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, 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 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 (see Note 10). NMFD and Karsten are 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.
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 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 six months ended June 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 revised the accompanying condensed
consolidated statements of operations and comprehensive income for the period ended June 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.
Revised Condensed Consolidated Statements of Operations and Comprehensive Income
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
Six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
7,537
|
|
|
$
|
-
|
|
|
$
|
7,537
|
|
Less: income (loss) attributable to the noncontrolling interest
|
|
|
34
|
|
|
|
1,361
|
|
|
|
1,395
|
|
Comprehensive income attributable to Tattooed Chef, Inc. stockholders
|
|
$
|
7,503
|
|
|
$
|
(1,361
|
)
|
|
$
|
6,142
|
|
The Company revised the
accompanying condensed consolidated balance sheet as of December 31, 2020, and the consolidated statements of operations and
comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2020 (not included herein) to
reflect the correction of an immaterial error related to the classification of Private Placement Warrants. These warrants are
now classified as liabilities with the related changes in the fair value of these warrants recorded in the statement
of operations and comprehensive income. This revision has an immaterial impact on the Company’s previously reported net income, earnings
per share, total liabilities and stockholders’ equity.
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 Warrants meet the definition of a derivative as contemplated in ASC 815, the Private Placement Warrants should be recorded
as derivative liabilities on the condensed consolidated balance sheet and measured at fair value upon recognition on October
15, 2020 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 in the Company’s
previously issued consolidated financial statements as of and for the year ended December 31, 2020, as previously reported in its Form
10-K.
The revised classification
and reported values of the Private Placement Warrants as accounted for under ASC 815-40 are included in the condensed consolidated financial
statements herein.
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:
|
|
Consolidated Balance Sheet
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
Warrant liability
|
|
|
-
|
|
|
|
5,184
|
|
|
|
5,184
|
|
Total Liabilities
|
|
|
32,339
|
|
|
|
5,184
|
|
|
|
37,523
|
|
Additional paid in capital
|
|
|
170,799
|
|
|
|
(6,376
|
)
|
|
|
164,423
|
|
Retained earnings
|
|
|
63,537
|
|
|
|
1,192
|
|
|
|
64,729
|
|
Total Stockholders’ Equity
|
|
|
234,344
|
|
|
|
(5,184
|
)
|
|
|
229,160
|
|
|
|
Consolidated Statement of Operations
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
For the year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
38,066
|
|
|
|
1,192
|
|
|
|
39,258
|
|
Income before provision for income taxes
|
|
|
28,446
|
|
|
|
1,192
|
|
|
|
29,638
|
|
Net income
|
|
|
68,724
|
|
|
|
1,192
|
|
|
|
69,916
|
|
Net income attributable to Tattooed Chef, Inc.
|
|
|
67,249
|
|
|
|
1,192
|
|
|
|
68,441
|
|
Basic net income per share
|
|
|
1.85
|
|
|
|
0.03
|
|
|
|
1.88
|
|
Diluted net income per share
|
|
|
1.69
|
|
|
|
0.03
|
|
|
|
1.72
|
|
|
|
Consolidated Statement of
Stockholders’ Equity
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
For the year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
Additional paid in capital from exercise of warrants
|
|
|
66,559
|
|
|
|
2,696
|
|
|
|
69,255
|
|
Additional paid in capital from reverse recapitalization
|
|
|
91,920
|
|
|
|
(9,072
|
)
|
|
|
82,848
|
|
Additional paid in capital ending balance
|
|
|
170,799
|
|
|
|
(6,376
|
)
|
|
|
164,423
|
|
Net income in retained earnings
|
|
|
67,249
|
|
|
|
1,192
|
|
|
|
68,441
|
|
Retained earnings ending balance
|
|
|
63,537
|
|
|
|
1,192
|
|
|
|
64,729
|
|
|
|
Consolidated Statement of Cash Flows
|
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As Revised
|
|
For the year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
68,724
|
|
|
|
1,192
|
|
|
|
69,916
|
|
Adjustments to reconcile net income to net provided by (cash used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation of common stock warrant liability to estimated fair value
|
|
|
-
|
|
|
|
(1,192
|
)
|
|
|
(1,192
|
)
|
The Company revised the accompanying condensed
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.
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 June 30, 2021 and December 31, 2020 approximates 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 six-months ended June 30, 2021 and 2020, the Company entered into foreign currency exchange forward contracts
to purchase 36.36 million Euros and 21.25 million Euros, respectively. The notional amounts of these derivatives are $44.19 million and
$23.38 million for the period ended June 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, of
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, on October 31, 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 its 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 six and three months ended June 30, 2021.
Long-Lived and Intangible Assets. Intangible
assets with finite lives are amortized on a straight-line basis over their estimated useful lives of two years. 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 these 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 require 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 six months ended June 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. The Agreements with respect to the Company’s Private Placement Warrants include
provisions related to determining settlement amounts that preclude the 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. 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; and (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 are 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.
Most contracts also include some form of variable
consideration, the most common form are discounts 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 does not have significant 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’s
deferred revenue balance is primarily comprised of sales to customers whose contractual shipping terms are FOB destination. Deferred revenue
was $0.95 million and $1.71 million as of June 30, 2021 and December 31, 2020, respectively.
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 product is not presented within cost of goods sold and is instead treated as an operating expense.
Sales and Marketing Expenses. The Company
expenses costs associated with sales and marketing as incurred. Sales and marketing expenses were $6.79 million and $1.16 million for
the three months ended June 30, 2021 and 2020, respectively, and $11.89 million and $1.78 million for the six months ended June 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 and $0.08 million as of June 30, 2021 and
December 31, 2020, respectively, and are recorded as a component of other assets in the accompanying condensed consolidated balance sheets.
Amortization expense of deferred financing costs were $0.02 million and $0.02 million during the six months ended June 30, 2021 and 2020,
respectively. Amortization expense of deferred financing costs were $0.01 million and $0.01 million during the three months ended June
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 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 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. Based on our assessment, we recognized a valuation allowance on our deferred tax assets of $47.22 million in the second quarter of 2021.
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 June 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 June 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 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 differ from these estimates.
Concentrations of Credit Risk. 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 June 30, 2021 and 2020.
Three customers accounted for 78% and 86% of the
Company’s revenue during the three months ended June 30, 2021 and 2020, respectively.
Customer
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Customer C
|
|
|
29
|
%
|
|
|
38
|
%
|
Customer A
|
|
|
37
|
%
|
|
|
35
|
%
|
Customer B
|
|
|
12
|
%
|
|
|
13
|
%
|
Three customers accounted for 84% and 86% of the
Company’s revenue during the six months ended June 30, 2021 and 2020, respectively.
Customer
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Customer C
|
|
|
35
|
%
|
|
|
39
|
%
|
Customer A
|
|
|
38
|
%
|
|
|
32
|
%
|
Customer B
|
|
|
11
|
%
|
|
|
15
|
%
|
Customers accounting for more than 10% of the
Company’s accounts receivable as of June 30, 2021 and December 31, 2020 were:
Customer
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Customer A
|
|
|
25
|
%
|
|
|
24
|
%
|
Customer B
|
|
|
*
|
|
|
|
10
|
%
|
Customer C
|
|
|
34
|
%
|
|
|
53
|
%
|
|
*
|
Customer B accounted for less than 10% of accounts receivable as of June 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.
|
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 and other non-current assets. The geographic location of long-lived assets is as follows:
Definite Lived Intangible Assets (in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Italy
|
|
$
|
-
|
|
|
$
|
-
|
|
United States - tradenames
|
|
|
206
|
|
|
|
-
|
|
Total
|
|
$
|
206
|
|
|
$
|
-
|
|
Definite Lived Intangible Assets
|
|
Remaining useful life
|
|
Description:
|
|
|
|
|
Tradenames
|
|
|
2
|
|
Long Lived Assets (in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Italy
|
|
$
|
16,132
|
|
|
$
|
9,113
|
|
United States
|
|
|
23,099
|
|
|
|
6,970
|
|
Total
|
|
$
|
39,231
|
|
|
$
|
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 SBA 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 will 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.
2.
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
The Company is an “emerging growth company”
(“EGC”) as defined in the Jumpstart Our Business Startup Act, (JOBS Act), and elected to take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies until the Company is no longer an EGC, including the
extended transition period for complying with new or revised accounting standards. As of December 31, 2021, the Company will become a
large accelerated filer under the rules of the SEC and will cease to qualify as an EGC.
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 material
impact Company’s condensed consolidated financial statements for the period ended June 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 for the period ended
June 30, 2021. The Company will continue to evaluate the impact this guidance may have on its condensed consolidated financial statements.
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.
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 will
result in the recognition of a right-of-use asset and a lease liability for all leases. New disclosure requirements include qualitative
and quantitative information about the amounts recorded in the financial statements. In September 2017, the FASB issued ASU 2017-13, Revenue
Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), which provides
additional implementation guidance on the previously issued ASU 2016-02 Leases (Topic 842). ASU 2016-02 requires a lessee to recognize
assets and liabilities on the balance sheet for all leases with lease terms greater than 12 months. ASU 2016-02 requires a modified retrospective
transition by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance
is effective with the option to elect certain practical expedients and accounting policy elections. The Company will be required to apply
the provisions of ASU 2016-02 beginning with the annual reporting period ended December 31, 2021. The Company is currently evaluating
the impact of the adoption of this update on its consolidated financial statements. The Company has approximately $4.7 million in operating lease obligations as of June 30, 2021, and as such upon adoption
of this standard it will record a right of use asset and lease liability equal to the present value of these leases, which will have a
material impact on the condensed consolidated balance sheet. However, the recognition of lease expense in the condensed consolidated statement
of operations is not expected to change from the current methodology and no significant changes are expected to the condensed consolidated
statement of cash flows upon the adoption of ASU 2016-02. The Company is expecting the impact from the adoption to be material to its
condensed consolidated financial statements.
3.
|
Redeemable noncontrolling interest
|
On April 15, 2019, UMB contributed $6.00 million
to acquire 6,000 units for a 12.50% 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 may cause 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 which is commensurate with the risk inherent in its current business model.
There were no Redeemable Noncontrolling Interest
for the three and six months ended June 30, 2021. Changes in the carrying value of the Redeemable Noncontrolling Interest were as follows
for the three months ended June 30, 2020:
|
|
Amount
|
|
Redeemable Noncontrolling Interest as of April 1, 2020
|
|
$
|
11,785
|
|
Net income attributable to redeemable noncontrolling interest
|
|
|
269
|
|
Accretion to redeemable noncontrolling interest
|
|
|
31,846
|
|
Redeemable Noncontrolling Interest as of June 30, 2020
|
|
$
|
43,900
|
|
Changes in the carrying value of the Redeemable
Noncontrolling Interest were as follows for the six months ended June 30, 2020:
|
|
Amount
|
|
Redeemable Noncontrolling Interest as of January 1, 2020
|
|
$
|
6,930
|
|
Net income attributable to redeemable noncontrolling interest
|
|
|
693
|
|
Accretion to redeemable noncontrolling interest
|
|
|
36,277
|
|
Redeemable Noncontrolling Interest as of June 30, 2020
|
|
$
|
43,900
|
|
All redeemable noncontrolling interest classified
as mezzanine equity were reclassified to permanent equity in connection with the contribution of UMB’s 12.50% equity interests in
Ittella International to Myjojo (Delaware) in exchange for Myjojo’s (Delaware)’s common stock and were subsequently exchanged
for Forum Class A common stock upon consummation of the Transaction (see Note 1).
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, which is upon shipment to the customer.
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 at June 30, 2021 and 2020.
Revenue streams for the three months ended June
30, 2021 and 2020 were as follows:
|
|
2021
|
|
|
2020
|
|
Revenue Streams (in thousands)
|
|
Revenue
|
|
|
% Total
|
|
|
Revenue
|
|
|
% Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tattooed Chef
|
|
$
|
33,088
|
|
|
|
65
|
%
|
|
$
|
20,387
|
|
|
|
59
|
%
|
Private Label
|
|
|
17,288
|
|
|
|
34
|
%
|
|
|
14,261
|
|
|
|
40
|
%
|
Other revenues
|
|
|
340
|
|
|
|
1
|
%
|
|
|
116
|
|
|
|
1
|
%
|
Total
|
|
$
|
50,716
|
|
|
|
|
|
|
$
|
34,764
|
|
|
|
|
|
Revenue streams for the six months ended
June 30, 2021 and 2020 were as follows:
|
|
2021
|
|
|
2020
|
|
Revenue Streams (in thousands)
|
|
Revenue
|
|
|
% Total
|
|
|
Revenue
|
|
|
% Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tattooed Chef
|
|
$
|
69,081
|
|
|
|
67
|
%
|
|
$
|
38,249
|
|
|
|
56
|
%
|
Private Label
|
|
|
33,659
|
|
|
|
32
|
%
|
|
|
29,151
|
|
|
|
43
|
%
|
Other revenues
|
|
|
658
|
|
|
|
1
|
%
|
|
|
534
|
|
|
|
1
|
%
|
Total
|
|
$
|
103,398
|
|
|
|
|
|
|
$
|
67,934
|
|
|
|
|
|
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 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
COVID-19, 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 $0.07 million and $0.00
million as of June 30, 2021 and December 31, 2020, respectively.
Inventory consists of the following as of (in
thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
18,041
|
|
|
$
|
16,534
|
|
Work-in-process
|
|
|
4,659
|
|
|
|
5,220
|
|
Finished goods
|
|
|
24,396
|
|
|
|
13,902
|
|
Packaging
|
|
|
3,722
|
|
|
|
3,004
|
|
Total
|
|
$
|
50,818
|
|
|
$
|
38,660
|
|
7.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
The following table provides additional information
related to the Company’s prepaid expenses and other current assets as of (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Prepaid advertising expenses
|
|
$
|
4,958
|
|
|
$
|
-
|
|
Prepaid expenses, other
|
|
|
1,881
|
|
|
|
1,897
|
|
Tax credits
|
|
|
1,699
|
|
|
|
1,884
|
|
Warrants receivable (see Note 17)
|
|
|
-
|
|
|
|
13,542
|
|
Other current assets
|
|
|
54
|
|
|
|
917
|
|
Total
|
|
$
|
8,592
|
|
|
$
|
18,240
|
|
8.
|
PROPERTY, PLANT, AND EQUIPMENT, NET
|
Property, plant and equipment consists of the following as of (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Building
|
|
$
|
6,940
|
|
|
$
|
2,574
|
|
Leasehold improvements
|
|
|
3,806
|
|
|
|
2,106
|
|
Machinery and equipment
|
|
|
26,285
|
|
|
|
12,526
|
|
Computer equipment
|
|
|
265
|
|
|
|
187
|
|
Furniture and fixtures
|
|
|
162
|
|
|
|
109
|
|
Land
|
|
|
1,621
|
|
|
|
-
|
|
Construction in progress
|
|
|
5,190
|
|
|
|
1,533
|
|
|
|
|
44,269
|
|
|
|
19,035
|
|
Less: accumulated depreciation
|
|
|
(5,038
|
)
|
|
|
(2,952
|
)
|
Property, plant, and equipment, net
|
|
$
|
39,231
|
|
|
$
|
16,083
|
|
The Company recorded depreciation expense for
the six months ended June 30, 2021 and 2020 of $1.42 million and $0.46 million, respectively. The Company recorded depreciation expense
for three months ended June 30, 2021 and 2020 of $0.87 million and $0.23 million, respectively.
9.
|
Intangible ASSETS, NET
|
Intangible assets consist of the following as of (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Tradenames
|
|
$
|
220
|
|
|
$
|
-
|
|
Less: accumulated amortization
|
|
|
(14
|
)
|
|
|
-
|
|
Net
|
|
$
|
206
|
|
|
$
|
-
|
|
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 $0.01
million and $0.00 million, respectively, for the six months ended June 30, 2021 and 2020. The Company recorded amortization expense of
$0.01 million and $0.00 million, respectively, for the three months ended June 30, 2021 and 2020, respectively.
Estimated future amortization expense for the definite-lived intangible
assets is as follows (in thousands):
|
|
|
|
|
Six months ended December 31, 2021
|
|
$
|
55
|
|
2022
|
|
|
110
|
|
2023
|
|
|
41
|
|
Total
|
|
$
|
206
|
|
|
10.
|
business combination
and asset purchaseS
|
New Mexico Food Distributors, Inc. (NMFD) and
Karsten Acquisition
On May 14, 2021 (the “Closing Date”),
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 entered into a Membership Interest Purchase Agreement
with the owners of all of the membership interests of Karsten whereby the Company acquired all of the membership interests of Karsten
for a total purchase price of $5.18 million (together with the acquisition of NMFD, the “NMFD Transaction”). 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 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 are accounted for on a combined basis and are 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 are 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 $19.35 million is 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 is recorded to operating expense within the consolidated condensed statement
of operations for the six months and the three months ended June 30, 2021.
The following table summarizes the provisional
fair value of assets acquired and liabilities assumed as of the date of acquisition:
|
|
Amount
|
|
Purchase consideration
|
|
$
|
34,091
|
|
Assets acquired and liabilities assumed
|
|
|
|
|
Cash
|
|
$
|
173
|
|
Accounts receivable
|
|
|
3,567
|
|
Inventory
|
|
|
3,169
|
|
Prepaid expenses and other current assets
|
|
|
122
|
|
Property, plant and equipment
|
|
|
12,746
|
|
Favorable leasehold position
|
|
|
1,444
|
|
Other noncurrent assets
|
|
|
29
|
|
Intangible assets – tradenames
|
|
|
220
|
|
Accounts payable
|
|
|
(3,735
|
)
|
Accrued expenses
|
|
|
(78
|
)
|
Finance lease
|
|
|
(2,917
|
)
|
Goodwill
|
|
|
19,351
|
|
Total
|
|
$
|
34,091
|
|
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 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 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.
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net Revenue - pro forma combined
|
|
$
|
55,025
|
|
|
$
|
40,575
|
|
|
$
|
116,325
|
|
|
$
|
80,361
|
|
Net (Loss) Income - pro forma combined
|
|
|
(53,229
|
)
|
|
|
631
|
|
|
|
(61,449
|
)
|
|
|
6,082
|
|
Weighted Average Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
81,981,428
|
|
|
|
28,324,038
|
|
|
|
81,121,795
|
|
|
|
28,324,038
|
|
Diluted
|
|
|
81,981,428
|
|
|
|
28,324,038
|
|
|
|
81,258,427
|
|
|
|
28,324,038
|
|
Net Income (Loss) per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.65
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.76
|
)
|
|
$
|
0.21
|
|
Diluted
|
|
$
|
(0.65
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.76
|
)
|
|
$
|
0.21
|
|
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. 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 June 30, 2021 and December 31, 2020, follows (in thousands):
|
|
Balance Sheet Line Item
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
Prepaid expenses and other current assets
|
|
$
|
-
|
|
|
$
|
866
|
|
Foreign currency derivatives
|
|
Forward contract derivative liability
|
|
|
(935
|
)
|
|
|
-
|
|
Total
|
|
|
|
$
|
(935
|
)
|
|
$
|
866
|
|
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):
|
|
Line Item in Statements
of Operations
|
|
Three months
ended
June 30,
2021
|
|
|
Six months
ended
June 30,
2021
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
Other income (expense)
|
|
$
|
1,107
|
|
|
$
|
(1,802
|
)
|
Total
|
|
|
|
$
|
1,107
|
|
|
$
|
(1,802
|
)
|
|
|
Line Item in Statements
of Operations
|
|
Three months
ended
June 30,
2020
|
|
|
Six months
ended
June 30,
2020
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Foreign currency derivatives
|
|
Other income (expense)
|
|
$
|
288
|
|
|
$
|
288
|
|
Total
|
|
|
|
$
|
288
|
|
|
$
|
288
|
|
Unrealized and realized gains on forward currency
derivatives for the three months ended June 30, 2021 and 2020 were $1.11 million and $0.02 million, respectively. Unrealized and realized
(losses) gains on forward currency derivatives for the six months ended June 30, 2021 and 2020 were $(1.80) million and $0.29 million,
respectively. The Company has notional amounts of $45.68 million and $45.60 million on outstanding derivatives as of June 30, 2021 and
December 31, 2020, respectively.
12.
|
FAIR VALUE MEASUREMENTS
|
Contingent Consideration Liabilities –
Holdback Shares
As part of the Merger 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 the escrow and delivered the 5,000,000 Holdback Shares to the Myjojo (Delaware) stockholders (other
than 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.
There were no changes in the estimated fair value
of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3) during the three and
six months ended June 30, 2021 and 2020, respectively.
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 the 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 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 six months ended
June 30, 2021, Private Placement Warrants totaling 226,510 were settled, resulting in an aggregate loss on settlements of $0.37 million.
For the three months
and the six months ended June 30, 2021, the change in the fair value of the warrant liabilities charged to current operations amounted
to $0.37 million and $0.98 million, respectively.
Fair Value Measurement
The fair value of the
Private Placement Warrants was determined to be $12.23 per warrant as of June 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 similar expected term of the 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 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:
Input
|
|
October 15,
2020
(Initial
Measurement)
|
|
|
December 31,
2020
|
|
|
June 30,
2021
|
|
Risk-free interest rate
|
|
|
0.32
|
%
|
|
|
0.34
|
%
|
|
|
0.72
|
%
|
Expected term (years)
|
|
|
5
|
|
|
|
4.79
|
|
|
|
4.30
|
|
Expected volatility
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
45.00
|
%
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Fair value of warrants
|
|
$
|
13.85
|
|
|
$
|
12.72
|
|
|
$
|
12.23
|
|
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 June 30, 2021, the
aggregate fair value of the Private Placement Warrants was determined to be $2.21 million, based on the estimated fair value per Private
Placement Warrant on that date of $12.23 for 181,067 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
|
|
|
(3,020
|
)
|
Change in fair value(1)
|
|
|
51
|
|
Fair value as of June 30, 2021
|
|
$
|
2,215
|
|
(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).
|
Finance lease
In connection with the NMFD Transaction, the Company
assumed a lease obligation (the “Karsten Lease”) in the amount of $2.92 million dollars for a facility located in New Mexico.
The Karsten Lease provides the Company the option to purchase the leased facility for $0.0 million following the payoff of the lease liability.
The leased facility was capitalized in connection with the NMFD Transaction (see Note 10).
Future minimum principal payments due on the Karsten Lease for periods subsequent to
June 30, 2021 are as follows (in thousands):
Six months ended December 31, 2021
|
|
$
|
102
|
|
2022
|
|
|
2,815
|
|
Total
|
|
$
|
2,917
|
|
Operating leases
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 future minimum lease commitments as of June
30, 2021 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows (in thousands):
Six months ended December 31, 2021
|
|
$
|
415
|
|
2022
|
|
|
768
|
|
2023
|
|
|
631
|
|
2024
|
|
|
353
|
|
2025
|
|
|
300
|
|
Thereafter
|
|
|
2,224
|
|
Total
|
|
$
|
4,691
|
|
The Company’s rent expense amounted to $0.58
million and $0.46 million for the three months ended June 30, 2021 and 2020, respectively. Rent expense amounted to $1.24 million and
$0.96 million for the six months ended June 30, 2021 and 2020, respectively.
The following table provides additional information
related to the Company’s accrued expenses as of (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Accrued customer incentives
|
|
$
|
2,545
|
|
|
$
|
1,524
|
|
Accrued payroll
|
|
|
1,867
|
|
|
|
1,245
|
|
Accrued commission
|
|
|
1,138
|
|
|
|
108
|
|
Other accrued expenses
|
|
|
60
|
|
|
|
84
|
|
Total
|
|
$
|
5,610
|
|
|
$
|
2,961
|
|
The following table presents the provision for
income taxes and the effective tax rate for the three months ended June 30, 2021 and June 30, 2020 in thousand:
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Income tax expense
|
|
$
|
45,985
|
|
|
$
|
553
|
|
Effective tax rate
|
|
|
(638
|
)%
|
|
|
31
|
%
|
The following table presents the provision for
income taxes and the effective tax rate for the six months ended June 30, 2021 and June 30, 2020 in thousand:
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Income tax expense
|
|
$
|
44,510
|
|
|
$
|
1,283
|
|
Effective tax rate
|
|
|
(264
|
)%
|
|
|
15
|
%
|
As of each reporting period, management considers new evidence, both
positive and negative, that could affect its view of the future realization of deferred tax assets. A significant piece of objective negative
evidence evaluated was the cumulative loss incurred over the three-year period ended June 30, 2021. Such objective evidence limits the
ability to consider other subjective evidence, such as our projections for future growth.
On the basis of this evaluation, as of June 30,
2021, primarily because in the current period we achieved three years of cumulative pretax loss, management determined that there is sufficient
negative evidence to conclude that it is more likely than not that the net deferred tax asset of $47.22 million recorded as of June 30
2021 will not be realizable. The Company therefore recorded a valuation allowance for this amount as a discrete item during the three
months ended June 30, 2021.
The income tax expense for the three and six months
ended June 30, 2021 was primarily attributable to the Company’s establishment of a full valuation allowance on its deferred tax
assets, and foreign income tax expenses on the Company’s foreign income in Italy.
The income tax expense for the three and six months
ended June 30, 2020 was primarily attributable to state and foreign income taxes.
The Company also believes that quarterly effective
tax rates will vary from the fiscal 2021 effective tax rate as a result of 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. These taxes include income tax.
As of June 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 years 2017 through 2020, California 2016 through 2020,
and Italy 2016 through 2020.
Debt consisted of the following as of (in thousands):
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
3,129
|
|
|
$
|
2,101
|
|
Notes payable to related parties (Note 19)
|
|
|
25
|
|
|
|
66
|
|
Revolving credit facility
|
|
|
2,115
|
|
|
|
22
|
|
Total debt
|
|
|
5,269
|
|
|
|
2,189
|
|
Less: current portion
|
|
|
(2,545
|
)
|
|
|
(199
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term portion – net
|
|
$
|
2,724
|
|
|
$
|
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 August
25, 2021 (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 June 30, 2021 and December
31, 2020, the Company was in compliance with all terms and conditions of its Credit Facility.
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 June 30, 2021 and December 31, 2020.
Capital expenditure loan, term loan, and notes payable
The Credit Facility includes a capital expenditure
loan (“Capex Loan”) in the amount of up to $0.50 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 June 30, 2021 and December 31, 2020, respectively.
In May 2021, the Company amended the Credit Facility
to (i) formalize UMB’s consent to the payment for the acquisition of NMFD and Karsten, (ii) provide for certain administrative changes
and, (iii) extend the maturity of date to August 25, 2021.
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 1.00 million Euros ($1.19 million USD)
and 0.00 Euros ($0.00 million USD) as of June 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 June 30, 2021, the Company was in compliance with all
terms and conditions of the Note. The outstanding balance on the Note was $1.97 million and $2.02 as of June 30, 2021 and December 31,
2020, respectively.
Future minimum principal payments due on the notes
payable, including notes payable to related parties, for periods subsequent to June 30, 2021 are as follows (in thousands):
Six months ended December 31, 2021
|
|
$
|
2,316
|
|
2022
|
|
|
408
|
|
2023
|
|
|
416
|
|
2024
|
|
|
423
|
|
2025
|
|
|
279
|
|
2026
|
|
|
132
|
|
Thereafter
|
|
|
1,295
|
|
Total
|
|
$
|
5,269
|
|
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 the 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,
allowed Salvatore Galletti to have approximately 37.55% (separate from the shares assigned to Project Lily) of the voting power of the
capital stock of the Company as of June 30, 2021.
On June 1, 2021, the Company issued 825,000 shares
of common stock of the Company to Harrison & Co (“Harrison”) as consideration for advisory services provided by Harrison
to facilitate 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 in the Company to be issued
between May 1, 2021 and June 30, 2021. The shares are considered share-based compensation to non-employees and are 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 $20.54 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 June 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 June
30, 2021, there were 81,938,668 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 June 30,
2020 (in thousands):
|
|
2020
|
|
Net income attributable to noncontrolling interest in Ittella Italy
|
|
$
|
70
|
|
Net income attributable to noncontrolling interest in Ittella International
|
|
|
269
|
|
Increase in noncontrolling interest due to foreign currency translation
|
|
|
45
|
|
|
|
|
|
|
Change in net comprehensive income attributable to noncontrolling interest for the three months ended June 30
|
|
$
|
384
|
|
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 six months ended June 30,
2020 (in thousands):
|
|
2020
|
|
Net income attributable to noncontrolling interest in Ittella Italy
|
|
$
|
668
|
|
Net income attributable to noncontrolling interest in Ittella International
|
|
|
693
|
|
Increase in noncontrolling interest due to foreign currency translation
|
|
|
34
|
|
|
|
|
|
|
Change in net comprehensive income attributable to noncontrolling interest for the six months ended June 30
|
|
$
|
1,395
|
|
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”) entitles the holder to purchase one share of common stock at an exercise price of $11.50.
The Public Warrants contain a redemption feature
that provides 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 is met, and to require that any Public Warrant holder who desires 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 Warrant 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 become exercisable upon occurrence
of certain events (trigger events), including the completion of the Transaction. Once the Public Warrants become exercisable, the Company
may 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 equals or exceeds $18.00 per share for any 20 trading days
within a 30-trading day period ending three business days before the Company sends 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, 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
|
)
|
Redeemed
|
|
|
-
|
|
|
|
-
|
|
Issued and outstanding as of December 31, 2020
|
|
|
14,459,684
|
|
|
|
407,577
|
|
Exercised
|
|
|
(14,602,942
|
)
|
|
|
(226,510
|
)
|
Redeemed
|
|
|
143,258
|
|
|
|
-
|
|
Issued and outstanding as of June 30, 2021
|
|
|
-
|
|
|
|
181,067
|
|
The Public Warrants are considered freestanding
equity-classified instruments due to their detachable and separately exercisable features. Accordingly, the Public Warrants are 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 to five 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 June 30, 2021:
|
|
Number of
Awards
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Terms
(Years)
|
|
|
Intrinsic
Value
(in thousands)
|
|
Balance at March 31, 2021
|
|
$
|
754,800
|
|
|
$
|
24.69
|
|
|
|
9.73
|
|
|
$
|
-
|
|
Granted
|
|
|
270,000
|
|
|
|
17.82
|
|
|
|
10.00
|
|
|
|
-
|
|
Cancelled and forfeited
|
|
|
(1,500
|
)
|
|
|
24.69
|
|
|
|
9.73
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at June 30, 2021
|
|
$
|
1,023,300
|
|
|
$
|
22.88
|
|
|
|
9.57
|
|
|
$
|
-
|
|
Exercisable at June 30, 2021
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
The table below summarizes the stock option activity
in the plan for the six months ended June 30, 2021:
|
|
Number of
Awards
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Terms
(Years)
|
|
|
Intrinsic
Value
(in thousands)
|
|
Balance at December 31, 2020
|
|
|
756,300
|
|
|
$
|
24.69
|
|
|
|
9.98
|
|
|
$
|
-
|
|
Granted
|
|
|
270,000
|
|
|
|
17.82
|
|
|
|
10.00
|
|
|
|
-
|
|
Cancelled and forfeited
|
|
|
(3,000
|
)
|
|
|
24.69
|
|
|
|
9.78
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance at June 30, 2021
|
|
|
1,023,300
|
|
|
$
|
22.88
|
|
|
|
9.57
|
|
|
$
|
-
|
|
Exercisable at June 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
There were no options exercised during the three
and six months ended June 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. As of June 30, 2021 and December 31, 2020, the Company
had stock-based compensation expense of $6.50 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 assumptions for the three and six months ended June
30, 2021:
Equity volatility
|
|
|
33.93
|
%
|
Risk-free interest rate
|
|
|
1.27
|
%
|
Expected term (in years)
|
|
|
8
|
|
Expected dividend
|
|
|
-
|
|
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.
Any option granted under the Plan may include
tandem Stock Appreciation Rights (“SAR”). SAR may also be awarded to eligible persons independent of any option. The strike
price for 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 same 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.
There was no director restricted stock activity
under the plan for the three months ended June 30, 2021. Director restricted stock activity under the Plan for the six months ended June
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
|
|
|
-
|
|
|
|
-
|
|
|
|
15,216
|
|
|
|
18.93
|
|
Vested
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,216
|
)
|
|
|
18.93
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested restricted stock at June 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Non-director employee and consultant restricted
stock activity under the Plan for the three months ended June 30, 2021 is as follows:
|
|
Employee Awards
|
|
|
Non-Employee Awards
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Fair Value
|
|
Balance at March 31, 2021
|
|
|
325,500
|
|
|
$
|
24.10
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
18.15
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
|
18.15
|
|
Forfeited
|
|
|
(325,500
|
)
|
|
|
24.69
|
|
|
|
-
|
|
|
|
-
|
|
Non-vested restricted stock at June 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Non-director employee and consultant restricted
stock activity under the Plan for the six months ended June 30, 2021 is as follows:
|
|
Employee Awards
|
|
|
Non-Employee Awards
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
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 June 30, 2021
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
The fair value of consultant (non-employee) performance shares vested
was approximately $0 and $1.90 million for the three and six months ended June 30, 2021, respectively. The fair value of employee restricted
stock awards vested was approximately $0 and $0.53 million for the three and six months ended June 30, 2021, respectively. The fair value
of non-employee restricted stock awards vested was $0.18 million and $0.47 million for the three and six months ended June 30, 2021, respectively.
As of June 30, 2021, unrecognized compensation
costs related to the employee restricted stock awards was $0.
Employee Performance Shares and Performance
Units
This award may be granted to certain executive
officers of the Company 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 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
|
The Company leases office property in San Pedro, California from Deluna
Properties, Inc., a company owned by Salvatore Galletti. Rent expense was $0.05 million and $0.02 million for the three months ended June
30, 2021 and 2020, respectively. Rent expense was $0.08 million and $0.03 million for the six months ended June 30, 2021 and 2020, respectively.
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 are 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. This agreement originally expired
on December 31, 2011 but was extended to December 31, 2024. The outstanding balance of the line of credit was $2.12 million and $0.02
million as of June 30, 2021 and December 31, 2020, respectively, and is recorded as notes payable to related parties in the accompanying
condensed consolidated balance sheets.
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 0.02 million
Euros and 0.07 million Euros as of June 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 and $25.00 million, as of June 30, 2021 and December 31,
2020, respectively (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.
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.
Based on the assessment by management together
with the independent assessment from its local legal counsel, the Company believes that a loss is currently not probable and an estimate
cannot be made. Therefore, no accrual has been made as of June 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 six-month periods ended June 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
and $0.05 million for the three-month periods ended June 30, 2021 and 2020, respectively. Properties contributed expenses of $0.10 million
and $0.12 million for the six-month periods ended June 30, 2021 and 2020, respectively.
The following is the summary of basic and diluted
EPS for the three months ended June 30, 2021 and 2020 (in thousands, except for share and per share amounts):
|
|
2021
|
|
|
2020
|
|
Numerator
|
|
|
|
|
|
|
Net Income (Loss) attributable to Tattooed Chef, Inc.
|
|
$
|
(53,196
|
)
|
|
$
|
916
|
|
Dilutive Net Income (Loss) attributable to Tattooed Chef, Inc.
|
|
|
(53,196
|
)
|
|
|
916
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
81,981,428
|
|
|
|
28,324,038
|
|
Weighted average diluted shares outstanding
|
|
|
81,981,428
|
|
|
|
28,324,038
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.65
|
)
|
|
$
|
0.03
|
|
Diluted
|
|
$
|
(0.65
|
)
|
|
$
|
0.03
|
|
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 June 30, 2021 and
2020:
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
445
|
|
|
|
-
|
|
Warrants
|
|
|
75
|
|
|
|
-
|
|
Restricted stock awards
|
|
|
25
|
|
|
|
|
|
Total
|
|
|
545
|
|
|
|
-
|
|
The following is the summary of basic and diluted
EPS for the six months ended June 30, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
Numerator
|
|
|
|
|
|
|
Net Income (Loss) attributable to Tattooed Chef, Inc.
|
|
$
|
(61,348
|
)
|
|
$
|
5,793
|
|
Dilutive Net Income (Loss) attributable to Tattooed Chef, Inc.
|
|
|
(61,445
|
)
|
|
|
5,793
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
81,121,795
|
|
|
|
28,324,038
|
|
Effect of potentially dilutive securities related to Warrants
|
|
|
136,632
|
|
|
|
-
|
|
Weighted average diluted shares outstanding
|
|
|
81,258,427
|
|
|
|
28,324,038
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.76
|
)
|
|
$
|
0.20
|
|
Diluted
|
|
$
|
(0.76
|
)
|
|
$
|
0.20
|
|
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 six-months ended June 30, 2021 and
2020:
|
|
2021
|
|
|
2020
|
|
Stock options
|
|
|
408
|
|
|
|
-
|
|
Warrants
|
|
|
189
|
|
|
|
-
|
|
Total
|
|
|
597
|
|
|
|
-
|
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our financial statements and related notes (the “Financial
Statements”) included elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and the section entitled
“Risk Factors.” Unless otherwise indicated, the terms “Tattooed Chef,” “we,” “us,” or
“our” refer to Tattooed Chef, Inc., a Delaware corporation, together with its consolidated subsidiaries.