Management has evaluated subsequent events
through the date that the combined financial statements were available to be issued, October 30, 2020, and determined the following
matters occurred that require additional disclosure. No events occurring after this date have been evaluated for inclusion in these
combined financial statements, except as described in Note 8.
In December 2019, a novel strain of coronavirus
(COVID-19) was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak as a global pandemic.
The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries but Swerve has
not experienced a notable impact or disruption. The extent of the impact of COVID-19 on the Company’s operational and financial
performance will depend on certain developments, including the duration and spread of the outbreak and impact on the Company’s
customers, employees and vendors, all of which are uncertain and cannot be predicted. The extent to which this matter may impact
the Company’s future financial condition, operating results or cash flows cannot be reasonably estimated at this time.
In April 2020, the Company applied for
and received from the Small Business Administration a loan under the Paycheck Protection Program of approximately $165,000. The
loan bears interest at an annual amount of 1%. The loan may be forgivable if certain conditions are met. Management believes the
Company will meet the requirements for forgiveness and that the loan will be forgiven.
On August 27, 2020, a letter of intent
was entered into to sell 100% of the member interests in Swerve, L.L.C. and Swerve IP, L.L.C. On November 10, 2020, the sale of
the interests to Whole Earth Brands, Inc. for $80 million in cash was completed, resulting in a change in control of the Company.
Included in 2019 non-operating expenses is $199,793 of expenses incurred by the Company in its efforts to potentially enter into
a sale transaction.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
849,362
|
|
|
$
|
1,731,358
|
|
Accounts receivable
|
|
|
2,284,105
|
|
|
|
1,383,683
|
|
Inventories, net
|
|
|
5,909,109
|
|
|
|
6,589,450
|
|
Prepaid expenses and other current assets
|
|
|
62,571
|
|
|
|
183,622
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
9,105,147
|
|
|
|
9,888,113
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation and amortization of $377,706 and $322,197 as of 2020 and 2019, respectively
|
|
|
163,670
|
|
|
|
201,879
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
52,900
|
|
|
|
45,334
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
9,321,717
|
|
|
$
|
10,135,326
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBER’S EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,156,417
|
|
|
$
|
1,657,689
|
|
Accrued liabilities
|
|
|
308,199
|
|
|
|
107,516
|
|
Current portion of loan
|
|
|
100,779
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,565,395
|
|
|
|
1,765,205
|
|
|
|
|
|
|
|
|
|
|
Paycheck Protection Program loan, less current portion
|
|
|
64,132
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,629,527
|
|
|
|
1,765,205
|
|
|
|
|
|
|
|
|
|
|
MEMBER’S EQUITY
|
|
|
6,692,190
|
|
|
|
8,370,121
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND MEMBER’S EQUITY
|
|
$
|
9,321,717
|
|
|
$
|
10,135,326
|
|
See accompanying Notes to
Unaudited Condensed Combined Financial Statements.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
UNAUDITED CONDENSED COMBINED STATEMENTS
OF INCOME AND MEMBER’S EQUITY
|
|
Nine Months Ended September 30
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Product revenues, net
|
|
$
|
25,911,925
|
|
|
$
|
22,239,569
|
|
Cost of goods sold
|
|
|
16,092,646
|
|
|
|
14,054,499
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
9,819,279
|
|
|
|
8,185,070
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
3,312,104
|
|
|
|
1,605,880
|
|
Other operating expenses
|
|
|
2,138,054
|
|
|
|
1,529,292
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,450,158
|
|
|
|
3,135,172
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
4,369,121
|
|
|
|
5,049,848
|
|
|
|
|
|
|
|
|
|
|
Non-operating expenses, net
|
|
|
47,052
|
|
|
|
282,044
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,322,069
|
|
|
$
|
4,767,854
|
|
|
|
|
|
|
|
|
|
|
Member’s equity, beginning of period
|
|
$
|
8,370,121
|
|
|
$
|
5,056,425
|
|
Capital contributions
|
|
|
-
|
|
|
|
500,000
|
|
Return of capital contributions
|
|
|
(6,000,000
|
)
|
|
|
(100,000
|
)
|
Member’s equity, end of period
|
|
$
|
6,692,190
|
|
|
$
|
10,224,279
|
|
See
accompanying Notes to Unaudited Condensed Combined Financial Statements.
SWERVE, L.L.C. AND SWERVE, IP L.L.C.
UNAUDITED CONDENSED COMBINED STATEMENTS
OF CASH FLOWS
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,322,069
|
|
|
|
4,767,854
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55,509
|
|
|
|
53,353
|
|
Inventory reserve
|
|
|
-
|
|
|
|
207,360
|
|
Changes in operating accounts:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(900,422
|
)
|
|
|
(717,219
|
)
|
Inventories
|
|
|
680,341
|
|
|
|
(2,356,290
|
)
|
Prepaid expenses and other assets
|
|
|
123,485
|
|
|
|
(32,518
|
)
|
Accounts payable and accrued liabilities
|
|
|
699,411
|
|
|
|
(562,113
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Provided by Operating Activities
|
|
|
4,980,393
|
|
|
|
1,360,427
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(17,300
|
)
|
|
|
(3,446
|
)
|
Acquisition of intangible assets
|
|
|
(10,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used in Investing Activities
|
|
|
(27,300
|
)
|
|
|
(3,446
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Advances from lines of credit
|
|
|
-
|
|
|
|
2,900,000
|
|
Payments on lines of credit
|
|
|
-
|
|
|
|
(3,500,000
|
)
|
Proceeds from Paycheck Protection Program loan
|
|
|
164,911
|
|
|
|
-
|
|
Capital contributions
|
|
|
-
|
|
|
|
500,000
|
|
Return of capital contributions
|
|
|
(6,000,000
|
)
|
|
|
(100,000
|
)
|
|
|
|
|
|
|
|
|
|
Net Cash Flows Used in Financing Activities
|
|
|
(5,835,089
|
)
|
|
|
(200,000
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(881,996
|
)
|
|
|
1,156,981
|
|
Cash - beginning of period
|
|
|
1,731,358
|
|
|
|
264,008
|
|
|
|
|
|
|
|
|
|
|
Cash - end of period
|
|
$
|
849,362
|
|
|
$
|
1,420,989
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH PAID
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,878
|
|
|
$
|
84,298
|
|
See
accompanying Notes to Unaudited Condensed Combined Financial Statements.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS
Note 1 – Nature of Business and
Summary of Significant Accounting Policies
Nature
of Operations. Swerve, L.L.C. and Swerve IP, L.L.C. (collectively referred to as “Swerve” or “the
Company”) are focused on creating better-for-you baking and cooking products that are delicious and natural. Swerve IP, L.L.C.
is the owner of the intellectual property required to produce and market Swerve
brand sweetener. Swerve IP, L.L.C. has licensed the rights to use its intellectual property to Swerve, L.L.C. Swerve offers zero
calorie sweeteners, low carb and gluten free bake mixes. Swerve is headquartered in New Orleans, and was formed in 2010 as a limited
liability company in the state of Louisiana. Swerve was formed to have a perpetual life and the member has limited liability for
the obligations of the LLCs.
Basis
of Presentation. Unaudited interim combined financial statements of the Company as of September 30, 2020 and for
the nine-month periods ended September 30, 2020 and 2019 have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial information. The year-end combined balance
sheet dated as of December 31, 2019 was audited and is presented here as a basis for comparison. Although the combined financial
statements and related information included herein have been prepared without audit, and certain information and disclosures normally
included in the combined financial statements prepared in accordance with GAAP have been omitted, the Company believes that the
disclosures are adequate to make the information presented not misleading. In the opinion of the Company’s management, the
unaudited interim financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented.
The results of operations for interim periods are not necessarily indicative of the results expected for the full year or any future
period.
Principles
of Combination. The accompanying combined financial statements include the accounts of Swerve, L.L.C. and its related
entity through common ownership, Swerve IP, L.L.C. All significant intercompany accounts and transactions are eliminated in the
combined financial statements.
Use
of Estimates. The preparation of the combined 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 combined financial statements and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Cash.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts.
Accounts
Receivable. The Company extends unsecured credit to wholesale customers in the grocery and specialty food markets.
Receivables are considered past due if any portion of the receivable balance is outstanding beyond agreed upon terms (generally
30 days). Accounts are considered delinquent if outstanding more than 90 days. Accounts receivable are written off when deemed
uncollectible. The Company determined that no allowance for doubtful accounts is necessary as of September 30, 2020 and December
31, 2019, based on review of outstanding accounts and historical experience. The Company does not accrue interest on accounts receivable.
The majority of payments are via bank transfers or check payments so the Company does not have credit card risk.
Inventory.
The Company’s inventory is accounted for at the lower of cost (under the weighted-average method) or net realizable
value. The cost of inventory includes the acquisition costs of raw ingredients and packaging supplies, costs paid to contract manufacturing
facilities, and the in-bound freight costs incurred in connection with delivery of product to the contract manufacturing facilities
and to warehouse locations. Inventory reserves for realizable value or obsolescence are determined on a specific item basis. As
of both September 30, 2020 and December 31, 2019, inventory reserves were $207,360.
Property
and equipment. Property and equipment is primarily comprised of the office buildout associated with the Company’s
corporate location in New Orleans, which also includes a small warehouse. These improvements are depreciated using the straight-line
method over the life of the related lease, which expires April 30, 2022. Depreciation and amortization expense for property and
equipment was $55,509 and $53,353 for the nine months ended September 30, 2020 and 2019, respectively. Repair and maintenance costs
are expensed as incurred.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS
Intangible
assets. The Company has acquired bake mix recipes for $50,000 from a third party. These are considered intangible
assets and are included in “other assets” in the combined balance sheets. There are no foreseeable limits on the period
of time over which the recipes are expected to contribute to the cash flows of Swerve. Therefore, these intangible assets are assigned
an indefinite useful life.
Sales
and marketing. Sales and marketing expenses includes costs such as sales commission, trade shows and conferences,
field marketing, and advertising costs. Advertising costs are charged to expense when incurred. Advertising expense was $2,186,171
and $376,698 for the nine months ended September 30, 2020 and 2019, respectively.
Revenue
Recognition. The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”)
606. The core principle of ASC 606 is that a company will recognize revenue when it transfers promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
ASC 606 requires entities to recognize revenue through the application of a five-step model, which includes: identification of
the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction
price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations. Swerve’s
primary performance obligation is satisfied when products are delivered to the customers, which is the point in time when revenue
is recognized. The Company generally pays for all costs to deliver products to customers and does not bill customers for such costs.
The Company has made an accounting policy election to account for shipping and handling activities as a fulfillment of the promise
to transfer the goods. Accordingly, shipping and handling costs are included in cost of goods sold. Such costs totaled $1,106,681
and $1,108,593 for nine months ended September 30, 2020 and 2019, respectively.
Swerve
offers promotional activities (e.g. coupons, trade discounts and other promotional activities) to customers. These variable consideration
amounts are estimated for each customer based on specific arrangements/agreements existing at year end, and current activity with
that customer. Reassessment of variable consideration estimates is done at each reporting date until the uncertainty is resolved
(e.g. promotional campaign is closed and settled with customer). These promotional activities are deducted from revenue based on
amounts estimated as being or becoming due to customers and consumers at the end of a period. These deductions are estimated and
recorded in the same period as the product sale and revised as necessary in the subsequent period. For the nine months ended September
30, 2020 and 2019, product revenues have been reduced by $2,141,138 and $2,938,604, respectively, related to promotional
activities. As of September 30, 2020 and December 31, 2019, receivables have been reduced by $216,028 and $62,692, respectively,
for estimated promotional activity associated product revenues, not settled until the subsequent period.
The Company also sells products via the
Amazon Marketplace. Customer payments are made directly to Amazon, which then pays to the Company an amount net of Amazon’s
commissions and service fees. Amazon’s commissions and service fees totaled $3,329,526 and $3,047,902 for the nine months
ended September 30, 2020 and 2019, respectively. The product revenues recorded in the combined statement of operations is the net
amount received from Amazon.
The Company also offers its customers prompt
pay discounts which is also a variable consideration. For the nine months ended September 30, 2020 and 2019, product revenues have
been reduced by $429,157 and $359,462, respectively, for these discounts.
Customers do not have a contractual right
of return. Historically, rejected products have not been significant.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS
The following table presents the Company’s
percentage of revenues disaggregated by product categories for the period indicated:
|
|
Nine Months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Sweeteners
|
|
|
90
|
%
|
|
|
93
|
%
|
Bake mixes
|
|
|
10
|
%
|
|
|
7
|
%
|
|
|
|
100
|
%
|
|
|
100
|
%
|
Income
Taxes. Swerve, L.L.C. and Swerve IP, L.L.C. are treated as disregarded entities for Federal and state income tax
purposes. As such, the income, losses, and credits are included in the personal income tax return of their member and there is
no income tax provision or liability recorded in these combined financial statements.
The Company applies a “more-likely-than-not”
recognition threshold for all tax uncertainties. This approach only allows the recognition of those tax benefits that have a greater
than 50% percent likelihood of being sustained upon examination by the taxing authorities. The Company has reviewed its tax positions
and determined there were no outstanding or retroactive tax positions with less than a 50% likelihood of being sustained upon examination
by taxing authorities.
Accounting Standards Issued, Not
Yet Adopted
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842)”. This accounting standard requires lessees to recognize assets and liabilities related to lease
arrangements longer than 12 months on the balance sheet as well as additional disclosures. In July 2018, the FASB issued ASU 2018-11,
Leases (Topic 842): Targeted Improvements, to simplify the lease standard’s implementation. The amended guidance relieves
businesses and other organizations of the requirement to present prior comparative years’ results when the new lease standard
is adopted. Instead of recasting prior year results using the new accounting when the guidance is adopted, companies can choose
to recognize the cumulative effect of applying the new standard to leased assets and liabilities as an adjustment to the opening
balance of retained earnings. The standard will be effective for the Company as of November 11, 2020 as a result of the change
of control described in Note 8 to the combined financial statements.
In June 2016, the FASB issued ASU 2016-13,
“Financial Instruments - Credit Losses (Topic 326)”. This accounting standard requires entities to estimate losses
on financial assets measured at amortized cost, including trade receivables, debt securities and loans, using an expected credit
loss model. The expected credit loss differs from the previous incurred losses model primarily in that the loss recognition threshold
of “probable” has been eliminated and that expected loss should consider reasonable and supportable forecasts in addition
to the previously considered past events and current conditions. Additionally, the guidance requires additional disclosures related
to the further disaggregation of information related to the credit quality of financial assets by year of the asset’s origination
for as many as five years. Entities must apply the standard provision as a cumulative-effect adjustment to retained earnings as
of the beginning of the first reporting period in which the guidance is effective. This standard is effective for the Company for
periods beginning after December 15, 2022.
The Company is currently assessing the
impact of adopting these new standards.
Business and Credit Concentrations
Customers
The Company’s exposure to credit
loss in the event of non-payment of accounts receivable by customers is estimated in the amount of the allowance for doubtful accounts.
The two largest customers are wholesale distributors which accounted for approximately 54% and 59% of total net product revenues
for the nine-months ended September 30, 2020 and 2019, respectively. These same customers accounted for approximately 57% and 56%
of accounts receivables as of September 30, 2020 and December 31, 2019, respectively. In addition to the wholesalers to whom the
Company sells direct, the Company also offers and sells products via the Amazon Marketplace sales channel, which accounted for
17% and 19% of net product revenues for the nine-months ended September 30, 2020 and 2019, respectively. At September 30, 2020
and December 31, 2019, receivables due from Amazon, net of fees deducted by Amazon for their services, were $172,697 and $250,643,
respectively.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS
During the nine months ended September
30, 2020 and 2019, international sales represented approximately 4% and 6%, respectively, of net product revenues. The Company’s
international sales are exclusively to customers in Canada. The related foreign exchange gains or losses on international sales
is negligible.
Raw Materials
Swerve currently utilizes two suppliers
to provide primary raw material under contracts that are generally 1-2 years in length. These supply contracts were scheduled to
expire December 31, 2020. Subsequent to September 30, 2020, the Company entered into supply contracts with these two suppliers
covering 2021. The raw materials purchase commitments for 2021 under these two contracts total approximately $9 million. The primary
raw material used by the Company is available from other suppliers throughout the world and Swerve maintains relationships with
secondary suppliers, so that other sourcing options are available.
Contract Manufacturers
Swerve utilizes numerous contract manufacturers
for different finished goods. During 2020 and 2019, Swerve utilized production sites that overlapped in their capabilities
and provided redundancy. Presently, the majority of the production is completed at a single contract manufacturer site with
whom the Company has been working since 2011. However, the type of production that is required to produce finished goods
for Swerve is widely available through contract manufacturing sites across the United States.
Note 2 – Inventories
Inventories consist of the following, as of the dates indicated:
​
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
Raw materials and packaging
|
|
$
|
2,914,484
|
|
|
$
|
2,718,250
|
|
Work-in-process
|
|
|
26,916
|
|
|
|
104,283
|
|
Finished goods
|
|
|
3,175,069
|
|
|
|
3,974,277
|
|
Inventory reserve
|
|
|
(207,360
|
)
|
|
|
(207,360
|
)
|
Inventories, net
|
|
$
|
5,909,109
|
|
|
$
|
6,589,450
|
|
Note 3 – Commitments and Contingencies
Covid-19 Pandemic Uncertainty
In December 2019, a novel strain of coronavirus
(COVID-19) was reported in Wuhan, China. On March 11, 2020, the World Health Organization declared the outbreak as a global pandemic.
The COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries but Swerve has
not experienced a notable impact or disruption. The extent of the impact of COVID-19 on the Company’s operational and financial
performance will depend on certain developments, including the duration and spread of the outbreak and impact on the Company’s
customers, employees and vendors, all of which are uncertain and cannot be predicted. The extent to which this matter may impact
the Company’s future financial condition, operating results or cash flows cannot be reasonably estimated at this time.
Office Lease
The Company leases office space at a single
location in New Orleans, Louisiana. The term of the lease is 84 months commencing May 1, 2015 and expiring April 30, 2022. Rent
expense is recognized over the term of the lease agreement. Rent expense was $40,947 and $36,013 for the nine months ended September
30, 2020 and 2019, respectively. Future noncancellable minimum rent payments related to this lease as of September 30, 2020 are
as follows: remainder of 2020--$10,675; 2021--$44,367; and 2022--$15,067.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS
Legal
From time to time, the Company is involved
in various legal proceedings arising from the normal course of business activities, including trademark protection, contract negotiation
and business practices. At this time, the Company is not aware of any material or unsettled claims.
Employment Agreement
The President of the Company has an employment
agreement with the Company that provides for six months of compensation if terminated without cause, as defined in the agreement,
and for incentive compensation at a percentage of net transaction value, as defined in the agreement, should all or a part of the
Company be sold. (See Note 8.)
Note 4 – Lines of Credit
A line of credit was opened with JP Morgan
Chase in September 2018 in the amount of $1,000,000 with interest based on an adjusted LIBOR rate plus approximately 3% per annum.
In October 2019, this line of credit was increased to a maximum of $2,000,000 of total available credit. The maturity date of the
line was in October 2020. The line expired as scheduled. As of both September 30, 2020 and December 31, 2019, the outstanding
balance of this line of credit was $-0-.
An additional line of credit was opened
with JP Morgan Chase in February 2019 in the amount of $1,000,000 with interest based on an adjusted LIBOR rate plus 2.89% per
annum. The maturity date of the line was in November 2019. The line expired as scheduled.
A line of credit was also opened with Hancock
Whitney Bank in February 2019 in the amount of $1,000,000 with a variable interest rate based on the Wall Street Journal Prime
rate. This line of credit was drawn on and then paid in full in September 2019. The maturity date of the line was in February 2020.
The line expired as scheduled. As of December 31, 2019, the outstanding balance of this line of credit was $-0-.
Interest expense for the nine months ended
September 30, 2020 and 2019 was $3,878 and $84,298, respectively.
Note 5 – Paycheck Protection Program
Loan
On April 5, 2020, the Company qualified
for and received a loan pursuant to the Paycheck Protection Program, a program implemented by the U.S. Small Business Administration
under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the “PPP Lender”), for an aggregate
principal amount of $164,911 (the "PPP Loan"). The PPP Loan bears interest at a fixed rate of 0.98% per annum, with the
first six months of interest deferred, has a term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration.
The principal amount of the PPP Loan is subject to forgiveness under the Paycheck Protection Program upon the Company’s request
to the extent that the PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection Program, including payroll
costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company. The Company has applied for
forgiveness of the PPP Loan with respect to these covered expenses. To the extent that all or part of the PPP Loan is not forgiven,
the Company will be required to pay interest on the PPP Loan at a rate of 0.98% per annum, and under the terms of the loan, commencing
in November 2020 principal and interest payments would be required through the maturity date in April 2022. The terms of the PPP
Loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties,
and insolvency events.
The Company has accounted for the PPP Loan
as a financial liability and will continue to do so until the loan is partly or wholly forgiven and the Company has been legally
released or the loan is paid.
SWERVE, L.L.C. AND SWERVE IP, L.L.C.
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL
STATEMENTS
Note 6 – Member’s Equity
Both Swerve, L.L.C. and Swerve IP, L.L.C.
are owned 100% by the same individual. The Member’s equity as of September 30, 2020 and December 31, 2019 represents net
capital contributions made by the member and accumulated earnings of the Company through those dates.
Note 7 – Other Operating Expenses
Other operating expenses consist of the
following for the period indicated:
|
|
Nine Months Ended September 30
|
|
|
|
2020
|
|
|
2019
|
|
Payroll and related benefits
|
|
$
|
1,369,824
|
|
|
$
|
905,153
|
|
Travel
|
|
|
69,522
|
|
|
|
187,146
|
|
Insurance
|
|
|
183,429
|
|
|
|
132,634
|
|
General office
|
|
|
153,995
|
|
|
|
121,615
|
|
Legal and professional
|
|
|
127,250
|
|
|
|
21,685
|
|
Depreciation and amortization
|
|
|
55,509
|
|
|
|
53,353
|
|
Other
|
|
|
178,525
|
|
|
|
107,706
|
|
|
|
$
|
2,138,054
|
|
|
$
|
1,529,292
|
|
Note 8 – Subsequent Events
Management has evaluated subsequent events
through the date that the combined financial statements were available to be issued, December 14, 2020, and determined the following
matter occurred that requires additional disclosure. No events occurring after this date have been evaluated for inclusion in these
combined financial statements.
On August 27, 2020, a letter of intent
was entered into to sell 100% of the member interests in Swerve, L.L.C. and Swerve IP, L.L.C. On November 10, 2020, the sale of
the interests to Whole Earth Brands, Inc. for $80 million in cash was completed, resulting in a change in control of the Company.
Included in non-operating expenses is $54,593 and $197,013 for the nine months ended September 30, 2020 and 2019, respectively,
which are expenses incurred by the Company in its efforts to potentially enter into a sale transaction.
Exhibit 99.3
UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On June 24, 2020,
Act II Global Acquisition Corp., a Cayman Islands exempted company (“Act II”), domesticated into a Delaware corporation
(the “Domestication”), and on June 25, 2020, consummated the indirect acquisition (the “Act II Acquisition”)
of (i) all of the issued and outstanding equity interests of Merisant Company (“Merisant”), Merisant Luxembourg Sarl
(“Merisant Luxembourg”), Mafco Worldwide LLC (“Mafco Worldwide”), Mafco Shanghai LLC (“Mafco Shanghai”),
EVD Holdings LLC (“EVD Holdings”), and Mafco Deutschland GmbH (together with Merisant, Merisant Luxembourg, Mafco Worldwide,
Mafco Shanghai, and EVD Holdings, and their respective direct and indirect subsidiaries, “Merisant and Mafco Worldwide”),
and (ii) certain assets and liabilities of Merisant and Mafco Worldwide included in the Transferred Assets and Liabilities (as
defined in the Act II Purchase Agreement (as hereafter defined)), from Flavors Holdings Inc. (“Flavors Holdings”),
MW Holdings I LLC (“MW Holdings I”), MW Holdings III LLC (“MW Holdings III”), and Mafco Foreign Holdings,
Inc. (“Mafco Foreign Holdings,” and together with Flavors Holdings, MW Holdings I, and MW Holdings III, the “Sellers”),
pursuant to that certain Purchase Agreement (the “Act II Purchase Agreement”) entered into by and among Act II and
the Sellers dated as of December 19, 2019, as amended. In connection with the Domestication, Act II changed its name to “Whole
Earth Brands, Inc.” (“Whole Earth Brands” or the “Company”). Refer to the definitive proxy statement/prospectus
filed with the Securities and Exchange Commission (“SEC”) by Act II on May 13, 2020 (the “Proxy Statement/Prospectus”)
and the supplement thereto filed by Act II on June 18, 2020 (the “Supplement”) as well as the Current Report on Form
8-K12B and related Form 8-K12B/A (collectively, the “Super 8-K”) filed with the SEC by the Company on June 30, 2020
for further details.
As a result of
the Act II Acquisition, for accounting purposes, Act II was deemed to be the acquirer and Merisant and Mafco Worldwide were deemed
to be the acquired parties and, collectively, the accounting predecessor. The Company’s financial statement presentation
includes the combined financial statements of Merisant and Mafco Worldwide as the “Predecessor” for periods prior to
the completion of the Act II Acquisition and includes the consolidation of Merisant and Mafco Worldwide, for periods after June
25, 2020 (referred to as the “Successor”).
Further, on November
10, 2020, Whole Earth Brands executed and closed a definitive Equity Purchase Agreement (the “Swerve Purchase Agreement”)
with RF Development, LLC (“RF Development”), Swerve, L.L.C. (“Swerve LLC”), and Swerve IP, L.L.C. (“Swerve
IP” and together with Swerve LLC, “Swerve”). Upon the terms and subject to the conditions set forth in the Swerve
Purchase Agreement, Whole Earth Brands purchased all of the issued and outstanding equity interests of both Swerve LLC and Swerve
IP from RF Development, and both Swerve LLC and Swerve IP became wholly-owned subsidiaries of Whole Earth Brands (the “Swerve
Acquisition”). The $80.0 million purchase price for the Swerve Acquisition was funded through a combination of available
cash on hand and approximately $47.9 million under the Company’s $50.0 million revolving loan facility. For purposes of the
unaudited pro forma condensed combined financial information, the Act II Acquisition and Swerve Acquisition will be collectively
referred to as the “Transactions”.
The following
unaudited pro forma condensed combined financial information presents the combination
of the historical financial statements of Merisant and Mafco Worldwide, the historical financial statements of Act II and the historical
financial statements of Swerve after giving effect to the Swerve Acquisition.
The unaudited
pro forma financial information is intended to reflect:
|
(1)
|
The consummation of Act II’s indirect acquisition of Merisant and Mafco Worldwide
|
|
(2)
|
The consummation of the Company’s acquisition of Swerve
|
The unaudited
pro forma condensed combined balance sheet assumes the Swerve Acquisition took place
on September 30, 2020 and combines the Company’s unaudited
balance sheet as of September 30, 2020 with Swerve’s unaudited balance sheet
as of September 30, 2020.
The unaudited
pro forma condensed combined statements of operations for the fiscal year ended December
31, 2019 and the nine months ended September 30, 2020 combine the historical financial statements of Merisant and Mafco Worldwide,
Act II and Swerve and assumes the Transactions occurred on January 1, 2019, the first day of the Company’s most recent fiscal
year.
The
unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily
indicative of the Company’s financial position or results of operations that would have occurred had the events been consummated
as of the dates indicated. In addition, the unaudited pro forma condensed combined financial information is not necessarily indicative
of the Company’s future financial condition or operating results. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company’s management believe are reasonable. Assumptions underlying the pro
forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed
combined financial information. In the opinion of the Company’s management, the pro forma adjustments reflected in the unaudited
pro forma condensed combined financial information are based on events that are (1) directly attributable to the specific Transactions,
(2) factually supportable, and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected
to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not
give effect to the potential impact of current financial conditions, or any anticipated revenue enhancements, cost savings or operating
synergies that may result from the Transactions.
The unaudited pro forma condensed
combined financial information was based on and should be read in conjunction with the Company’s and Swerve’s
historical financial statements referenced below:
|
●
|
The audited combined financial statements and accompanying notes of Merisant and Mafco Worldwide for the year ended December 31, 2019 and the audited financial statements and accompanying notes for Act II for the year ended December 31, 2019, which are included in the Proxy Statement/Prospectus;
|
|
|
|
|
●
|
The Company’s unaudited condensed combined financial statements as of September 30, 2020 (Successor) and for the three months ended September 30, 2020 (Successor), the periods June 26, 2020 through September 30, 2020 (Successor), January 1, 2020 through June 25, 2020 (Predecessor), and the three and nine months ended September 30, 2019 (Predecessor) included in the Company’s Form 10-Q, filed with the SEC on November 16, 2020;
|
|
|
|
|
●
|
Swerve’s audited combined financial statements and accompanying notes for the year ended December 31, 2019 attached as Exhibit 99.1 to the Company’s Current Report on Form 8-K/A filed with the SEC on January 13, 2021, to which this Exhibit 99.3 is attached; and
|
|
|
|
|
●
|
Swerve’s unaudited condensed combined financial statements as of and for nine months ended September 30, 2020 attached as Exhibit 99.2 to the Company’s Current Report on Form 8-K/A filed with the SEC on January 13, 2021, to which this Exhibit 99.3 is attached.
|
The Company and
Swerve prepare their financial information in accordance with accounting principles generally accepted in the United States (“U.S.
GAAP”) with all amounts stated in U.S. dollars (“USD”).
Unaudited Pro
Forma Condensed Combined Balance Sheet
As of September
30, 2020
(In thousands
of dollars, except for share and per share data)
|
|
Whole Earth
Brands, Inc.
(Historical)
|
|
|
Swerve
(Historical, as
adjusted)1
|
|
|
Swerve
Acquisition
Adjustments
|
|
|
Pro Forma
Combined
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
49,081
|
|
|
$
|
849
|
|
|
$
|
(32,994
|
)
|
(a)
|
$
|
16,936
|
|
Accounts receivable, net
|
|
|
54,281
|
|
|
|
2,284
|
|
|
|
—
|
|
|
|
56,565
|
|
Inventories
|
|
|
103,546
|
|
|
|
5,909
|
|
|
|
1,147
|
|
(b)
|
|
110,602
|
|
Prepaid expenses and other current assets
|
|
|
5,134
|
|
|
|
63
|
|
|
|
—
|
|
|
|
5,197
|
|
Total current assets
|
|
|
212,042
|
|
|
|
9,105
|
|
|
|
(31,847
|
)
|
|
|
189,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, net
|
|
|
41,398
|
|
|
|
164
|
|
|
|
—
|
|
|
|
41,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
|
12,378
|
|
|
|
—
|
|
|
|
76
|
|
(c)
|
|
12,454
|
|
Goodwill
|
|
|
124,874
|
|
|
|
—
|
|
|
|
36,660
|
|
(d)
|
|
161,534
|
|
Other intangible assets, net
|
|
|
144,809
|
|
|
|
50
|
|
|
|
36,350
|
|
(e)
|
|
181,209
|
|
Deferred tax assets, net
|
|
|
1,023
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,023
|
|
Other assets
|
|
|
3,772
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3,775
|
|
Total Assets
|
|
$
|
540,296
|
|
|
$
|
9,322
|
|
|
$
|
41,239
|
|
|
$
|
590,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
21,643
|
|
|
$
|
2,157
|
|
|
$
|
—
|
|
|
$
|
23,800
|
|
Accrued expenses and other current liabilities
|
|
|
29,777
|
|
|
|
308
|
|
|
|
2,886
|
|
(f)
|
|
32,971
|
|
Current portion of operating lease liabilities
|
|
|
3,423
|
|
|
|
—
|
|
|
|
48
|
|
(g)
|
|
3,471
|
|
Current portion of long-term debt
|
|
|
7,000
|
|
|
|
101
|
|
|
|
64
|
|
(h)
|
|
7,165
|
|
Total current liabilities
|
|
|
61,843
|
|
|
|
2,566
|
|
|
|
2,998
|
|
|
|
67,407
|
|
Non-Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
126,281
|
|
|
|
64
|
|
|
|
47,791
|
|
(i)
|
|
174,136
|
|
Deferred tax liabilities, net
|
|
|
17,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,400
|
|
Operating lease liabilities, less current portion
|
|
|
11,659
|
|
|
|
—
|
|
|
|
28
|
|
(j)
|
|
11,687
|
|
Other liabilities
|
|
|
15,892
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15,892
|
|
Total Liabilities
|
|
|
233,075
|
|
|
|
2,630
|
|
|
|
50,817
|
|
|
|
286,522
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.0001 par value; 220,000,000 shares authorized; 38,426,669 shares issued and outstanding
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
Additional paid-in capital
|
|
|
324,417
|
|
|
|
—
|
|
|
|
—
|
|
|
|
324,417
|
|
(Accumulated deficit) retained earnings
|
|
|
(20,345
|
)
|
|
|
6,692
|
|
|
|
(9,578
|
)
|
(k)
|
|
(23,231
|
)
|
Accumulated other comprehensive income
|
|
|
3,145
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,145
|
|
Total stockholders’ equity
|
|
|
307,221
|
|
|
|
6,692
|
|
|
|
(9,578
|
)
|
|
|
304,335
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
540,296
|
|
|
$
|
9,322
|
|
|
$
|
41,239
|
|
|
$
|
590,857
|
|
1 Refer to Note 3 – Reclassifications
for additional details regarding reclassifications to conform to Whole Earth Brands presentation.
See notes to unaudited
pro forma condensed combined financial information.
Unaudited Pro
Forma Condensed Combined Statements of Operations
For
the Nine Months Ended September 30, 2020
(In
thousands of dollars, except for share and per share data)
|
|
Combined
Merisant &
Mafco
Worldwide
(Historical)1
|
|
|
Act II
(Historical)
|
|
|
Act II
Acquisition
Adjustments
|
|
|
|
Whole
Earth
Brands, Inc.
As Adjusted
|
|
|
Swerve
(Historical,
as
adjusted)2
|
|
|
Swerve
Acquisition
Adjustments
|
|
|
|
Pro Forma
Combined
|
|
Product revenues, net
|
|
$
|
199,808
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
199,808
|
|
|
$
|
25,912
|
|
|
$
|
(618
|
)
|
(a)
|
|
$
|
225,102
|
|
Cost of goods sold
|
|
|
128,692
|
|
|
|
—
|
|
|
|
(13,323
|
)
|
(b)
|
|
|
115,369
|
|
|
|
16,093
|
|
|
|
(365
|
)
|
(c)
|
|
|
131,097
|
|
Gross profit
|
|
|
71,116
|
|
|
|
—
|
|
|
|
13,323
|
|
|
|
|
84,439
|
|
|
|
9,819
|
|
|
|
(253
|
)
|
|
|
|
94,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
60,182
|
|
|
|
105
|
|
|
|
(11,091
|
)
|
(d)
|
|
|
49,196
|
|
|
|
5,450
|
|
|
|
(363
|
)
|
(e)
|
|
|
54,283
|
|
Amortization of intangible assets
|
|
|
7,768
|
|
|
|
—
|
|
|
|
(1,015
|
)
|
(f)
|
|
|
6,753
|
|
|
|
—
|
|
|
|
1,250
|
|
(g)
|
|
|
8,003
|
|
Asset impairment charges
|
|
|
40,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
40,600
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
40,600
|
|
Transaction, restructuring and other, net
|
|
|
—
|
|
|
|
15,755
|
|
|
|
(15,755
|
)
|
(h)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
Operating (loss) income
|
|
|
(37,434
|
)
|
|
|
(15,860
|
)
|
|
|
41,184
|
|
|
|
|
(12,110
|
)
|
|
|
4,369
|
|
|
|
(1,140
|
)
|
|
|
|
(8,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(2,399
|
)
|
|
|
—
|
|
|
|
(3,257
|
)
|
(i)
|
|
|
(5,656
|
)
|
|
|
(4
|
)
|
|
|
(1,635
|
)
|
(j)
|
|
|
(7,295
|
)
|
Other income (expense), net
|
|
|
569
|
|
|
|
327
|
|
|
|
(327
|
)
|
(k)
|
|
|
569
|
|
|
|
(43
|
)
|
|
|
55
|
|
(l)
|
|
|
581
|
|
(Loss) income before income taxes
|
|
|
(39,264
|
)
|
|
|
(15,533
|
)
|
|
|
37,600
|
|
|
|
|
(17,197
|
)
|
|
|
4,322
|
|
|
|
(2,720
|
)
|
|
|
|
(15,595
|
)
|
(Benefit) provision for income taxes
|
|
|
(1,788
|
)
|
|
|
—
|
|
|
|
4,656
|
|
(m)
|
|
|
2,868
|
|
|
|
—
|
|
|
|
336
|
|
(n)
|
|
|
3,204
|
|
Net (loss) income
|
|
$
|
(37,476
|
)
|
|
$
|
(15,533
|
)
|
|
$
|
32,944
|
|
|
|
$
|
(20,065
|
)
|
|
$
|
4,322
|
|
|
$
|
(3,056
|
)
|
|
|
$
|
(18,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Loss Per Share - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o)
|
|
$
|
(0.49
|
)
|
Pro Forma Weighted Average Shares Outstanding - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o)
|
|
|
38,426,669
|
|
1 Includes the combined results of operations
of Whole Earth Brands for the predecessor period from January 1, 2020 through June 25, 2020 and the successor period from June
26, 2020 through September 30, 2020, as presented in the Company’s Form 10-Q for the quarterly period ended September 30,
2020.
2 Refer to Note 3 – Reclassifications
for additional details regarding reclassifications to conform to Whole Earth Brands presentation.
See notes to unaudited
pro forma condensed combined financial information.
Unaudited Pro
Forma Condensed Combined Statements of Operations
For
the Year Ended December 31, 2019
(In thousands
of dollars, except for share and per share data)
|
|
Combined
Merisant &
Mafco
Worldwide
(Historical)
|
|
|
Act II
(Historical)
|
|
|
Act II
Acquisition
Adjustments
|
|
|
|
Whole
Earth
Brands, Inc.
As Adjusted
|
|
|
Swerve
(Historical,
as
adjusted)1
|
|
|
Swerve
Acquisition
Adjustments
|
|
|
|
Pro Forma
Combined
|
|
Product revenues, net
|
|
$
|
272,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
$
|
272,200
|
|
|
$
|
31,434
|
|
|
$
|
(567
|
)
|
(a)
|
|
$
|
303,067
|
|
Cost of goods sold
|
|
|
163,600
|
|
|
|
—
|
|
|
|
5,820
|
|
(b)
|
|
|
169,420
|
|
|
|
20,537
|
|
|
|
(396
|
)
|
(c)
|
|
|
189,561
|
|
Gross profit
|
|
|
108,600
|
|
|
|
—
|
|
|
|
(5,820
|
)
|
|
|
|
102,780
|
|
|
|
10,897
|
|
|
|
(171
|
)
|
|
|
|
113,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
65,900
|
|
|
|
351
|
|
|
|
(358
|
)
|
(d)
|
|
|
65,893
|
|
|
|
4,698
|
|
|
|
(171
|
)
|
(e)
|
|
|
70,420
|
|
Amortization of intangible assets
|
|
|
10,700
|
|
|
|
—
|
|
|
|
(816
|
)
|
(f)
|
|
|
9,884
|
|
|
|
—
|
|
|
|
1,666
|
|
(g)
|
|
|
11,550
|
|
Restructuring and other expenses
|
|
|
2,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,200
|
|
Operating income (loss)
|
|
|
29,800
|
|
|
|
(351
|
)
|
|
|
(4,646
|
)
|
|
|
|
24,803
|
|
|
|
6,199
|
|
|
|
(1,666
|
)
|
|
|
|
29,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) income, net
|
|
|
(479
|
)
|
|
|
4,255
|
|
|
|
(11,533
|
)
|
(i)
|
|
|
(7,757
|
)
|
|
|
(58
|
)
|
|
|
(2,099
|
)
|
(j)
|
|
|
(9,914
|
)
|
Other (expense) income, net
|
|
|
(921
|
)
|
|
|
28
|
|
|
|
(28
|
)
|
(k)
|
|
|
(921
|
)
|
|
|
(227
|
)
|
|
|
—
|
|
|
|
|
(1,148
|
)
|
Income (loss) before income taxes
|
|
|
28,400
|
|
|
|
3,932
|
|
|
|
(16,207
|
)
|
|
|
|
16,125
|
|
|
|
5,914
|
|
|
|
(3,765
|
)
|
|
|
|
18,274
|
|
(Benefit) provision for income taxes
|
|
|
(2,500
|
)
|
|
|
—
|
|
|
|
(2,504
|
)
|
(m)
|
|
|
(5,004
|
)
|
|
|
—
|
|
|
|
451
|
|
(n)
|
|
|
(4,553
|
)
|
Net income (loss)
|
|
$
|
30,900
|
|
|
$
|
3,932
|
|
|
$
|
(13,703
|
)
|
|
|
$
|
21,129
|
|
|
$
|
5,914
|
|
|
$
|
(4,216
|
)
|
|
|
$
|
22,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Earnings Per Share - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o)
|
|
$
|
0.59
|
|
Pro Forma Weighted Average Shares Outstanding - Basic and Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(o)
|
|
|
38,426,669
|
|
1 Refer to Note 3 – Reclassifications
for additional details regarding reclassifications to conform to Whole Earth Brands presentation.
See notes to unaudited
pro forma condensed combined financial information.
NOTES TO THE
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 - Basis of Presentation
The unaudited
pro forma condensed combined financial information was prepared using the acquisition
method of accounting under the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification
(“ASC”) Topic 805, Business Combinations (“ASC 805”). The acquisition method of accounting requires use
of the fair value concepts defined in ASC 820, Fair Value Measurement ("ASC 820"). ASC 820 defines fair value
as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date.” Fair value measurements can be highly subjective, and it is possible the application
of reasonable judgment could develop different assumptions resulting in a range of alternative estimates using the same facts and
circumstances.
ASC 805 requires
the determination of the accounting acquirer, the acquisition date, the fair value of assets acquired and liabilities assumed and
the measurement of goodwill. The Company has been identified as the acquirer for accounting purposes based on the facts and circumstances
specific to the Swerve Acquisition. As a result, the Company will record the business combination in its financial statements and
will apply the acquisition method to account for the acquired assets and liabilities assumed from Swerve. Applying the acquisition
method includes recording the identifiable assets acquired and liabilities assumed at their fair values, measured as of the acquisition
date, and recording goodwill for the excess of the consideration transferred over the aggregate fair value of the identifiable
assets acquired and liabilities assumed. For purposes of the unaudited pro forma condensed
combined financial information, the fair values of Swerve’s identifiable assets acquired and liabilities assumed were
based on preliminary estimates. The final determination of the fair values of assets acquired and liabilities assumed could result
in material changes to the amounts presented in the unaudited pro forma condensed combined
financial information and future results of operations and financial position.
There were no
transactions between the Company and Swerve during the periods presented that would need to be eliminated.
Note 2 –
Conforming Accounting Policies
During the preparation of the unaudited
pro forma condensed combined financial information, management performed an initial
review of the accounting policies and presentation of financial information of the Company and Swerve to determine if differences
in accounting policies and presentation require adjustment. As a result of that review, management identified the following difference(s)
in accounting policies:
|
●
|
Merisant and Mafco Worldwide accounted for leases under ASC 840 during the Predecessor period while Act II accounted for leases under ASC 842. As of September 30, 2020, an operating lease right-of-use asset and operating lease liability was already recorded within the historical unaudited pro forma condensed combined balance sheet of Whole Earth Brands, Inc. which reflected the adoption of ASC 842. No material difference in rent expense in the Predecessor period was determined.
|
|
|
|
|
●
|
Swerve accounted for leases under ASC 840 as of September 30, 2020 and for the nine months and year ended September 30, 2020 and December 31, 2019, respectively. As such, an adjustment was made to record an operating lease right-of-use asset and operating lease liability within the unaudited pro forma condensed combined balance sheet as of September 30, 2020 to align with the Company’s policy of accounting for leases under ASC 842. The difference in rent expense in each period was determined to be immaterial to the pro forma financial statements, so no adjustments were made to the unaudited pro forma condensed combined statements of operations for the nine months and year ended September 30, 2020 and December 31, 2019, respectively.
|
|
|
|
|
●
|
Swerve accounted for spoilage allowance, customer redemptions and certain advertising costs in cost of goods sold and selling, general and administrative expenses in Swerve’s combined statements of operations. However, these amounts should be treated as contra revenue under the Company’s accounting policy for recognizing revenue. Therefore, an adjustment was made to cost of goods sold, selling, general and administrative expenses and product revenues, net within the unaudited pro forma condensed combined statements of operations for the nine months and year ended September 30, 2020 and December 31, 2019, respectively, to reflect this policy alignment.
|
As more information becomes available, management will
complete a more detailed review of Swerve’s accounting policies. As a result of that review, additional differences could
be identified that, when confirmed, could have a material impact on the unaudited pro forma condensed
combined financial information.
Note 3 – Reclassifications
Certain reclassifications have been made to conform
Swerve’s financial statement captions to the Company's financial statement captions as indicated in the tables below.
Balance sheet reclassifications
– The reclassifications to conform Swerve’s balance sheet captions to the Company’s balance sheet captions have
no impact on net assets and are summarized below (in thousands):
As of September
30, 2020
|
|
Swerve
(Historical)
|
|
|
Reclassifications
to conform to Whole Earth
Brands’
presentation
|
|
|
Swerve
(Historical,
as adjusted)
|
|
Other assets
|
|
$
|
53
|
|
|
$
|
(50
|
)
|
|
$
|
3
|
|
Other intangible assets, net
|
|
|
—
|
|
|
|
50
|
|
|
|
50
|
|
Accrued liabilities
|
|
|
308
|
|
|
|
(308
|
)
|
|
|
—
|
|
Accrued expenses and other current liabilities
|
|
|
—
|
|
|
|
308
|
|
|
|
308
|
|
Current portion of loan
|
|
|
101
|
|
|
|
(101
|
)
|
|
|
—
|
|
Current portion of long-term debt
|
|
|
—
|
|
|
|
101
|
|
|
|
101
|
|
Paycheck Protection Program loan, less current portion
|
|
|
64
|
|
|
|
(64
|
)
|
|
|
—
|
|
Long-term debt
|
|
|
—
|
|
|
|
64
|
|
|
|
64
|
|
Member’s equity
|
|
|
6,692
|
|
|
|
(6,692
|
)
|
|
|
—
|
|
(Accumulated deficit) retained earnings
|
|
|
—
|
|
|
|
6,692
|
|
|
|
6,692
|
|
Income statement reclassifications – The
reclassifications to conform Swerve’s combined statements of income captions to the Company’s income statement captions
have no impact on net income and are summarized below (in thousands):
For the Nine Months
Ended September 30, 2020
|
|
Swerve
(Historical)
|
|
|
Reclassifications
to conform to
Whole Earth
Brands’
presentation
|
|
|
Swerve
(Historical,
as adjusted)
|
|
Sales and marketing expenses
|
|
$
|
3,312
|
|
|
$
|
(3,312
|
)
|
|
$
|
—
|
|
Other operating expenses
|
|
|
2,138
|
|
|
|
(2,138
|
)
|
|
|
—
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
5,450
|
|
|
|
5,450
|
|
Non-operating expenses, net
|
|
|
(47
|
)
|
|
|
47
|
|
|
|
—
|
|
Interest expense, net
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Other income (expense), net
|
|
|
—
|
|
|
|
(43
|
)
|
|
|
(43
|
)
|
For the Year Ended
December 31, 2019
|
|
Swerve
(Historical)
|
|
|
Reclassifications
to conform to
Whole Earth
Brands’
presentation
|
|
|
Swerve
(Historical,
as adjusted)
|
|
Sales and marketing expenses
|
|
$
|
2,588
|
|
|
$
|
(2,588
|
)
|
|
$
|
—
|
|
Other operating expenses
|
|
|
2,110
|
|
|
|
(2,110
|
)
|
|
|
—
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
4,698
|
|
|
|
4,698
|
|
Non-operating expenses, net
|
|
|
(285
|
)
|
|
|
285
|
|
|
|
—
|
|
Interest (expense) income, net
|
|
|
—
|
|
|
|
(58
|
)
|
|
|
(58
|
)
|
Other (expense) income, net
|
|
|
—
|
|
|
|
(227
|
)
|
|
|
(227
|
)
|
Note 4 - Preliminary Purchase Price Allocation
The total purchase consideration
for the Swerve Acquisition has been allocated to the assets acquired and liabilities assumed for purposes of the unaudited pro
forma condensed combined financial information based on their estimated fair values at the acquisition date. The final allocation
of the purchase consideration for the Swerve Acquisition will be determined after the completion of a thorough analysis to determine
the fair value of all assets acquired and liabilities assumed, but in no event, later than one year following the completion of
the Swerve Acquisition.
The table below summarizes the
preliminary calculation of purchase consideration and allocation of purchase price to the assets acquired and liabilities assumed,
as if the acquisition had been completed on September 30, 2020. The allocation has not been finalized. Accordingly, the pro forma
adjustments to allocate the purchase consideration will remain preliminary until management finalizes the fair values of assets
acquired and liabilities assumed. The final amounts allocated to assets acquired and liabilities assumed are dependent upon certain
valuations and other studies that have not yet been completed, and as previously stated could differ materially from the amounts
presented in the unaudited pro forma condensed combined financial statements.
The preliminary purchase price allocation is presented
below (in thousands):
Purchase consideration
|
|
$
|
80,000
|
|
Accounts receivable, net
|
|
|
2,284
|
|
Inventories
|
|
|
7,056
|
|
Prepaid expenses and other current assets
|
|
|
63
|
|
Property, plant and equipment, net
|
|
|
164
|
|
Other intangible assets, net
|
|
|
36,400
|
|
Other assets
|
|
|
3
|
|
Total assets acquired
|
|
|
45,970
|
|
Accounts payable
|
|
|
2,157
|
|
Accrued expenses and other current liabilities
|
|
|
308
|
|
Current portion of long-term debt
|
|
|
165
|
|
Total liabilities assumed
|
|
|
2,630
|
|
Net assets acquired
|
|
|
43,340
|
|
Goodwill
|
|
$
|
36,660
|
|
Any increase or decrease in the
fair value of the net assets acquired, as compared to the information shown herein, could also change the portion of the purchase
consideration allocable to goodwill and could impact the operating results of the Company following the Swerve Acquisition due
to differences in the allocation of the purchase consideration, and changes in the depreciation and amortization related to some
of these assets and liabilities.
Note 5 - Adjustments to the
Unaudited Pro Forma Condensed Combined Balance Sheet
|
(a)
|
Represents the net adjustment of $(32.9) million to cash and cash equivalents to reflect cash proceeds of $47.9 million received from the Company’s revolving credit facility, a cash payment of $80.0 million to RF Development for Swerve and an adjustment of $(0.8) million as the Company did not acquire cash in the Swerve acquisition.
|
|
(b)
|
Represents an adjustment of $1.1 million to inventories to reflect Swerve’s inventory at estimated fair value (see Note 4 - Preliminary Purchase Price Allocation).
|
|
(c)
|
Represents an adjustment of $0.1 million to operating lease right-of-use assets to record the recognition of a right-of-use asset in connection with Swerve’s adoption of ASC 842.
|
|
(d)
|
Represents an adjustment of $36.7 million to goodwill based on the preliminary purchase price allocation (see Note 4 - Preliminary Purchase Price Allocation).
|
|
(e)
|
Represents the net adjustment to other intangible assets, net, to account for the change from Swerve’s historical net book value of intangible assets to the preliminary estimated fair value calculated as follows (in thousands):
|
|
|
Historical
Swerve
Book
Value
|
|
|
Estimated
Preliminary
Fair Value
|
|
|
Pro Forma Adjustment
|
|
|
Estimated
Remaining
Useful Life
(years)
|
|
Customer Relationships
|
|
$
|
—
|
|
|
$
|
3,500
|
|
|
$
|
3,500
|
|
|
|
10
|
|
Trade Names and Trademark
|
|
|
—
|
|
|
|
32,900
|
|
|
|
32,900
|
|
|
|
25
|
|
Product Formulations
|
|
|
50
|
|
|
|
—
|
|
|
|
(50
|
)
|
|
|
|
|
Total Intangible Assets
|
|
$
|
50
|
|
|
$
|
36,400
|
|
|
$
|
36,350
|
|
|
|
|
|
|
(f)
|
Represents an adjustment of $2.9 million to accrued expense and other current liabilities to reflect the accrual of one-time transaction costs directly attributable to the Swerve Acquisition incurred by the Company.
|
|
(g)
|
Represents an adjustment of $0.05 million to current portion of operating lease liabilities to record the recognition of the current portion of an operating lease liability in connection with Swerve’s adoption of ASC 842.
|
|
(h)
|
Represents an adjustment of $0.06 million to current portion of long-term debt to reclassify Swerve’s PPP loan from long-term debt, less current portion due to the terms of an escrow account to be established in connection with the Swerve Acquisition that requires the loan to be repaid in less than 12 months, if not forgiven.
|
|
(i)
|
Represents an adjustment to long-term debt to reflect the Company’s borrowings under its revolving credit facility to fund the Swerve Acquisition, which is expected to be repaid upon its five-year maturity, and the reclassification of Swerve's PPP loan to current portion of long-term debt (see note 5 (h) above) (in thousands):
|
|
|
As of September 30, 2020
|
|
Reclassification of PPP loan
|
|
$
|
(64
|
)
|
Drawdown on revolving credit facility
|
|
|
47,855
|
|
Net adjustment to long-term debt
|
|
$
|
47,791
|
|
|
(j)
|
Represents an adjustment of $0.03 million to operating lease liabilities, less current portion to record the recognition of the non-current portion of the operating lease liability in connection with Swerve's adoption of ASC 842.
|
|
(k)
|
Represents an adjustment to (accumulated deficit) retained earnings to eliminate the historical equity of Swerve and to reflect one-time transaction costs directly attributable to the Swerve Acquisition (in thousands):
|
|
|
As of September 30, 2020
|
|
Elimination of Swerve’s historical equity
|
|
$
|
(6,692
|
)
|
Swerve Acquisition costs
|
|
|
(2,886
|
)
|
Net adjustment to (accumulated deficit) retained earnings
|
|
$
|
(9,578
|
)
|
Note 6 - Adjustments to the Unaudited Pro Forma
Condensed Combined Statements of Operations
|
(a)
|
Represents an adjustment to product revenues, net of $0.6 million for both the nine months ended September 30, 2020 and year ended December 31, 2019 to reflect Swerve's spoilage allowances, customer redemptions and certain advertising costs as contra revenue under the Company's accounting policy for recognizing revenue (see Note 2 – Conforming Accounting Policies).
|
|
(b)
|
Represents the net adjustment to cost of goods sold of $(13.3) million and $5.8 million for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, to amortize inventory fair value adjustments in connection with the Act II Acquisition.
|
|
(c)
|
Represents an adjustment to eliminate $0.4 million of cost of goods sold for the nine months ended September 30, 2020 and year ended December 31, 2019, to reflect Swerve's spoilage allowances and customer redemptions as contra revenue under the Company's accounting policy for recognizing revenue (see Note 2 – Conforming Accounting Policies).
|
|
(d)
|
Represents the net adjustment to selling, general and administrative expenses for the nine months ended September 30, 2020 and year ended December 31, 2019 to eliminate one-time transaction costs directly attributable to the Act II Acquisition, record incremental depreciation expense resulting from certain buildings that have been adjusted to fair value in connection with the Act II Acquisition, and to adjust rent expense to reflect the change in market value of certain unfavorable leases in connection with the Act II Acquisition (in thousands):
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Elimination of one-time transaction costs
|
|
$
|
(10,949
|
)
|
|
$
|
—
|
|
Incremental depreciation expense
|
|
|
138
|
|
|
|
202
|
|
Net decrease in rent expense
|
|
|
(280
|
)
|
|
|
(560
|
)
|
Net adjustment to selling, general, and administrative expenses
|
|
$
|
(11,091
|
)
|
|
$
|
(358
|
)
|
|
(e)
|
Represents an adjustment to selling, general and administrative expenses to eliminate the Company's one-time transaction costs directly attributable to the Swerve Acquisition and to reclassify certain of Swerve's advertising costs as contra revenue (see Note 2 – Conforming Accounting Policies) (in thousands):
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Elimination of one-time transaction costs
|
|
$
|
(110
|
)
|
|
$
|
—
|
|
Reclass of certain advertising costs
|
|
|
(253
|
)
|
|
|
(171
|
)
|
Net adjustment to selling, general, and administrative expenses
|
|
$
|
(363
|
)
|
|
$
|
(171
|
)
|
|
(f)
|
Represents the net adjustment to amortization of intangible assets of $(1.0) million and $(0.8) million for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, resulting from the Company’s intangible assets that had been adjusted to fair value in connection with the Act II Acquisition.
|
|
(g)
|
Represents the adjustment to amortization of intangible assets of $1.3 million and $1.7 million for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, resulting from Swerve's intangible assets that had been adjusted to fair value in connection with the Swerve Acquisition.
|
|
(h)
|
Represents the adjustment to restructuring and other expenses to eliminate $15.8 million of one-time transaction costs related to investment banking, consulting fees, legal fees and accounting fees that were directly attributable to the Act II Acquisition incurred during the nine months ended September 30, 2020.
|
|
(i)
|
Represents the net adjustment to interest expense, net associated with the Company’s new debt financing entered into in connection with the Act II Acquisition and the adjustment to eliminate historical interest expense and interest income in connection with the Act II Acquisition (in thousands):
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Interest expense – Term Loan
|
|
$
|
(4,495
|
)
|
|
$
|
(6,267
|
)
|
Amortization of debt issuance costs – Term Loan
|
|
|
(816
|
)
|
|
|
(1,094
|
)
|
Amortization of debt issuance costs - Revolver
|
|
|
(282
|
)
|
|
|
(376
|
)
|
Elimination of historical interest expense
|
|
|
2,336
|
|
|
|
459
|
|
Elimination of historical interest income
|
|
|
—
|
|
|
|
(4,255
|
)
|
Net adjustment to interest income (expense), net
|
|
$
|
(3,257
|
)
|
|
$
|
(11,533
|
)
|
The interest rate on the term loan reflects a LIBOR
floor of 1.00% plus a margin of 3.50%. For each 0.125% increase in the interest rate on the term loan, interest expense would increase
by approximately $0.1 million and $0.2 million in the nine months ended September 30, 2020 and year ended December 31, 2019, respectively.
|
(j)
|
Represents the net adjustment to interest income (expense), net to eliminate Swerve's historical interest expense and record interest expense on the Company's revolving loan facility (in thousands):
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Interest expense - Swerve
|
|
$
|
4
|
|
|
$
|
84
|
|
Interest expense - Revolver
|
|
|
(1,639
|
)
|
|
|
(2,183
|
)
|
Net adjustment to interest income (expense), net
|
|
$
|
(1,635
|
)
|
|
$
|
(2,099
|
)
|
|
(k)
|
Represents the adjustment to other (expense) income, net to eliminate $0.3 million and $0.03 million of historical unrealized gains of Act II associated with the funds that were held in the Trust Account for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, which was used to fund portions of the aggregate cash obligations in connection with the Act II Acquisition.
|
|
(l)
|
Represents an adjustment to other income (expenses), net to eliminate $0.1 million of Swerve's one-time transaction costs directly attributable to the Swerve Acquisition for the nine months ended September 30, 2020.
|
|
(m)
|
Represents an adjustment to (benefit) provision for income taxes resulting from the Act II Acquisition pro forma adjustments of $4.7 million and $(2.5) million to reflect the income tax effect at an estimated 21% rate for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively.
|
|
(n)
|
Represents an adjustment to (benefit) provision for income taxes of $0.3 million and $0.5 million to reflect a tax provision at an estimated rate of 21% on the historical Swerve income before income taxes, net of pro forma adjustments, for the nine months ended September 30, 2020 and year ended December 31, 2019, respectively, as Swerve was historically a disregarded entity for federal and state income tax purposes.
|
|
(o)
|
Pro forma basic earnings per share was computed by dividing pro forma net income by the weighted average number of shares of common stock outstanding, as if such shares were issued and outstanding as of January 1, 2019. Pro forma diluted earnings per share was computed by using the treasury stock method to determine the potential dilutive effect of the Company’s warrants. There were no newly issued shares in connection with the Act II Acquisition or Swerve Acquisition. The following table sets forth a reconciliation of the numerators and denominators used to compute pro forma basic and diluted earnings per share:
|
|
|
Nine Months Ended
September 30, 2020
|
|
|
Year Ended
December 31, 2019
|
|
Weighted average shares of common stock outstanding - basic and diluted
|
|
|
38,426,669
|
|
|
|
38,426,669
|
|
Pro forma basic and diluted net (loss) income
|
|
$
|
(18,799,566
|
)
|
|
$
|
22,826,612
|
|
Pro forma basic and diluted net (loss) income per share
|
|
$
|
(0.49
|
)
|
|
$
|
0.59
|
|