Shares | | |
Fair Value | | |
Shares | | |
Fair Value | |
| Balance at December 31, 2020 | |
| 400,000 | | |
$ | 24.28 | | |
| 100,000 | | |
$ | 24.69 | |
| Granted | |
| 30,416 | | |
| 23.65 | | |
| 110,000 | | |
| 18.89 | |
| Vested | |
| (4,916 | ) | |
| 24.28 | | |
| (110,000 | ) | |
| 18.89 | |
| Forfeited | |
| (425,500 | ) | |
| 24.62 | | |
| (100,000 | ) | |
| 24.69 | |
| Non-vested restricted stock at September 30, 2021 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
The
fair value of consultant (non-employee) restricted stock vested was approximately $0 and $1.90 million for the three and nine months
ended September 30, 2021, respectively. The fair value of employee restricted stock awards vested was approximately $0 and $0.08 million
for the three and nine months ended September 30, 2021, respectively. The fair value of non-employee restricted stock awards vested was
$0.11 million and $0.58 million for the three and nine months ended September 30, 2021, respectively.
As
of September 30, 2021, unrecognized compensation costs related to the employee restricted stock awards was $0.
Performance
Shares and Performance Units
This
award may be granted to certain executive officers of the Company and certain consultants and vest if the performance goals and/or other
vesting criteria as stated in the relevant award agreement are achieved or the awards otherwise vest, which generally is for a period
of three to five years from the grant date. Vesting of this award applies if the grantee remains employed or consulted by the Company
through the applicable vesting date.
The
fair value of the award is equal to the average market price of the Company’s common stock at the grant date, adjusted for dividends
over the vesting period. Compensation expense is recorded ratably over the period beginning on the grant date until the shares become
unrestricted based on the amount of the award that is expected to be earned, adjusted each reporting period based on current information.
19.
RELATED PARTY TRANSACTIONS (As Restated)
The
Company leases office property in San Pedro, California from Deluna Properties, Inc., a company owned by Salvatore Galletti. Rent expense
was $0.06 million and $0.02 million for the three months ended September 30, 2021 and 2020, respectively. Rent expense was $0.15 million
and $0.05 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, under the adoption of
ASC 842, the Company recorded $2.07 million of operating lease right-of-use asset and $2.12 million of operating lease liabilities in
relation to this lease.
The
Company entered into a credit agreement with Salvatore Galletti for a $1.20 million revolving line of credit in January 2007. Monthly
interest payments were accrued at 4.75% above the Prime Rate on any outstanding balance. In addition, the Company agreed to pay Salvatore
Galletti 0.67% per month of the full amount of the revolving credit line, regardless of whether the Company has borrowed against the
line of credit. For the three and nine months ended September 30, 2021 and 2020, respectively, zero amount of the fees have been paid
to the lender. This agreement originally expired on December 31, 2011, which was amended from time to time and extended to December 31,
2024. The outstanding balance of the line of credit was $0 million as of both September 30, 2021 and December 31, 2020. On October 1,
2021, this revolving credit agreement has been early terminated by both parties without penalty or fees.
In
May 2018, Ittella Italy entered into a promissory note with Pizzo in the amount of 0.48 million Euros. The note bears interest at 8.00%
per annum. The balance of the note was 0.01 million Euros and 0.07 million Euros as of September 30, 2021 and December 31, 2020, respectively.
The
Company is a party to a revolving line of credit with Marquette Business Credit with borrowing capacity of $25.00 million as of both
September 30, 2021 and December 31, 2020 (Note 16). The parent organization of Marquette Business Credit is UMB (Note 3).
20.
COMMITMENTS AND CONTINGENCIES
In
the ordinary course of business, the Company also enters into real property leases, which require the Company as lessee to indemnify
the lessor from liabilities arising out of the Company’s occupancy of the properties. The Company’s indemnification obligations
are generally covered under the Company’s general insurance policies.
From
time to time, the Company is involved in various litigation matters arising in the ordinary course of business. The Company does not
believe the disposition of any current matter will have a material adverse effect on its condensed consolidated financial position or
results of operations.
In
October 2021, the Company reached an agreement with a party to resolve a long-standing dispute through mediation and the Company has
agreed to pay $0.43 million without admitting any fault. The Company accrued the full amount on the financial statements as of September
30, 2021.
A
subsidiary of the Company, Ittella Italy, is involved in certain litigation related to the death of an independent contractor who fell
off of the roof of Ittella Italy’s premises while performing pest control services. The case was brought by five relatives of the
deceased worker. The five plaintiffs are seeking collectively 1.87 million Euros from the defendants. In addition to Ittella Italy, the
pest control company for which the deceased was working at the time of the accident is co-defendant. Furthermore, under Italian law,
the president of an Italian company is automatically criminally charged if a workplace death occurs on site. Ittella Italy has engaged
local counsel, and while local counsel does not believe it is probable that Ittella Italy or its president will be found culpable, Ittella
Italy cannot predict the ultimate outcome of the litigation. Procedurally, the case remains in a very early stage of the litigation.
Ultimately, a trial will be required to determine if the defendants are liable, and if they are liable, a second separate proceeding
will be required to establish the amount of damages owed by each of the co-defendants. Ittella Italy believes any required payment could
be covered by its insurance policy; however, it is not possible to determine the amount at which the insurance company will reimburse
Ittella Italy or whether any reimbursement will be received at all. Based on information received from its Italian lawyers, Ittella Italy
believes that the litigation may continue for a number of years before it is finally resolved.
The
Company believes that a loss from the Ittella Italy litigation is currently not probable, and an estimate cannot be made. Therefore,
no accrual has been made as of September 30, 2021 or December 31, 2020.
21.
CONSOLIDATED VARIABLE INTEREST ENTITY
Ittella
Properties LLC (“Properties”), the Company’s consolidated VIE, owns the Alondra Building, which is leased by Ittella
International for 10 years from August 1, 2015 through August 1, 2025. Properties is wholly owned by Salvatore Galletti. The construction
and acquisition of the Alondra building by Properties were funded by a loan agreement with unconditional guarantees by Ittella International
and terms providing that 100% of the Alondra building must be leased to Ittella International throughout the term of the loan agreement.
The
Company concluded that it has a variable interest in Properties on the basis that Ittella International guarantees the loan for Properties
and substantially all of Properties’ transactions occur with the Ittella International. Thus, Properties’ equity at risk
is considered to be insufficient to finance its activities without additional support from Ittella International, and, therefore, Properties
is considered a VIE.
The
results of operations and cash flows of Properties are included in the Company’s condensed consolidated financial statements. For
the three- and nine-month periods ended September 30, 2021 and 2020, 100% of the revenue of Properties is intercompany and thus was eliminated
in consolidation. Properties contributed expenses of $0.05 million for both the three-month periods ended September 30, 2021 and 2020.
Properties contributed expenses of $0.16 million and $0.20 million for the nine-month periods ended September 30, 2021 and 2020, respectively.
22.
EARNINGS PER SHARE
The
following is the summary of basic and diluted EPS for the three months ended September 30, 2021 and 2020 (in thousands, except for share
and per share amounts):
| | |
2021 | | |
2020 | |
| Numerator | |
(As Restated) | | |
| |
| Net Income (Loss) attributable to Tattooed Chef, Inc. | |
$ | (8,546 | ) | |
$ | (3,087 | ) |
| Dilutive Net Income (Loss) attributable to Tattooed Chef, Inc. | |
| (8,781 | ) | |
| (3,087 | ) |
| Denominator | |
| | | |
| | |
| Weighted average common shares outstanding | |
| 81,957,170 | | |
| 28,324,038 | |
| Effect of potentially dilutive securities related to Warrants | |
| 54,046 | | |
| - | |
| Weighted average diluted shares outstanding | |
| 82,011,216 | | |
| 28,324,038 | |
| Earnings per share | |
| | | |
| | |
| Basic | |
$ | (0.10 | ) | |
$ | (0.11 | ) |
| Diluted | |
$ | (0.10 | ) | |
$ | (0.11 | ) |
The
following have been excluded from the calculation of diluted earnings per share as the effect of including them would have been anti-dilutive
for the three months ended September 30, 2021 and 2020 (in thousands):
| | |
2021 | | |
2020 | |
| Stock options | |
| 279 | | |
| - | |
| Restricted stock awards | |
| - | | |
| - | |
| Total | |
| 279 | | |
| - | |
The following is the summary of basic and diluted EPS for the nine months ended September 30, 2021 and 2020 (in thousands, except for share and per share amounts):
| | |
2021 | | |
2020 | |
| Numerator | |
(As Restated) | | |
| |
| Net Income (Loss) attributable to Tattooed Chef, Inc. | |
$ | (74,260 | ) | |
$ | 2,314 | |
| Dilutive Net Income (Loss) attributable to Tattooed Chef, Inc. | |
| (74,593 | ) | |
| 2,314 | |
| Denominator | |
| | | |
| | |
| Weighted average common shares outstanding | |
| 81,404,348 | | |
| 28,324,038 | |
| Effect of potentially dilutive securities related to Warrants | |
| 144,325 | | |
| - | |
| Weighted average diluted shares outstanding | |
| 81,548,673 | | |
| 28,324,038 | |
| Earnings per share | |
| | | |
| | |
| Basic | |
$ | (0.91 | ) | |
$ | 0.08 | |
| Diluted | |
$ | (0.91 | ) | |
$ | 0.08 | |
The
following have been excluded from the calculation of diluted earnings per share as the effect of including them would have been anti-dilutive
for the nine months ended September 30, 2021 and 2020 (in thousands):
| | |
2021 | | |
2020 | |
| Stock options | |
| 385 | | |
| - | |
| Restricted stock awards | |
| 30 | | |
| - | |
| Total | |
| 415 | | |
| - | |
23.
SUBSEQUENT EVENTS
On
October 22, 2021, the Company entered into an agreement to acquire Belmont Confections, Inc. (“Belmont”) for an aggregate
purchase price of approximately $18.00 million plus the assumption of the assumed liabilities, subject to adjustment as set forth in
the purchase agreement. Approximately $4.00 million of the purchase price will be paid in the form of the Company’s common stock.
The number of shares of common stock payable at closing will be determined by using the average closing price of the Company’s
common stock over the three (3) days immediately prior to the closing. Upon completion of the acquisition, Belmont will not be treated
as a significant subsidiary of the Company. In accordance with Regulation S-X, condensed financial statements and pro forma condensed
financial information for Belmont transaction will not be provided as the impact of the transaction on the Company’s financial
position, results of operations and liquidity is not material. Belmont is a privately-held company based in Youngstown, Ohio and manufactures
private label nutrition and protein bars for health and fitness companies, primarily in the United States. As of the date of issuance
of these condensed consolidated financial statements, the transaction is not closed.