UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                   

 

Commission File No. 001-38615

 

TATTOOED CHEF, INC.
(Exact name of registrant as specified in its charter)

 

Delaware   82-5457906
(State or other jurisdiction of 
incorporation or organization)
  (I.R.S. Employer
Identification No.) 

 

6305 Alondra Blvd., Paramount, CA 90723
(Address of Principal Executive Offices, including zip code)

  

(562) 602-0822
(Registrant’s telephone number, including area code)

 

 
(Former name, former address and former fiscal year, if changed since last report)

  

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)  

Name of each exchange on

which registered

Common stock, par value $0.0001 per share   TTCF   The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  ☐ Large accelerated filer ☐ Accelerated filer
  ☒ Non-accelerated filer  Smaller reporting company
     Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No

 

As of November 18, 2021, there were 81,982,392 shares of common stock, par value $0.0001 issued and outstanding.

 

 

 

 

 

TATTOOED CHEF, INC.

Quarterly Report on Form 10-Q

For the Quarter Ended September 30, 2021

 

TABLE OF CONTENTS

 

    Page 
     
PART I – FINANCIAL INFORMATION 1
     
Item 1. Financial Statements 1 
     
  Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 1
     
  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited) 2
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited) 3
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months September 30, 2021 and 2020 (unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 43
     
Item 4. Controls and Procedures 43
     
PART II – OTHER INFORMATION 45 
     
Item 1. Legal Proceedings 45
     
Item 1A. Risk Factors 45
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 45
     
Item 3. Defaults Upon Senior Securities 45
     
Item 4. Mine Safety Disclosures 45
     
Item 5. Other Information 45
     
Item 6. Exhibits 46
     
SIGNATURES 47

 

i

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

TATTOOED CHEF, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share information) 

 

   September 30,   December 31, 
   2021   2020 
ASSETS        
         
CURRENT ASSETS        
Cash  $129,476   $131,579 
Accounts receivable, net   24,469    17,992 
Inventory   45,271    38,002 
Prepaid expenses and other current assets   8,256    18,240 
TOTAL CURRENT ASSETS   207,472    205,813 
           
Property, plant and equipment, net   39,669    16,083 
Intangible assets, net   179    
-
 
Deferred taxes   
-
    43,525 
Goodwill   19,351    
-
 
Other assets   1,731    605 
           
TOTAL ASSETS  $268,402   $266,026 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
CURRENT LIABILITIES          
Accounts payable  $23,641   $24,075 
Accrued expenses   4,880    2,961 
Line of credit   3,317    22 
Notes payable to related parties   7    66 
Notes payable, current portion   400    111 
Deferred revenue   634    1,711 
Forward contract derivative liability   1,788    
-
 
Finance lease   2,863    
-
 
Other current liabilities   911    1,403 
TOTAL CURRENT LIABILITIES   38,441    30,349 
           
Warrant liability   1,343    5,184 
Notes payable, net of current portion   2,627    1,990 
TOTAL LIABILITIES  $42,411   $37,523 
           
COMMITMENTS AND CONTINGENCIES (See Note 20)   
 
    
 
 
           
STOCKHOLDERS’ EQUITY          
Preferred stock- $0.0001 par value; 10,000,000 shares authorized, none issued and outstanding at September 30, 2021 and December 31, 2020  $
-
   $
-
 
Common stock- $0.0001 par value; 1,000,000,000 shares authorized; 81,982,392 shares issued and outstanding at September 30, 2021, 71,551,067 shares issued and outstanding at December 31, 2020   8    7 
Treasury stock- 0 shares at September 30, 2021, 81,087 shares at December 31, 2020   
-
    
-
 
Additional paid in capital   233,223    164,424 
Accumulated other comprehensive (loss) income   (908)   1 
Retained (deficit) earnings   (6,332)   64,071 
Total stockholders’ equity   225,991    228,503 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $268,402   $266,026 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

1

 

 

TATTOOED CHEF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS) (unaudited)

(in thousands, except share and per share information)

 

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
REVENUE  $58,780   $40,964   $161,972   $108,903 
                     
COST OF GOODS SOLD   52,836    36,733    140,304    91,619 
                     
GROSS PROFIT   5,944    4,231    21,668    17,284 
                     
OPERATING EXPENSES   13,604    7,621    44,853    12,590 
                     
(LOSS) INCOME FROM OPERATIONS   (7,660)   (3,390)   (23,185)   4,694 
                     
Interest expense   (45)   (188)   (159)   (569)
Other (expense) income   (724)   825    (2,496)   1,113 
                     
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES   (8,429)   (2,753)   (25,840)   5,238 
                     
INCOME TAX (EXPENSE) BENEFIT   255    (492)   (44,255)   (1,776)
                     
NET (LOSS) INCOME   (8,174)   (3,245)   (70,095)   3,462 
                     
LESS: INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTERESTS   
-
    (158)   
-
    1,148 
                     
NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC.  $(8,174)  $(3,087)  $(70,095)  $2,314 
                     
NET INCOME (LOSS) PER SHARE                    
Basic  $(0.10)  $(0.11)  $(0.86)  $0.08 
Diluted  $(0.10)  $(0.11)  $(0.86)  $0.08 
                     
WEIGHTED AVERAGE COMMON SHARES                    
Basic   81,957,170    28,324,038    81,404,348    28,324,038 
Diluted   82,011,216    28,324,038    81,548,673    28,324,038 
                     
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX                    
                     
Foreign currency translation adjustments   (808)   (584)   (909)   (201)
                     
Total other comprehensive (loss) income, net of tax   (808)   (584)   (909)   (201)
                     
Comprehensive (loss) income   (8,982)   (3,829)   (71,004)   3,261 
Less: comprehensive income attributable to the noncontrolling interest   
-
    (101)   
-
    1,239 
                     
Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders  $(8,982)  $(3,728)  $(71,004)  $2,022 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

2

 

 

TATTOOED CHEF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (unaudited)

(in thousands, except share and per share information)

 

For the three months ended September 30, 2021 

 

   Common       Common   Additional   Accumulated   Retained     
   Stock   Treasury   Shares   Paid-In   Comprehensive   Earnings     
   Shares   Shares   Amount   Capital   Income (Loss)   (Deficit)   Total 
BALANCE AS OF JULY 1, 2021   81,938,668    
-
   $8   $231,359   $(100)  $1,842   $233,109 
                                    
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   -    -    
-
    
-
    (808)   
-
    (808)
                                    
STOCK-BASED COMPENSATION   -    -    
-
    733    
-
    
-
    733 
                                    
NON-EMPLOYEE STOCK-BASED COMPENSATION   4,918    -    
-
    109    
-
    
-
    109 
                                    
EXERCISE OF WARRANTS   38,806    -    
-
    1,022    
-
    
-
    1,022 
                                    
NET LOSS   -    -    
-
    
-
    
-
    (8,174)   (8,174)
                                    
BALANCE AS OF SEPTEMBER 30, 2021   81,982,392    
-
   $8   $233,223   $(908)  $(6,332)  $225,991 

  

For the nine months ended September 30, 2021 

 

   Common       Common   Additional   Accumulated   Retained     
   Stock   Treasury   Shares   Paid-In   Comprehensive   Earnings     
   Shares   Shares   Amount   Capital   Income (Loss)   (Deficit)   Total 
BALANCE AS OF JANUARY 1, 2021   71,551,067    (81,087)  $7   $164,424   $1   $64,071   $228,503 
                                    
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   -    -    
-
    
-
    (909)   
-
    (909)
                                    
DIVIDENDS PAID   -    -    
-
    
-
    
-
    (308)   (308)
                                    
STOCK-BASED COMPENSATION   -    -    
-
    4,499    
-
    
-
    4,499 
                                    
NON-EMPLOYEE STOCK-BASED COMPENSATION   839,918    -    
-
    290    
-
    
-
    290 
                                    
FORFEITURE OF STOCK-BASED AWARDS   (395,084)   -    
-
    (445)   
-
    
-
    (445)
                                    
CANCELLATION OF TREASURY SHARES   (81,087)   81,087    
-
    
-
    
-
    
-
    
-
 
                                    
EXERCISE OF WARRANTS   10,067,578    -    1    64,455    
-
    
-
    64,456 
                                    
NET LOSS   -    -    
-
    
-
    
-
    (70,095)   (70,095)
                                    
BALANCE AS OF SEPTEMBER 30, 2021   81,982,392    
-
   $8   $233,223   $(908)  $(6,332)  $225,991 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

3

 

 

For the three months ended September 30, 2020  

 

   Redeemable Noncontrolling   Common       Common   Additional    Accumulated     Retained         
   Interest     Stock       Treasury     Shares    Paid-In     Comprehensive   Earnings   Noncontrolling     
   Amount   Shares   Shares   Amount   Capital   Income (Loss)    (Deficit)     Interests      Total   
BALANCE AS OF JULY 1, 2020  $43,815    28,324,038    
      -
   $      3   $
-
   $      (343)  $(29,454)  $1,313   $(28,481)
                                              
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   
-
    -    -    
-
    
-
    (641)   
-
    57    (584)
                                              
DIVIDENDS PAID   
-
    -    -    
-
    
-
    
-
    (4,280)   
-
    (4,280)
                                              
ACCRETION OF REDEEMABLE NONCONTROLLING INTEREST TO REDEMPTION VALUE   442    -    -    
-
    
-
    
-
    (442)   
-
    (442)
                                              
NET INCOME   (440)   -    -    
-
    
-
    
-
    (3,087)   282    (2,805)
                                              
BALANCE AS OF SEPTEMBER 30, 2020   43,817    28,324,038    
-
   $3   $
-
   $(984)  $(37,263)  $1,652   $(36,592)

  

For the nine months ended September 30, 2020

 

   Redeemable Noncontrolling   Common       Common   Additional   Accumulated   Retained         
   Interest   Stock   Treasury   Shares   Paid-In   Comprehensive   Earnings   Noncontrolling     
   Amount   Shares   Shares   Amount   Capital   Income (Loss)   (Deficit)   Interests   Total 
BALANCE AS OF JANUARY 1, 2020  $6,900    28,324,038    
      -
   $      3   $2,314   $      (692)  $1,056   $256   $2,937 
                                              
CAPITAL CONTRIBUTIONS   
-
    -    -    
-
    
-
    
-
    
-
    355    355 
                                              
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   
-
    -    -    
-
    
-
    (292)   2    91    (199)
                                              
DIVIDENDS PAID   
-
    -    -    
-
    
-
    
-
    (6,230)   
-
    (6,230)
                                              
ACCRETION OF REDEEMABLE NONCONTROLLING INTEREST TO REDEMPTION VALUE   36,719    -    -    
-
    (2,314)   
-
    (34,405)   
-
    (36,719)
                                              
NET INCOME   198    -    -    
-
    
-
    
-
    2,314    950    3,264 
                                              
BALANCE AS OF SEPTEMBER 30, 2020   43,817    28,324,038    
-
   $3   $
-
   $(984)  $(37,263)  $1,652   $(36,592)

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

4

 

 

TATTOOED CHEF, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

   Nine Months Ended 
   September 30, 
   2021   2020 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net (loss) income  $(70,095)  $3,462 
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:          
Depreciation and amortization   2,514    693 
Bad debt expense   539    
-
 
Accretion of debt financing costs   4    34 
Revaluation of warrant liability   (158)   
-
 
Unrealized forward contract loss   2,342    (728)
Stock compensation expense   4,344    
-
 
Deferred taxes, net   43,525    
-
 
           
Changes in operating assets and liabilities:          
Accounts receivable   (3,450)   (7,702)
Inventory   (4,099)   (9,502)
Prepaid expenses and other assets   (3,090)   (229)
Accounts payable   (6,554)   13,746 
Accrued expenses   1,841    1,630 
Deferred revenue   (1,077)   
-
 
Other current liabilities   289    416 
Net cash (used in) provided by operating activities   (33,125)   1,820 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property, plant and equipment   (13,048)   (5,957)
Acquisition of subsidiaries, net of cash acquired   (33,918)   
-
 
Proceeds from sale of property, plant and equipment   
-
    36 
Net cash used in investing activities   (46,966)   (5,921)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net borrowings in line of credit   3,295    9,657 
Borrowings of notes payable to related parties   
-
    32 
Repayments of notes payable to related parties   (59)   (644)
Borrowings of notes payable   1,168    28 
Repayments of notes payable   (296)   (512)
Capital contributions   
-
    355 
Proceeds from the exercise of warrants   74,316    
-
 
Payment of dividends   (308)   (5,613)
Net cash provided by financing activities   78,116    3,303 
           
NET DECREASE IN CASH   (1,975)   (798)
           
EFFECT OF EXCHANGE RATE ON CASH   (128)   (557)
           
CASH AT BEGINNING OF PERIOD  $131,579   $4,537 
           
CASH AT END OF PERIOD  $129,476   $3,182 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for          
Interest  $145   $237 
Income taxes  $759   $16 
Noncash investing and financing activities          
Distributions  $
-
   $617 
Capital expenditures included in accounts payable  $1,049   $
-
 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

5

 

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

General

 

Tattooed Chef, Inc. was originally incorporated in Delaware on May 4, 2018 under the name of Forum Merger II Corporation (“Forum”), as a special purpose acquisition company (“SPAC”) for the purpose of effecting a merger, capital stock exchange, asset acquisitions, stock purchase, reorganization or similar business combination with one or more business.

 

On October 15, 2020 (the “Closing Date”), Forum consummated the transactions contemplated within the Agreement and Plan of Merger dated June 11, 2020 as amended on August 10, 2020 (the “Merger Agreement”), by and among Forum, Myjojo, Inc., a Delaware corporation (“Myjojo (Delaware)”), Sprout Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Forum (“Merger Sub”), and Salvatore Galletti, in his capacity as the holder representative (the “Holder Representative”). The transactions contemplated by the Merger Agreement are referred to herein as the “Transaction”.

 

Upon the consummation of the Transaction, Merger Sub merged with and into Myjojo (Delaware) (the “Merger”), with Myjojo (Delaware) surviving the merger. Immediately upon the completion of the Transaction, Myjojo (Delaware) became a direct wholly owned subsidiary of Forum. Following the Closing Date, Forum changed its name to Tattooed Chef, Inc. (“Tattooed Chef”). Tattooed Chef’s common stock began trading on the Nasdaq under the symbol “TTCF” on October 16, 2020.

 

Tattooed Chef, Inc. and its subsidiaries, (collectively, the “Company”) are principally engaged in the manufacturing of plant-based foods including, but not limited to, acai and smoothie bowls, zucchini spirals, riced cauliflower, vegetable bowls and cauliflower crust pizza primarily in the United States and Italy.

 

About the Subsidiaries

 

Myjojo, Inc. was an S corporation formed under the laws of California (“Myjojo (California)”) on February 26, 2019 to facilitate a corporate reorganization of Ittella International Inc. On March 27, 2019, Salvatore Galletti, the sole stockholder of Ittella International, Inc. contributed all of his share ownership of Ittella International, Inc. to Myjojo (California) in exchange for 100% interest in the latter, becoming Myjojo (California)’s sole stockholder.

 

On May 21, 2020, Myjojo (Delaware) was formed with Salvatore Galletti owning all of the shares of common stock. On May 27, 2020, Myjojo, Inc. (California) merged into Myjojo, Inc., (Delaware) with Myjojo, Inc. (Delaware) issuing shares of common stock to Salvatore Galletti, the sole stockholder of Myjojo (California).

 

Ittella International, Inc. was formed in California as a tax pass-through entity and subsequently converted on April 10, 2019 to a limited liability company, Ittella International, LLC (“Ittella International”). On April 15, 2019, UMB Capital Corporation (“UMB”), a financial institution, acquired a 12.50% non-controlling interest in Ittella International (Note 3).

 

Ittella’s Chef, Inc. was incorporated under the laws of the State of California on July 20, 2017 as a qualified Subchapter S subsidiary and a wholly owned subsidiary of Ittella International. Ittella’s Chef, Inc. was formed as a tax passthrough entity for purposes of holding Ittella International’s 70% ownership interest in Ittella Italy, S.R.L. (“Ittella Italy”). On March 15, 2019, Ittella’s Chef, Inc. was converted to a limited liability company, Ittella’s Chef, LLC (“Ittella’s Chef”).

  

In connection with the Transaction and as a condition to the Closing, Myjojo (Delaware) entered into a Contribution Agreement with the minority members of Ittella International and the minority shareholders of Ittella Italy. Under the Contribution Agreement, the minority holders contributed all of their equity interests in Ittella International to Myjojo (Delaware) and Ittella Italy to Ittella’s Chef in exchange for Myjojo (Delaware) stock (the “Restructuring”). The Restructuring was consummated prior to the Transaction. The shares of Myjojo (Delaware) were exchanged for shares of Forum’s common stock upon consummation of the Transaction.

 

On May 14, 2021, Tattooed Chef acquired New Mexico Food Distributors, Inc. (“NMFD”) and Karsten Tortilla Factory, LLC (“Karsten”) in an all-cash transaction for approximately $34.09 million (collectively, the “NMFD Transaction”). NMFD and Karsten were privately held companies based in Albuquerque, New Mexico. NMFD produces and sells frozen and ready-to-eat New Mexican food products to retail and food service customers through its network of distributors in the United States. NMFD processes its products in two leased facilities located in New Mexico. See Note 10 Business combination and asset purchases.

 

Basis of Consolidation. The condensed consolidated financial statements include the accounts of Tattooed Chef and its subsidiaries in which Tattooed Chef has a controlling interest directly or indirectly, and variable interest entities for which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

 

6

 

  

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, consolidated or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 19, 2021, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2020 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.

 

The Transaction was accounted for as a reverse recapitalization in accordance with GAAP (the “Reverse Recapitalization”). Under this method, Forum was treated as the “acquired” company (“Accounting Acquiree”) and Myjojo (Delaware), the accounting acquirer, was assumed to have issued stock for the net assets of Forum, accompanied by a recapitalization.

 

The net assets of Forum were stated at historical cost, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the reverse recapitalization were those of Myjojo (Delaware). The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the reverse recapitalization, have been retroactively restated.

 

Revision of Previously Issued Financial Statements for Correction of Immaterial Errors.

 

  1) Immaterial errors identified and revised in prior periods.

 

The Company revised the accompanying condensed consolidated statements of operations and comprehensive income for the period ended September 30, 2020 to reflect the correction of an immaterial error for amounts previously not reflected in the comprehensive income attributable to noncontrolling interest. This revision has no impact on the Company’s net income, retained earnings, or earnings per share.

 

During the quarter ended March 31, 2021, 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 Private Placement 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 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 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.

 

  2) Immaterial errors identified and revised in current quarter.

 

The Company revised the accompanying condensed consolidated statements of equity and operations and comprehensive income for the year ended December 31, 2020 to reflect the correction of an immaterial error related to the grant of 825,000 stock awards to Harrison & Co (“Harrison”) on October 15, 2020 as consideration for advisory services provided by Harrison to facilitate the successful completion of the Transaction (see Note 17). The stock awards were fully vested on grant date, and therefore a weighted average 174,041 shares should have been included in basic and diluted outstanding shares when calculating earnings per share for the year ended December 31, 2020. In addition, the fair value of the stock awards issued in the amount of $20.54 million should have been included as a reduction to the “Reverse Recapitalization” line item and an increase by the same amount to the “Transaction costs, net of tax” line item. Both of these items are included within the Company’s additional paid-in capital for the year ended December 31, 2020. This revision has no impact on the Company’s previously reported net income but reduced the earnings per share for the year ended December 31, 2020, and had no impact on the balance sheet, total additional paid-in capital and total stockholders’ equity as of December 31, 2020.

 

7

 

 

During the period ended September 30, 2021, the Company identified additional immaterial errors in its previously issued financial statements related to inventoriable costs and the classification of certain accounts that primarily impact cost of goods sold and operating expenses. The Company assessed the cumulative effect of all the errors on the prior quarterly and annual financial statements, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” and concluded the errors were not material to any of the previously issued financial statements. Consequently, these errors will be corrected prospectively and financial statements will be revised in the future when the consolidated balance sheets, statements of operations and comprehensive income and cash flows for such prior periods are included in future filings.

 

3)Accumulated effect of revisions on each financial statement line item

 

The Company revised the condensed consolidated balance sheets as of December 31, 2019 and 2020, the condensed consolidated statements of stockholders’ equity (deficit) for the years ended December 31, 2019 and 2020, the condensed consolidated statements of operations and comprehensive income for years ended December 31, 2019 and 2020, the condensed consolidated statements of cash flows for the years ended December 31, 2019 and 2020, the condensed consolidated statements of cash flows for the nine months ended September 30, 2020, the condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2021, three months ended March 31, 2021, three months and nine months ended September 30, 2020, three and six months ended June 30, 2020 and three months ended March 31, 2020 to reflect the correction of aforementioned immaterial errors.

 

(In thousands)  Condensed Consolidated Balance Sheet 
As of December 31, 2019  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   Re-classification*   As Revised 
Inventory  $17,960   $
                -
   $(239)  $
             -
   $17,721 
TOTAL CURRENT ASSETS   34,950    
-
    (239)   
-
    34,711 
TOTAL ASSETS   43,896    
-
    (239)   
-
    43,657 
Accounts payable   17,037    
-
    
-
    (358)   16,679 
Other current liabilities   65    
-
    
-
    358    423 
TOTAL CURRENT LIABILITIES   30,715    
-
    
-
    
-
    30,715 
TOTAL LIABILITIES   33,820    
-
    
-
    
-
    33,820 
REDEEMABLE NONCONTROLLING INTEREST   6,930    
-
    (30)   
-
    6,900 
Retained earnings   1,265    
-
    (209)   
-
    1,056 
Total equity attributable to Myjojo, Inc.   2,890    
-
    (209)   
-
    2,681 
Noncontrolling interest   256    
-
    
-
    
-
    256 
TOTAL STOCKHOLDER’S EQUITY (DEFICIT)   3,146    
-
    (209)   
-
    2,937 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   43,896    
-
    (239)   
-
    43,657 

 

(In thousands)  Condensed Consolidated Balance Sheet 
As of December 31, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   Re-classification*   As Revised 
Accounts receivable  $17,991   $
    -
   $1   $
   -
   $17,992 
Inventory   38,660    
-
    (658)   
-
    38,002 
TOTAL CURRENT ASSETS   206,470    
-
    (657)   
-
    205,813 
TOTAL ASSETS   266,683    
-
    (657)   
-
    266,026 
Accounts payable   25,391    
-
    
-
    (1,316)   24,075 
Other current liabilities   87    
-
    
-
    1,316    1,403 
TOTAL CURRENT LIABILITIES   30,349    
-
    
-
    
-
    30,349 
Warrant liabilities   
-
    5,184    
-
    
-
    5,184 
TOTAL LIABILITIES   32,339    5,184    
-
    
-
    37,523 
Additional paid-in capital   170,799    (6,376)   1    
-
    164,424 
Retained earnings   63,537    1,192    (658)   
-
    64,071 
TOTAL STOCKHOLDER’S EQUITY (DEFICIT)   234,344    (5,184)   (657)   
-
    228,503 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   266,683    
-
    (657)   
-
    266,026 

 

8

 

 

(In thousands)  Condensed Consolidated Balance Sheet 
As of March 31, 2021  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   Re-classification*   As Revised 
Inventory  $38,701   $
          -
   $(662)  $
-
   $38,039 
TOTAL CURRENT ASSETS   267,397    
-
    (662)   
-
    266,735 
TOTAL ASSETS   332,905    
-
    (662)   
-
    332,243 
Accounts payable   31,252    
-
    
-
    (46)   31,206 
Other current liabilities   1,188    
-
    
-
    46    1,234 
TOTAL CURRENT LIABILITIES   41,770    
-
    
-
    
-
    41,770 
TOTAL LIABILITIES   45,548    
-
    
-
    
-
    45,548 
Retained earnings   56,269    
-
    (662)   
-
    55,607 
TOTAL STOCKHOLDER’S EQUITY (DEFICIT)   287,357    
-
    (662)   
-
    286,695 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   332,905    
-
    (662)   
-
    332,243 

 

 (In thousands)   Condensed Consolidated Balance Sheet  
As of June 30, 2021   As
Originally
Reported
    Previously
Revised*
    Current
Revisions*
    Re-classification*     As Revised  
Inventory   $ 50,818     $
            -
    $ (1,232 )   $
-
    $ 49,586  
TOTAL CURRENT ASSETS     222,610      
-
      (1,232 )    
-
      221,378  
TOTAL ASSETS     283,345      
-
      (1,232 )    
-
      282,113  
Accounts payable     29,269      
-
     
-
      (19 )     29,250  
Other current liabilities     1,840      
-
      (1 )     19       1,858  
TOTAL CURRENT LIABILITIES     44,066      
-
      (1 )    
-
      44,065  
TOTAL LIABILITIES     49,005      
-
      (1 )    
-
      49,004  
Retained earnings     3,073      
-
      (1,231 )    
-
      1,842  
TOTAL STOCKHOLDER’S EQUITY (DEFICIT)     234,340      
-
      (1,231 )    
-
      233,109  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY     283,345      
-
      (1,232 )    
-
      282,113  

 

9

 

 

(In thousands)  Condensed Consolidated
Statements of Stockholders’ Equity (Deficit)
 
For the year ended December 31, 2019  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As revised 
REDEEMABLE NONCONTROLLING INTEREST  $6,930   $
          -
   $(30)  $6,900 
Retained earnings ending balance   1,265    
-
    (209)   1,056 

 

(In thousands)  Condensed Consolidated
Statements of Stockholders’ Equity (Deficit)
 
For the year ended December 31, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As revised 
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)   20,542    103,390 
Additional paid in capital, Transaction costs, net of tax   (7,227)   
-
    (20,542)   (27,769)
Additional paid in capital ending balance   170,799    (6,375)   
-
    164,424 
Retained earnings ending balance   63,537    1,192    (658)   64,071 

 

(In thousands)  Condensed Consolidated
Statements of Cash Flows
 
For the year ended December 31, 2019  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As revised 
Cash Flows from Operating Activities:                
Net income  $5,608   $
          -
   $(198)  $5,410 
Changes in operating assets and liabilities:                    
Inventory   (6,757)   
-
    198    (6,559)
Net cash (used in) provided by operating activities   (1,076)   
-
    
-
    (1,076)

 

(In thousands)  Condensed Consolidated
Statements of Cash Flows
 
For the year ended December 31, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As revised 
Cash Flows from Operating Activities:                
Net income  $68,724   $1,192   $(419)  $69,497 
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)
Changes in operating assets and liabilities:                  - 
Inventory   (20,700)   
-
    419    (20,281)
Net cash (used in) provided by operating activities   (13,367)   
-
    
-
    (13,367)

 

(In thousands)  Condensed Consolidated
Statements of Cash Flows
 
For the nine months ended September 30, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As revised 
Cash Flows from Operating Activities:                
Net income  $3,894   $
     -
   $(432)  $3,462 
Changes in operating assets and liabilities:                    
Inventory   (9,934)   
-
    432    (9,502)
Net cash (used in) provided by operating activities   1,820    
-
    
-
    1,820 

 

10

 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the year ended December 31, 2019  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $84,919   $
       -
   $(1)  $84,918 
Cost of goods sold   71,209    
-
    524    71,733 
Gross profit   13,710    
-
    (525)   13,185 
Operating expense   7,454    
-
    (327)   7,127 
Income from operations   6,256    
-
    (198)   6,058 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   5,762    
-
    (198)   5,564 
Net income (loss)   5,608    
-
    (198)   5,410 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   1,082    
-
    (25)   1,057 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   4,526    
-
    (173)   4,353 
Basic net income (loss) per share   0.16    
-
    (0.01)   0.15 
Diluted net income (loss) per share   0.16    
-
    (0.01)   0.15 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the three months ended March 31, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $33,170   $
       -
   $2   $33,172 
Cost of goods sold   23,927    
-
    109    24,036 
Gross profit   9,243    
-
    (107)   9,136 
Operating expense   2,390    
-
    (30)   2,360 
Income from operations   6,853    
-
    (77)   6,776 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   6,629    
-
    (77)   6,552 
Net income (loss)   5,899    
-
    (77)   5,822 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   1,022    
-
    (10)   1,012 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   4,877    
-
    (67)   4,810 
Basic net income (loss) per share   0.17         (0.00)   0.17 
Diluted net income (loss) per share   0.17    
-
    (0.00)   0.17 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the three months ended June 30, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $34,764   $
        -
   $3   $34,767 
Cost of goods sold   31,019    
-
    (169)   30,850 
Gross profit   3,745    
-
    172    3,917 
Operating expense   2,068    
-
    541    2,609 
Income from operations   1,677    
-
    (369)   1,308 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   1,808    
-
    (369)   1,439 
Net income (loss)   1,255    
-
    (369)   886 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   339    
-
    (46)   293 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   916    
-
    (323)   593 
Basic net income (loss) per share   0.03    
-
    (0.01)   0.02 
Diluted net income (loss) per share   0.03    
-
    (0.01)   0.02 

 

11

 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the six months ended June 30, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $67,934   $
          -
   $5   $67,939 
Cost of goods sold   54,946    
-
    (60)   54,886 
Gross profit   12,988    
-
    65    13,053 
Operating expense   4,458    
-
    511    4,969 
Income from operations   8,530    
-
    (446)   8,084 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   8,437    
-
    (446)   7,991 
Net income (loss)   7,154    
-
    (446)   6,708 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   1,361    
-
    (56)   1,305 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   5,793    
-
    (390)   5,403 
Basic net income (loss) per share   0.20    
-
    (0.01)   0.19 
Diluted net income (loss) per share   0.20    
-
    (0.01)   0.19 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the three months ended September 30, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $40,962   $
            -
   $2   $40,964 
Cost of goods sold   37,180    
-
    (447)   36,733 
Gross profit   3,782    
-
    449    4,231 
Operating expense   7,187    
-
    434    7,621 
Loss from operations   (3,405)   
-
    15    (3,390)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   (2,768)   
-
    15    (2,753)
Net income (loss)   (3,260)   
-
    15    (3,245)
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   (160)   
-
    2    (158)
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   (3,100)   
-
    13    (3,087)
Basic net loss per share   (0.11)   
-
    0.00    (0.11)
Diluted net loss per share   (0.11)   
-
    0.00    (0.11)
Comprehensive income   (3,844)   
-
    15    (3,829)
Less: income (loss) attributable to the noncontrolling interest   57    (160)   2    (101)
Comprehensive income attributable to Tattooed Chef, Inc. stockholders   (3,901)   160    13    (3,728)

 

12

 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the nine months ended September 30, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $108,896   $
  -
   $7   $108,903 
Cost of goods sold   92,126    
-
    (507)   91,619 
Gross profit   16,770    
-
    514    17,284 
Operating expense   11,645    
-
    945    12,590 
Income from operations   5,125    
-
    (431)   4,694 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   5,669    
-
    (431)   5,238 
Net income (loss)   3,894    
-
    (432)   3,462 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   1,201    
-
    (53)   1,148 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   2,693    
-
    (379)   2,314 
Basic net income per share   0.10    
-
    (0.02)   0.08 
Diluted net income per share   0.10    
-
    (0.02)   0.08 
Comprehensive income   3,693    
-
    (432)   3,261 
Less: income (loss) attributable to the noncontrolling interest   91    1,201    (53)   1,239 
Comprehensive income attributable to Tattooed Chef, Inc. stockholders   3,602    (1,201)   (379)   2,022 

 

(In thousands, except EPS and shares)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the year ended December 31, 2020  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $148,492   $
-
   $6   $148,498 
Cost of goods sold   124,836    
-
    1,756    126,592 
Gross profit   23,656    
-
    (1,750)   21,906 
Operating expense   32,541    
-
    (1,331)   31,210 
Loss from operations   (8,885)   
-
    (419)   (9,304)
Other income   38,066    1,192    
-
    39,258 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   28,446    1,192    (419)   29,219 
Net income (loss)   68,724    1,192    (419)   69,497 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   1,475    
-
    (53)   1,422 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   67,249    1,192    (366)   68,075 
Basic net income per share   1.85    0.03    (0.01)   1.87 
Diluted net income per share   1.69    0.03    (0.02)   1.70 
                     
Basic   36,313,821    
-
    174,041    36,487,862 
Diluted   39,903,147    
-
    174,041    40,077,188 

 

13

 

 

 

(In thousands, except EPS and shares)

  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the three months ended March 31, 2021  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $52,682   $
          -
   $
-
   $52,682 
Cost of goods sold   45,905    
-
    (390)   45,515 
Gross profit   6,777    
-
    390    7,167 
Operating expense   13,795    
-
    394    14,189 
Loss from operations   (7,018)   
-
    (4)   (7,022)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   (9,627)   
-
    (4)   (9,631)
Net income (loss)   (8,152)   
-
    (4)   (8,156)
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   (8,152)   
-
    (4)   (8,156)
Basic net loss per share   (0.10)   
-
    (0.00)   (0.10)
Diluted net loss per share   (0.11)   
-
    (0.00)   (0.11)
                     
Basic   79,415,105    
-
    825,000    80,240,105 
Diluted   79,719,129    
-
    825,000    80,544,129 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the three months ended June 30, 2021  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $50,716   $
                -
   $(206)  $50,510 
Cost of goods sold   42,750    
-
    (797)   41,953 
Gross profit   7,966    
-
    591    8,557 
Operating expense   15,900    
-
    1,160    17,060 
Loss from operations   (7,934)   
-
    (569)   (8,503)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   (7,211)   
-
    (569)   (7,780)
Net income (loss)   (53,196)   
-
    (569)   (53,765)
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   (53,196)   
-
    (569)   (53,765)
Basic net loss per share   (0.65)   
-
    (0.01)   (0.66)
Diluted net loss per share   (0.65)   
-
    (0.01)   (0.66)

 

14

 

 

(In thousands, except EPS)  Condensed Consolidated
Statements of Operations and Comprehensive Income
 
For the six months ended June 30, 2021  As
Originally
Reported
   Previously
Revised*
   Current
Revisions*
   As Revised 
Revenue  $103,398   $
           -
   $(206)  $103,192 
Cost of goods sold   89,534    
-
    (2,066)   87,468 
Gross profit   13,864    
-
    1,860    15,724 
Operating expense   28,816    
-
    2,433    31,249 
Loss from operations   (14,952)   
-
    (573)   (15,525)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   (16,838)   
-
    (573)   (17,411)
Net income (loss)   (61,348)   
-
    (573)   (61,921)
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   (61,348)   
-
    (573)   (61,921)
Basic net loss per share   (0.76)   
-
    (0.00)   (0.76)
Diluted net loss per share   (0.76)   
-
    (0.00)   (0.76)

 

*The adjustment columns above represent the following:

 

Previously Revised: Immaterial errors were identified and revised in prior periods.

 

Current Revisions: Immaterial errors were identified and revised in current quarter.

 

Reclassifications: Certain prior period amounts related to taxes payable were reclassified from Accounts Payable to Other Current Liabilities.

 

Fair Value of Financial Instruments. Certain assets and liabilities are required to be recorded at fair value on a recurring basis. Fair value is determined based on the exchange price that would be received for an asset or transferred for a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The carrying amounts of cash, accounts receivables, accounts payable and certain notes payable approximate fair value because of the short maturity and/or variable rates associated with these instruments. Long-term notes payable as of September 30, 2021 and December 31, 2020 approximate its fair value as the interest rates are indexed to market rates. The Company categorizes the inputs to the fair value measurements into three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

Level 1 - Inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company is able to access at the measurement date.

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, and can reference interest rates, yield curves, implied volatilities and credit spreads.

 

Level 3 - Inputs are unobservable data points for the asset or liability, and include situations where there is limited, if any, market activity for the asset or liability.

 

Cash. The Company’s cash may be in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in these accounts.

  

Foreign Currency. The Company’s functional currency is the United States dollar for its U.S. entities. Ittella Italy’s functional currency is the Euro. Transactions in currency other than the functional currency are recognized at the rates of exchange prevailing at the dates of the transaction. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of each entity are included in the results of operations in income from operations as incurred.

 

The accompanying condensed consolidated financial statements are expressed in United States dollars. Assets and liabilities of foreign operations are translated at period-end rates of exchange. Revenues, costs and expenses are translated at average rates of exchange prevailing during the period. Equity adjustments resulting from translating foreign currency financial statements are accumulated as a separate component of stockholders’ equity.

 

The Company conducts business globally and is therefore exposed to adverse movements in foreign currency exchange rates, specifically the Euro to US dollar. To limit the exposure related to foreign currency changes, the Company entered into foreign currency exchange forward contracts starting in 2020. The Company does not enter into contracts for speculative purposes.

 

In February 2020, the Company entered into a trading facility for derivative forward contracts. Under this facility, the Company has access to open foreign exchange forward contract instruments to purchase a specific amount of funds in Euros and to settle, on an agreed-upon future date, in a corresponding amount of funds in United States dollars. During the nine months ended September 30, 2021 and 2020, the Company entered into foreign currency exchange forward contracts to purchase 55.36 million Euros and 37.79 million Euros, respectively. The notional amounts of these derivatives are $66.80 million and $42.81 million for the nine months ended September 30, 2021 and 2020, respectively.

 

15

 

 

These derivatives are not designated as hedging instruments. Gains and losses on the contracts are included in other income net, and substantially offset foreign exchange gains and losses from the short-term effects of foreign currency fluctuations on assets and liabilities, such as purchases, receivables and payables, which are denominated in currencies other than the functional currency of the reporting entity. These derivative instruments generally have maturities of up to nine months.

 

Accounts Receivable. Trade receivables are customer obligations due under normal trade terms requiring payment generally within 7 to 45 days from the invoice date. The Company’s allowance for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible. This analysis includes assessing a default probability to customers’ receivable balances, which is influenced by several factors, including (i) current market conditions, (ii) periodic review of customer credit worthiness, and (iii) review of customer receivable aging and payment trends.

 

Inventory. Inventory consists of raw materials and packaging materials, work in process and finished goods. Inventories are carried at the lower of cost or net realizable value on a weighted average basis. Inventory is initially measured at cost and consists of the sum of the applicable expenditures and charges directly and indirectly incurred to bring products to their existing condition and location. These costs include purchase costs and any other charges necessary to prepare the items for production. For work in process and finished goods, these costs normally include those incurred directly or indirectly in the production of inventory (i.e., direct labor and production overheads or conversion costs), and other expenses (i.e., inbound freight, transportation and handling charges, taxes and duties).

 

Overhead costs are allocated to the units produced within the reporting period, while abnormal costs are charged to current operations as incurred. The Company monitors the remaining utility of its inventory and writes down inventory for excess or obsolescence as appropriate.

  

Property, Plant and Equipment. Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property, plant and equipment is calculated using the straight-line method over the useful lives of the assets, which range from 5 to 15 years for machinery and equipment, 5 to 7 years for furniture and fixtures, 20 to 33.5 years for buildings, and 3 to 10 years for computer equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. Repairs and maintenance are expensed as incurred. Renewals and enhancements are capitalized and depreciated over the remaining life of the specific property unit. When the Company retires or disposes of property, plant or equipment, the cost and accumulated depreciation are removed from the Company’s accounts and any resulting gain or loss is reflected in the condensed consolidated statements of operations and comprehensive income (loss).

  

Goodwill. The Company evaluates and tests the recoverability of goodwill for impairment at least annually, or more frequently if circumstances indicate that goodwill may not be recoverable. The Company performs the impairment testing by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of its reporting unit (currently only one reporting unit) is less than its carrying amount (“Qualitative Assessment”). In assessing the qualitative factors, the Company considers the impact of certain key factors including macroeconomic conditions, industry and market considerations, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount, the Company tests for impairment by comparing the estimated fair value of the reporting unit with its carrying amount. The Company estimates the fair value of the reporting unit using a “step one” analysis using a fair-value-based approach based on a discounted cash flow analysis of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Any excess of the carrying amount of the reporting unit’s goodwill over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down. No goodwill impairment was recorded during the three and nine months ended September 30, 2021.

 

Long-Lived and Intangible Assets. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Intangible assets with indefinite lives are not amortized but instead, are reviewed for impairment. Intangible assets and long-lived assets are reviewed for impairment at the asset group level whenever events or changes in circumstances indicate that the carrying amount of such asset group may not be recoverable. Recoverability of assets within an asset group to be held and used is measured by a comparison of the carrying amount of an asset group to the future undiscounted net cash flows expected to be generated by the asset group. If such asset groups are considered to be impaired, an impairment is recognized to the extent that these assets are stated based upon their fair value. This analysis differs from the Company’s goodwill analysis in that the impairment for these assets is only deemed to have occurred if the sum of the forecasted undiscounted future cash flows of these intangible assets is less than their carrying values. The estimate of long-term undiscounted cash flows includes long-term forecasts of revenue growth, gross margins, and operating expenses, and requires significant judgment and assumptions. An impairment loss may exist when the estimated undiscounted cash flows attributable to the assets are less than the carrying amount of the assets. No impairment was recorded during the three and nine months ended September 30, 2021 and 2020.

 

Warrants. The Public Warrants are considered freestanding equity-classified instruments due to their detachable and separately exercisable features and meet the indexation criteria in ASC 815-40-15-7C. Accordingly, the Public Warrants are presented as a component of Stockholders’ Equity in accordance with ASC 815-40-25. All of the public warrants have been exercised as of September 30, 2021. See note 17. The agreements with respect to the Company’s Private Placement Warrants include provisions related to determining settlement amounts that preclude the Private Placement Warrants from being accounted for as components of equity. As these warrants meet the definition of a derivative as contemplated in ASC 815-40, the Private Placement Warrants are recorded as derivative liabilities on the condensed consolidated balance sheets and measured at fair value at inception (on the Closing Date) and at each reporting date in accordance with ASC 820, with changes in fair value recognized in the condensed consolidated statements of operations and other comprehensive income (loss) in the period of change.

 

16

 

 

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;(d) allocating the transaction price to the performance obligation in each contract; and (e) recognizing revenue when, or as, the Company satisfies performance obligations by transferring the promised goods or services. Each unit of product delivered is determined as a separate performance obligation and in the event there is more than one unit of a product ordered, there will be multiple performance obligations satisfied under the same contract. When control of the promised products and services are transferred to the Company’s customers, the Company recognizes revenue in the amount that reflects the consideration the Company expects to receive in exchange for these products and services.

 

Control generally transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms. Customer contracts generally do include more than one performance obligation and the performance obligations in the Company’s contracts are satisfied within one year. No payment terms beyond one year are granted at contract inception.

 

The Company disaggregates revenue based on the type of products sold to its customers – private label, Tattooed Chef and other. The other revenue stream constitutes sale of similar food products directly to customers through a third-party vendor and the Company acts as a principal in these transactions.

 

Most contracts also include some form of variable consideration, most commonly in the form of 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 $0.63 million and $1.71 million as of September 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.

 

The Company enters into certain arrangements with its customers to provide inventory for promotional purposes (“Promotional Items”). Such arrangements are not tied to immediate or future sales of any particular product. Instead, the Company will occasionally offer these Promotional Items in a targeted way to increase product awareness. Since a Promotional Item does not provide a material right, it is not considered a distinct performance obligation. As such, the cost of the Promotional Item is not presented within cost of goods sold and is instead treated as an operating expense.

 

Cost of Sales. Cost of sales consists of the costs of raw materials utilized in the manufacture process, co-packing or repacking fees, in-bound freight charges, internal transfer costs, cold storage expenses incurred prior to the manufacture of the Company’s finished products, and out-bound freight to transfer the finished goods to the end customers. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization and payroll costs that relate to the direct manufacture by the Company.

 

Operating Expenses. Operating expenses include selling expenses, cold storage expenses after manufacture, as well as expenses for advertising, sampling costs, costs for merchandise displays, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), depreciation and other general and administrative costs.

 

Sales and Marketing Expenses. The Company expenses costs associated with sales and marketing as incurred. Sales and marketing expenses were $5.96 million and $1.59 million for the three months ended September 30, 2021 and 2020, respectively, and $21.16 million and $4.39 million for the nine months ended September 30, 2021 and 2020, respectively. Sales and marketing expenses are included in operating expenses in the condensed consolidated statements of operations and comprehensive income (loss).

 

Interest Expense. Interest expense includes interest primarily related to the amortization of deferred financing costs, the Company’s notes payable and line of credit.

 

Deferred Financing Costs. Deferred financing costs include fees associated with the Company’s line of credit agreement. Such fees are amortized on a straight-line basis over the term of the related line of credit agreement as a component of interest expense, which approximates the effective interest rate method, in accordance with the terms of the agreement. Deferred financing costs were $0.08 million at both September 30, 2021 and December 31, 2020 and are recorded as a component of other assets in the accompanying condensed consolidated balance sheets. Amortization expense of deferred financing costs were $0.00 million and $0.01 million during the three months ended September 30, 2021 and 2020, respectively. Amortization expense of deferred financing costs were $0.00 million and $0.03 million during the nine months ended September 30, 2021 and 2020, respectively.

 

17

 

 

Stock-based Compensation. The Company measures compensation expense for stock options and other stock awards in accordance with ASC 718, Compensation — Stock Compensation. Stock-based compensation is measured at fair value on the grant date and recognized as compensation expense over the requisite service period. The Company accounts for forfeitures when they occur. Generally, the Company issues stock options and other stock awards to employees with service-based and/or performance-based vesting conditions. For awards with only service-based vesting conditions, the Company records compensation cost for these awards using the straight-line method. For awards with performance-based vesting conditions, the Company recognizes compensation cost on a tranche-by-tranche basis (the accelerated attribution method) over the expected service period.

  

Under the provisions of ASC 718, Compensation—Stock Compensation, the Company measures stock-based awards granted to non-employees based on the fair value of the award on the date on which the related service is completed. Compensation expense is recognized over the period during which services are rendered by non-employees until service is completed.

 

Income Taxes. As part of the process of preparing its condensed interim consolidated financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the Income Tax Topic 740 of the ASC (“ASC 740”). The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company’s forecast of the reversal of temporary differences, future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings.

 

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must first be determined to be more likely to be sustained based solely on its technical merits, and if so, then measured to be the largest benefit that has a greater than 50% likelihood of being sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020, respectively. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of September 30, 2021 or December 31, 2020. The Company is currently not aware of any issues under review that could result in significant payment, accruals, or material deviation from its tax position. The Company is subject to income tax examinations by major taxing authorities since inception. See Note 15 for more information on the Company’s accounting for income taxes.

 

Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive loss is defined as the change in equity resulting from transactions from non-owner sources. Other comprehensive income consisted of gains and losses associated with changes in foreign currency as a result of the translation of the financial results of the Company’s Italian subsidiary.

 

Use of Estimates. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from these estimates.

 

Concentrations of Credit Risk. The Company grants credit, generally without collateral, to customers primarily in the United States. Consequently, the Company is subject to potential credit risk related to changes in business and economic factors in this geographical area. No external suppliers accounted for more than 10% of the Company’s cost of goods sold during the period ended September 30, 2021 and 2020.

  

Three customers accounted for 63% and 87% of the Company’s revenue during the three months ended September 30, 2021 and 2020, respectively.

 

Customer  2021   2020 
         
Customer A   19%   36%
Customer C   33%   30%
Customer B   11%   21%

 

Three customers accounted for 76% and 87% of the Company’s revenue during the nine months ended September 30, 2021 and 2020, respectively.

 

Customer  2021   2020 
         
Customer C   34%   36%
Customer A   31%   34%
Customer B   11%   17%

 

18

 

 

Customers accounting for more than 10% of the Company’s accounts receivable as of September 30, 2021 and December 31, 2020 were:

 

Customer  September 30,
2021
   December 31,
2020
 
Customer A   19%   24%
Customer B   
*
    10%
Customer C   28%   53%
Customer D   15%   
**
 

 

*Customer B accounted for less than 10% of accounts receivable as of September 30, 2021. However, customer B accounted for 10% as of December 31, 2020 and as such was included in the disclosure above for comparison purposes.
**Customer D is a new customer in 2021, accounted for 15% as of September 30, 2021 and as such was included in the disclosure above for comparison purposes.

 

Segment Information. The Company manages its operations on a company-wide basis as one operating segment, thereby making determinations as to the allocation of resources to the business as a whole rather than on a segment-level basis. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the Chief Operating Decision Maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM. To date, the Company’s CODM has made such decisions and assessed performance at the Company-level.

 

Long-lived assets consist of property, plant and equipment, net of depreciation, and are categorized based on geographic location as follows:

 

Definite Lived Intangible Assets (in thousands)  September 30,
2021
   December 31,
2020
 
Italy  $
            -
   $
            -
 
United States - tradenames   179    
-
 
Total  $179   $
-
 

 

Definite Lived Intangible Assets  Remaining
useful life
 
Description:    
Tradenames   1.75 

 

Long Lived Assets (in thousands)  September 30,
2021
   December 31,
2020
 
Italy  $15,744   $9,113 
United States   23,925    6,970 
Total  $39,669   $16,083 

 

COVID-19 Pandemic. The novel coronavirus (“COVID-19”), which was categorized by the World Health Organization as a pandemic in March 2020, continues to significantly impact the United States and the rest of the world and has altered the Company’s business environment and the overall working conditions.

 

Despite partial remote working conditions, the Company’s business activities have continued to operate with minimal interruptions.

  

However, the pandemic may adversely affect the Company’s suppliers and could impair its ability to obtain raw material inventory in the quantities or of a quality the Company desires. The Company currently sources a material amount of its raw materials from Italy. Though the Company is not dependent on any single Italian grower for its supply of a certain crop, events (including the pandemic) generally affecting these growers could adversely affect the Company’s business. If the Company is unable to manage its supply chain effectively and ensure that its products are available to meet consumer demand, operating costs could increase, and sales and profit margins could decrease.

 

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions and technical corrections to tax depreciation methods for qualified improvement property. It also appropriated funds for the Small Business Administration’s Paycheck Protection Programs that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19. The Company has elected not to apply for a Paycheck Protection Program loan. The Company has analyzed the provisions of the CARES Act and determined it did not have a material impact on the Company’s financial condition, results of operations or cash flows for the periods presented.

 

19

 

 

The extent to which this pandemic could adversely impact the Company’s future business, financial condition and results of operations is dependent upon various factors, many of which are highly uncertain and outside the control of the Company.

 

Earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. The weighted-average number of common shares outstanding during the period includes common stock but is exclusive of certain unvested stock awards that have no economic or participating rights. Diluted earnings per share is computed by dividing the net income by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include outstanding stock options and restricted stock awards under the Company’s equity incentive plan and warrants have been considered in the computation of diluted earnings per share.

 

Emerging Growth Company (“EGC”). Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts EGCs from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of its financial statements with another public company, which is neither an EGC nor an EGC which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used. As of December 31, 2021, the Company will lose EGC status and be required to adopt standards on the public company timeframe.

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

 

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of Topic 740, Income Taxes, and simplification in several other areas. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods therein. The Company adopted the new standard on January 1, 2021, the first day of the reporting year. One of the amendments eliminates a limitation on the amount of income tax benefit that can be recognized in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021.

  

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. Interest on borrowings under the Company’s revolving credit facility is calculated based upon LIBOR. ASU 2020-04 was issued on March 12, 2020 and may be applied prospectively through December 31, 2022. This guidance has had no material effect on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021.

 

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.

 

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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. The original guidance required application on a modified retrospective basis with adjustments to the earliest comparative period presented. In August 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements to ASC 842,” which included an option to not restate comparative periods in transition and elect to use the effective date of ASU No. 2016-02 as the date of initial application, which the Company will elect. As the Company will lose EGC status by the end of December 31, 2021, 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. Based on the Company’s preliminary assessment, the adoption of this standard 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, upon the adoption of ASU 2016-02, no material changes are expected to the condensed consolidated statement of operations and the condensed consolidated statement of cash flows.

 

3. Redeemable noncontrolling interest

 

On April 15, 2019, UMB contributed $6.00 million to acquire 6,000 units for a 12.5% ownership interest in Ittella International. The Company incurred issuance costs of $0.13 million resulting in net consideration received of $5.87 million.

 

Per the terms of Ittella International’s operating agreement, UMB was provided with a put right which could have caused Ittella International to purchase all, but not less than all of UMB units upon notice (“Put Notice”). UMB could have provided the Put Notice to Ittella International at any time for any reason after April 15, 2024. If Ittella International did not accept the price proposed in the Put Notice, the consideration to be paid by Ittella International to UMB for the units that were the subject of the Put Notice will be the fair market value of the units as established by a third party appraisal, subject to a floor for the fair value at 85%. If the fair value was less than 85% of the consideration proposed by UMB in their Put Notice, UMB may have chosen to abandon the transfer. The put right constituted a redemption feature and therefore UMB’s noncontrolling interest (the “Redeemable Noncontrolling Interest”) was classified as temporary equity (mezzanine) in the accompanying condensed consolidated financial statements.

 

The Redeemable Noncontrolling Interest was initially measured at fair value, which has been determined by the Company to equal the consideration received from UMB, net of transaction costs.

 

The Redeemable Noncontrolling Interest was not redeemable until April 2024; however, it was probable of becoming redeemable with the passage of time. Therefore, the subsequent measurement of the Redeemable Noncontrolling Interest at each reporting date was determined as the higher of (1) the initial carrying amount, increased or decreased for the Redeemable Noncontrolling Interest’s share of net income and other comprehensive income, or (2) the redemption value, which was determined to be fair value per the terms of Ittella International’s operating agreement above. In determining the measurement method of redemption value, the Company elected to accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date (i.e. April 2024) of the instrument using the effective interest method. Changes in the redemption value are considered to be changes in accounting estimates. Redemption value was determined using a combination of the market approach and income approach. Under the market approach, the Company estimated fair value based on market multiples of EBITDA of comparable companies. Under the income approach, the Company measured fair value based on a projected cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in its then-current business model.

 

There was no Redeemable Noncontrolling Interest for the three and nine months ended September 30, 2021. Changes in the carrying value of the Redeemable Noncontrolling Interest were as follows for the three months ended September 30, 2020:

 

   Amount 
Redeemable Noncontrolling Interest as of July 1, 2020  $43,815 
Net loss attributable to redeemable noncontrolling interest   (440)
Accretion to redeemable noncontrolling interest   442 
Redeemable Noncontrolling Interest as of September 30, 2020  $43,817 

 

Changes in the carrying value of the Redeemable Noncontrolling Interest were as follows for the nine months ended September 30, 2020:

 

   Amount 
Redeemable Noncontrolling Interest as of January 1, 2020  $6,900 
Net income attributable to redeemable noncontrolling interest   198 
Accretion to redeemable noncontrolling interest   36,719 
Redeemable Noncontrolling Interest as of September 30, 2020  $43,817 

 

All Redeemable Noncontrolling Interest classified as mezzanine equity were reclassified to permanent equity in connection with the contribution of UMB’s 12.5% equity interests in Ittella International to Myjojo (Delaware) in exchange for Myjojo (Delaware)’s common stock and were subsequently exchanged for Forum Class A common stock upon consummation of the Transaction (see Note 1).

 

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4. REVENUE RECOGNITION

 

Nature of Revenues

 

Substantially all of the Company’s revenue from contracts with customers consist of the sale of plant-based foods including, but not limited to, acai and smoothie bowls, zucchini spirals, riced cauliflower, vegetable bowls and cauliflower crust pizza in the United States and is recognized at a point in time in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Each unit of food product sold to the customer is the performance obligation. Revenue from the sale of frozen food products is recognized upon the transfer of control to the customer. Control generally transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms.

 

The Company disaggregates revenue based on the type of products sold to its customers – private label, Tattooed Chef and other. The other revenue stream constitutes sale of similar food products directly to customers through third-party vendors and the Company acts as a principal in these transactions. All sales are recorded within revenue on the accompanying condensed consolidated statements of operations and comprehensive income (loss). The Company does not have any contract assets or contract liabilities as of September 30, 2021 and 2020.

 

Revenue streams for the three months ended September 30, 2021 and 2020 were as follows:

 

   2021   2020 
Revenue Streams (in thousands)  Revenue   % Total   Revenue   % Total 
                 
Tattooed Chef  $35,289    60%  $22,629    55%
Private Label   23,118    39%   18,106    44%
Other revenues   373    1%   229    1%
Total  $58,780        $40,964      

 

Revenue streams for the nine months ended September 30, 2021 and 2020 were as follows:

 

   2021   2020 
Revenue Streams (in thousands)  Revenue   % Total   Revenue   % Total 
                 
Tattooed Chef  $104,245    64%  $60,643    55%
Private Label   56,698    35%   47,495    44%
Other revenues   1,029    1%   765    1%
Total  $161,972        $108,903      

 

Significant Judgments

 

Generally, the Company’s contracts with customers comprise a written quote and customer purchase order or statement of work and are governed by the Company’s trade terms and conditions. In certain instances, it may be further supplemented by separate pricing agreements. All products are sold on a standalone basis; therefore, when more than one product is included in a purchase order, the Company has observable evidence of the stand-alone selling price. Contracts do not contain a significant financing component as payment terms on invoiced amounts are typically between 7 to 45 days, based on the Company’s credit assessment of individual customers, as well as industry expectations. Product returns are not significant. The contracts with customers do not include any additional performance obligations related to warranties and material rights.

 

From time to time, the Company may offer incentives to its customers considered to be variable consideration including discounts and demonstration costs. Customer incentives considered to be variable consideration are recorded as a reduction to revenue as part of the transaction price based on the agreement at the time of the transaction. Customer incentives are allocated entirely to the single performance obligation of transferring product to the customer.

  

5. ACCOUNTS RECEIVABLE, NET

 

Accounts receivable are reduced by an allowance for an estimate of amounts that are uncollectible. The Company’s receivables are significantly derived from customers in the United States. The Company extends credit to its customers based upon its evaluation of the following factors: (i) the customer’s financial condition, (ii) the amount of credit the customer requests, and (iii) the customer’s actual payment history (which includes disputed invoice resolution). The Company does not require its customers to post a deposit or supply collateral. The Company’s allowance for doubtful receivables is based on an analysis that estimates the amount of its total customer receivable balance that is not collectible. This analysis includes assessing a default probability to customers’ receivable balances, which is influenced by several factors, including (i) current market conditions, (ii) periodic review of customer credit worthiness, and (iii) review of customer receivable aging and payment trends.

 

The Company evaluates the creditworthiness of its customers regularly and estimates the collectability of current and non-current accounts receivable based on historical bad debt experience, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including during the ongoing COVID-19 pandemic, the Company’s estimates and judgments with respect to the collectability of its receivables are subject to greater uncertainty than in more stable periods. The Company writes off accounts receivable whenever they become uncollectible, and any payments subsequently received on such receivables are recorded as bad debt recoveries in the period the payment is received. Credit losses from continuing operations have consistently been within management’s expectations. The allowance for doubtful accounts was $0.42 million and $0 million as of September 30, 2021 and December 31, 2020, respectively.

 

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6. INVENTORY

 

Inventory consists of the following as of (in thousands):

 

   September 30,
2021
   December 31,
2020
 
         
Raw materials  $16,327   $16,534 
Work-in-process   3,993    5,040 
Finished goods   21,001    13,424 
Packaging   3,950    3,004 
Total  $45,271   $38,002 

 

7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

The following table provides additional information related to the Company’s prepaid expenses and other current assets as of (in thousands):

 

   September 30,
2021
   December 31,
2020
 
         
Prepaid advertising expenses  $4,406   $
-
 
Prepaid expenses, other   2,510    1,897 
Tax credits   1,275    1,884 
Warrants receivable (see Note 17)   
-
    13,542 
Other current assets   65    917 
Total  $8,256   $18,240 

 

8. PROPERTY, PLANT, AND EQUIPMENT, NET

 

Property, plant and equipment consists of the following as of (in thousands):

 

   September 30,
2021
   December 31,
2020
 
Building  $6,886   $2,574 
Leasehold improvements   3,915    2,106 
Machinery and equipment   27,122    12,526 
Computer equipment   536    187 
Furniture and fixtures   161    109 
Land   1,602    
-
 
Construction in progress   5,478    1,533 
    45,700    19,035 
Less: accumulated depreciation   (6,031)   (2,952)
Property, plant, and equipment, net  $39,669   $16,083 

 

Approximately $4.0 million out of the $5.5 million construction in progress is the manufacturing equipment for the newly acquired entity, NMFD (see note 10). The Company expects to have the equipment installed and used for production by the end of March 2022.

 

The Company recorded depreciation expense for the three months ended September 30, 2021 and 2020 of $1.04 million and $0.22 million, respectively. The Company recorded depreciation expense for the nine months ended September 30, 2021 and 2020 of $2.47 million and $0.69 million, respectively.

 

9. Intangible ASSETS, NET

 

Intangible assets consist of the following as of (in thousands):

 

   September 30,
2021
   December 31,
2020
 
Tradenames  $    220   $
         -
 
Less: accumulated amortization   (41)   
-
 
Net  $179   $
-
 

 

23

 

 

The estimated useful lives of the identifiable definite-lived intangible assets acquired in the NMFD Transaction were determined to be two years.

 

The Company recorded amortization expense of $0.03 million and $0 million, respectively, for the three months ended September 30, 2021 and 2020. The Company recorded amortization expense of $0.04 million and $0 million, respectively, for the nine months ended September 30, 2021 and 2020.

 

Estimated future amortization expense for the definite-lived intangible assets is as follows (in thousands):

 

Three months ended December 31, 2021  $28 
2022   110 
2023   41 
Total  $179 

 

10.business combination and asset purchaseS

 

New Mexico Food Distributors, Inc. (NMFD) and Karsten Acquisition

 

On May 14, 2021, the Company acquired all outstanding stock of NMFD, a distributor and manufacturer of frozen and ready-to-eat New Mexico food products for a total purchase price amounting to $28.91 million. In addition, the Company acquired all of the membership interests of Karsten for a total purchase price of $5.18 million. The NMFD Transaction met the definition of an acquisition of a business in accordance with ASC 805, Business Combinations, and is accounted for under the acquisition method of accounting.

 

Though the purchase agreements for each of NMFD and Karsten were executed as legally separate transactions, each were entered into contemporaneously and in contemplation of the other. As such, the transactions noted above were accounted for on a combined basis and were viewed to represent a single integrated event.

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed by the Company in connection with the NMFD Transaction were initially recorded at their respective fair values. The Company made an election under Section 338(h)(10) to treat the NMFD Transaction as an asset acquisition for income tax purposes, which allows for any goodwill recognized to be tax deductible and amortized over a 15-year statutory life. The Company considered the potential impact to the depreciation and amortization expense as a result of the fair values assigned to the acquired assets. The excess of the purchase price over the fair value of assets acquired and liabilities assumed of approximately $19.35 million was recorded as goodwill.

 

Transaction costs of $0.47 million were incurred in relation to the acquisition of which $0.07 million pertained to reimbursement of costs incurred by the sellers and included as part of the purchase consideration. The remaining $0.40 million was recorded to operating expense within the consolidated condensed statement of operations for the nine months ended September 30, 2021. The Company did not record any operating expense related to the transaction costs for the three months ended September 30, 2021.

 

The following table summarizes the provisional fair value of assets acquired and liabilities assumed in the NMFD Transaction as of the date of acquisition:

 

   Amount 
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 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.

 

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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
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
Net Revenue - pro forma combined  $58,780   $49,139   $174,813   $129,505 
Net (Loss) Income - pro forma combined   (8,174)   (3,349)   (70,197)   2,286 
Weighted Average Shares:                    
Basic   81,957,170    28,324,038    81,404,348    28,324,038 
Diluted   82,011,216    28,324,038    81,548,673    28,324,038 
Net Income (Loss) per Share:                    
Basic  $(0.10)  $(0.12)  $(0.86)  $0.08 
Diluted  $(0.10)  $(0.12)  $(0.86)  $0.08 

 

Esogel S.R.L. and Ferdifin S.p.A. Asset Acquisitions

 

In April 2021, the Company entered into asset purchase agreements with Esogel S.R.L. (“Esogel”) and Ferdifin S.p.A. (“Ferdifin”) in Italy to purchase the machinery and equipment owned by Esogel for $2.71 million and the land and building owned by Ferdifin for $2.17 million. The allocation of the total costs (including related transaction costs) relating to these assets acquisitions is as follows:

 

Assets acquired – Esogel    
Specialized machinery – facility  $2,168 
Machinery and equipment   534 
Other   10 
Total assets acquired – Esogel  $2,712 

 

Assets acquired – Ferdifin    
Building  $1,396 
Land   776 
Total assets acquired – Ferdifin  $2,172 

 

11. Derivative instrumentS

 

The Company enters into foreign currency exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency inventory purchases, receivables and payables. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company does, however, seek to mitigate such risks by limiting its counterparties to major financial institutions, and management does not expect material losses as a result of defaults by counterparties.

 

The fair values of the Company’s derivative instruments classified as Level 2 financial instruments and the line items within the accompanying condensed consolidated balance sheets to which they were recorded are summarized as of September 30, 2021 and December 31, 2020, follows (in thousands):

 

   Balance Sheet Line Item  September 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   1,788    
-
 
Total     $1,788   $866 

 

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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
September 30,
2021
   Nine months
ended
September 30,
2021
 
Derivatives not designated as hedging instruments:           
Foreign currency derivatives  Other income (expense)  $(853)  $(2,654)
Total     $(853)  $(2,654)

 

   Line Item in Statements
of Operations
  Three months
ended
September 30,
2020
   Nine months
ended
September 30,
2020
 
Derivatives not designated as hedging instruments:           
Foreign currency derivatives  Other income (expense)  $825   $1,113 
Total     $825   $1,113 

 

Unrealized and realized (losses) gains on forward currency derivatives for the three months ended September 30, 2021 and 2020 were $(0.85) million and $0.83 million, respectively. Unrealized and realized (losses) gains on forward currency derivatives for the nine months ended September 30, 2021 and 2020 were $(2.66) million and $1.11 million, respectively. The Company has notional amounts of $55.19 million and $45.60 million on outstanding derivatives as of September 30, 2021 and December 31, 2020, respectively.

  

12. FAIR VALUE MEASUREMENTS

 

Contingent Consideration Liabilities – Holdback Shares

 

As part of the Transaction (Note 1), an additional 5,000,000 shares of Forum’s common stock (the “Holdback Shares”) were placed into escrow, to be released to certain Myjojo (Delaware) stockholders upon satisfaction, within the first three years after the Closing Date, of the following conditions: (i) if the trading price of the Company’s common stock equaled or exceeded $12.00 on any 20 trading days in any 30-day trading period (the “$12.00 Share Price Trigger”), then 2,500,000 additional Holdback Shares were to be released to certain Myjojo (Delaware) stockholders or (ii) if the trading price of the Company’s common stock equaled or exceeded $14.00 on any 20 trading days in any 30-day trading period (each of such $14.00 trigger and the $12.00 Share Price Trigger, a “Share Price Trigger”), then 2,500,000 Holdback Shares were to be released to certain Myjojo (Delaware) stockholders. If a change in control occurred within the first three years after the Closing, all Holdback Shares not previously released were to be released to certain Myjojo (Delaware) stockholders. If the conditions to release of the Holdback Shares were not satisfied within the first three years following the Closing Date, the Holdback Shares would be forfeited. On November 16, 2020, both Share Price Trigger events for the issuance of the Holdback Shares occurred and, accordingly, the Company released from escrow and delivered the 5,000,000 Holdback Shares to the Myjojo (Delaware) stockholders (other than Pizzo Food Srls (“Pizzo”) and Myjojo (Delaware)’s Chief Operating Officer).

 

The Company recognized and measured a contingent consideration liability associated with Holdback Shares at a fair value of $120.35 million, determined using a probability-weighted discounted cash flow model. Significant inputs used in the model includes certain financial metric growth rates, volatility rates, projections associated with the applicable contingency, the interest rate, and the related probabilities and payment structure in the Merger Agreement, which are not observable in the market and are therefore considered to be Level 3 inputs.

 

On November 16, 2020, the contingencies were met and accordingly the Holdback Shares were released. The remeasured fair value of the liability was $83.15 million based on the public share price on release date and was charged against additional paid-in capital. The change in fair value during the period resulted in a gain on settlement of the contingent consideration derivative of $37.20 million and was recorded within “other income” in the condensed consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2020.

 

Sponsor Earnout Shares Subject to Transfer Restrictions

 

In accordance with the Sponsor Earnout Letter entered into by and among Forum Investor II, LLC (the “Sponsor”), Forum and the Holder Representative, the Sponsor agreed that at the Closing Date, the Sponsor placed 2,500,000 Founder Shares (as that term is defined in the Sponsor Earnout Letter) held by it (the “Sponsor Earnout Shares”) into escrow. The vesting, release and forfeiture terms of the Sponsor Earnout Shares were the same as the vesting, release and forfeiture terms applicable to the Holdback Shares, with 50% of the Sponsor Earnout Shares vesting at each Share Price Trigger, and all Sponsor Earnout Shares released if a change of control occurred, in each case, within the first three years after the Closing. If the conditions to the release of any Sponsor Earnout Shares were not satisfied on or prior to the date that it is finally determined that the Myjojo (Delaware) stockholders are not entitled to or eligible to receive any further Holdback Releases (as that term is defined in the Sponsor Earnout Letter) pursuant to the Merger Agreement, the Sponsor Earnout Shares were to be forfeited by the Sponsor after such date, and returned to the Company for immediate cancellation. In November 2020, both Share Price Trigger events for the issuance of the Holdback Shares occurred and, accordingly, the Company released from escrow and returned the 2,500,000 Sponsor Earnout Shares to the Sponsor.

 

26

 

 

The multiple settlement provisions of the Holdback Shares and Sponsor Earnout Shares constituted derivative instruments under ASC 815, which must be classified as asset or liability instruments at their fair value at the Closing Date, and subsequently remeasured with changes in fair value recognized in earnings. At the Closing Date, the fair value of the contingent consideration relating to the Holdback Shares amounted to $120.35 million. The derivative liability was remeasured with changes in fair value recognized in earnings of $37.20 million upon release of the Holdback Shares to the certain stockholders in November 2020. The fair value of the Sponsor Earnout Shares was $0 at the Closing Date and $0 upon the release date.

 

The Company recognized and measured an asset associated with the Sponsor Earnout Shares at a fair value of $0 at the Closing Date, determined using a probability-weighted discounted cash flow model. Significant inputs used in the models includes certain financial metric growth rates, volatility rates, projections associated with the applicable contingency, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement, which are not observable in the market and are therefore considered to be Level 3 inputs.

 

The Sponsor Earnout Shares were released on November 16, 2020 based on the remeasured fair value on the release date of $0, as none of the Sponsor Earnout Shares were forfeited on that date. No gain or loss was recorded by the Company in connection with the Sponsor Earnout Shares.

 

Warrant Liabilities

 

The Private Placement Warrants (see Note 1) are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception (“initial measurement”), which is at the Closing Date, and on a recurring basis (“subsequent remeasurement”), with changes in fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of operations and comprehensive income (loss).

 

Initial Measurement

 

The fair value of the Private Placement Warrants was initially measured at fair value on October 15, 2020, the Closing Date.

 

Subsequent Measurement

 

At each reporting period or upon exercise of the Private Placement Warrants, the Company remeasures the Private Placement Warrants at their fair values with the change in fair value reported to current operations within the statements of operations and other comprehensive income (loss). During the nine months ended September 30, 2021, Private Placement Warrants totaling 278,542 were settled, resulting in an aggregate loss on settlements of $0.17 million.

 

For the three months and the nine months ended September 30, 2021, the change in the fair value of the warrant liabilities charged to current operations resulted in a gain of $0.21 million and $0.16 million, respectively.

 

Fair Value Measurement

 

The fair value of the Private Placement Warrants was determined to be $10.41 per warrant as of September 30, 2021, using Monte Carlo simulations and certain Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from its traded warrants and historical volatility of select peers’ common stock with a similar expected term of the Private Placement Warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield on the grant date with a maturity similar to the expected remaining term of the warrants. The expected term of the Private Placement Warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company estimated to remain at zero.

  

The following table provides quantitative information regarding the inputs to the fair value measurement of the Private Placement Warrants as of each measurement date: 

 

Input  October 15,
2020
(Initial
Measurement)
   December 31,
2020
   September 30,
2021
 
Risk-free interest rate   0.32%   0.34%   0.79%
Expected term (years)   5    4.79    4.04 
Expected volatility   35.00%   35.00%   55.00%
Exercise price  $11.50   $11.50   $11.50 
Fair value of warrants  $13.85   $12.72   $10.41 

 

On October 15, 2020, the fair value of the Private Placement Warrants was determined to be $13.85 per warrant, or an aggregate value of $9.07 million for 655,000 outstanding warrants.

 

On December 31, 2020, the fair value of the Private Placement Warrants was determined to be $12.72 per warrant, or an aggregate value of $5.18 million for 407,577 outstanding warrants.

 

27

 

 

On September 30, 2021, the fair value of the Private Placement Warrants was determined to be $10.41 per warrant, or an aggregate value of $1.34 million for 129,035 outstanding warrants.

 

The following table presents the changes in the fair value of warrant liabilities:

 

   Private
Placement
 
Fair value at initial measurement on October 15, 2020  $9,072 
Exercise of Private Placement Warrants   (2,696)
Change in fair value (1)   (1,192)
Fair value as of December 31, 2020  $5,184 
Exercise of Private Placement Warrants   (3,674)
Change in fair value (1)   (167)
Fair value as of September 30, 2021  $1,343 

 

(1) Changes in fair value are recognized in change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive income (loss).

 

13. LEASES

 

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 million following the payoff of the lease liability. The leased facility was accounted as a capital lease in connection with the NMFD Transaction (see Note 1). 

  

Future minimum principal payments due on the Karsten Lease for periods subsequent to September 30, 2021 are as follows (in thousands):

 

Three months ended December 31, 2021  $37 
2022   2,826 
Total  $2,863 

 

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 September 30, 2021 under operating leases having an initial or remaining non-cancelable term of one year or more are as follows (in thousands):

 

Three months ended December 31, 2021  $338 
2022   1,284 
2023   1,059 
2024   719 
2025   671 
Thereafter   4,748 
Total  $8,819 

 

The Company’s rent expense amounted to $0.65 million and $0.53 million for the three months ended September 30, 2021 and 2020, respectively. Rent expense amounted to $2.01 and $1.48 million for the nine months ended September 30, 2021 and 2020, respectively.

 

14. ACCRUED EXPENSES

 

The following table provides additional information related to the Company’s accrued expenses as of (in thousands):

 

   September 30,
2021
   December 31,
2020
 
Accrued customer incentives  $1,345   $1,524 
Accrued payroll   1,601    1,245 
Accrued commission   1,450    108 
Other accrued expenses   484    84 
Total  $4,880   $2,961 

 

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15. INCOME TAXES

 

The following table presents the provision for income taxes and the effective tax rate for the three months ended September 30, 2021 and September 30, 2020 in thousands:

 

   September 30,
2021
   September 30,
2020
 
Income tax benefit (expense)  $255   $(492)
Effective tax rate   (3.0)%   17.9%

 

The following table presents the provision for income taxes and the effective tax rate for the nine months ended September 30, 2021 and September 30, 2020 in thousands:

 

   September 30,
2021
   September 30,
2020
 
Income tax benefit (expense)  $(44,255)  $(1,776)
Effective tax rate   (171.3)%   (33.9)%

 

As of each reporting period, management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year periods ended June 30 and September 30, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

 

Based on this evaluation, a full valuation allowance was recorded on the net deferred tax asset of $47.22 million as of June 30, 2021. Management has determined that there is sufficient negative evidence to conclude that it is more likely than not that the net deferred tax asset will not be realizable. The Company therefore continues to maintain a full valuation allowance for the period ended September 30, 2021.

 

The income tax (benefit) expense for the three and nine months ended September 30, 2021 was primarily attributable to foreign income tax expenses on the Company’s foreign income in Italy and the expense recorded in the second quarter relating to a full valuation allowance on the net deferred tax asset.

  

The Company also believes that quarterly effective tax rates will vary from the fiscal 2021 effective tax rate as a result of recording a full valuation allowance, recognizing the income tax effects of items that the Company cannot anticipate such as the changes in tax laws, tax amounts associated with foreign earnings at rates different from the United States federal statutory rate, the tax impact of stock-based compensation. The Company’s foreign earnings on Italian operations are subject to foreign taxes applicable to its income derived in Italy.

 

As of September 30, 2021, the Company had no open tax examinations by any taxing jurisdiction in which it operates. The taxing authorities of the most significant jurisdictions are the United States Internal Revenue Service and the California Franchise Tax Board and the Agenzia delle Entrate. The statute of limitations for which the Company’s tax returns are subject to examination are as follows: Federal 2017-2020, California 2016-2020, and Italy 2016-2020. 

 

16. INDEBTEDNESS

 

Debt consisted of the following as of (in thousands):

 

   September 30,
2021
   December 31,
2020
 
         
Notes payable  $3,027   $2,101 
Notes payable to related parties (Note 19)   7    66 
Revolving credit facilities   3,317    22 
Total debt   6,351    2,189 
Less: current portion   (3,724)   (199)
           
Total long-term portion – net  $2,627   $1,990 

 

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Revolving credit facility

 

The Company is party to a revolving line of credit agreement, which has been amended from time to time, pursuant to which a credit facility has been extended to the Company until January 25, 2022 (the “Credit Facility”). The Credit Facility provides the Company with up to $25.00 million in revolving credit. Under the Credit Facility, the Company may borrow up to (a) 90% of the net amount of eligible accounts receivable; plus, (b) the lower of: (i) sum of: (1) 50% of the net amount of eligible inventory; plus (2) 45% of the net amount of eligible in-transit inventory; (ii) $10.00 million; or (iii) 50% of the aggregate amount of revolving loans outstanding, minus (c) the sum of all reserves. Under the Credit Facility: (i) the Company’s fixed charge coverage ratio may not be less than 1.10:1.00, and (ii) the Company may make dividends or distributions in shares of stock of the same class and also distributions for the payment of taxes. As of December 31, 2020, the Company was in compliance with all terms and conditions of its Credit Facility. As of September 30, 2021, the Company was not in compliance with the fixed charge coverage ratio term of the credit facility. This noncompliance has no impact on the Company’s borrowing capacity and financial condition.

 

The revolving line of credit bears interest at the sum of (i) the greater of (a) the daily Prime Rate, or (b) LIBOR plus 2%; and (ii) 1%.

 

The revolving line of credit has an arrangement associated with it wherein all collections from collateralized receivables are deposited into a collection account and applied to the outstanding balance of the line of credit on a daily basis. The funds in the collection account are earmarked for payment towards the outstanding line of credit and given the Company’s obligation to pay off the outstanding balance on a daily basis, the balance is classified as a current liability on the Company’s condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. The balance on the credit facility was $2.62 million and $0.02 million as of September 30, 2021 and December 31, 2020, respectively.

 

The Credit Facility included a capital expenditure loan (“Capex Loan”) in the amount of up to $1.89 million that functions to reimburse the Company for certain qualified expenses related to the Company’s purchase of capital equipment. All borrowings against this loan are payable on a straight-line basis over 5 years and accrue interest at the greater of (a) the daily Prime Rate or (b) the daily LIBOR Rate plus 4%. The loan was paid off in full with the proceeds from the Transaction. The balance on the Capex Loan was $0 million as of both September 30, 2021 and December 31, 2020.

 

In March 2021, Ittella Italy entered into a line of credit with a financial institution in the amount of 0.60 million Euros. The balance on the credit facility was $0.69 million (0.60 million Euro) as of September 30, 2021.

 

Notes payable

 

In May 2021, Ittella Italy entered into a promissory note with a financial institution in the amount of 1.00 million Euros. The note accrues interest at 1.014% and has a maturity date of May 28, 2025, when the full principal and interest are due. The balance on the promissory note was 0.94 million Euro ($1.09 million USD) and 0 million Euro ($0 million USD) as of September 30, 2021 and December 31, 2020, respectively.

 

On January 6, 2020, Ittella Properties, LLC, a variable interest entity (“VIE”) (see Note 21), refinanced all of its existing debt with a financial institution in the amount of $2.10 million (the “Note”). The Note accrues interest at 3.60% and has a maturity date of January 31, 2035. Financial covenants of the Note include a minimum fixed charge coverage ratio of 1.20 to 1.00. As of September 30, 2021, the Company was in compliance with all terms and conditions of the Note. The outstanding balance on the Note was $1.94 million and $2.02 million as of September 30, 2021 and December 31, 2020, respectively.

 

Future minimum principal payments due on the notes payable, including notes payable to related parties, for periods subsequent to September 30, 2021 are as follows (in thousands):

 

Three months ended December 31, 2021  $3,425 
2022   401 
2023   408 
2024   415 
2025   275 
2026   132 
Thereafter   1,295 
Total  $6,351 

 

17. STOCKHOLDERS’ EQUITY

 

The condensed consolidated statements of changes in equity reflect the Reverse Recapitalization as of October 15, 2020. Since Myjojo (Delaware) was determined to be the accounting acquirer in the Reverse Recapitalization, all periods prior to the consummation of the Transaction reflect the balances and activity of Myjojo (Delaware) (other than shares which were retroactively restated in connection with the Transaction).

 

Further, the Company issued awards to certain officers and all of its directors pursuant to the Tattooed Chef, Inc. 2020 Incentive Award Plan (“Director Awards”) on December 17, 2020 (see Note 18). Salvatore Galletti received 4,935 shares of common stock of the Company as part of the Director Awards. Such shares together with the shares that Salvatore Galletti received as a result of the Transaction and the release of the Holdback Shares from escrow, resulted in Salvatore Galletti having approximately 38.33% (including the shares of Company common stock held by Project Lily LLC, which is controlled by Mr. Galletti) of the voting power of the capital stock of the Company as of September 30, 2021.

 

30

 

 

On June 1, 2021, the Company issued 825,000 shares of common stock of the Company to the principals of Harrison & Co (“Harrison”) as consideration for advisory services provided by Harrison to facilitate the successful completion of the Transaction (see Note 1). The total consideration to Harrison included a $4.00 million success fee that was paid in cash upon closing of the Transaction and the right to 825,000 shares of common stock of the Company to be issued between May 1, 2021 and June 30, 2021. The shares were considered share-based compensation to non-employees and were classified as equity instruments as of October 15, 2020 (and therefore, not subject to remeasurement). The fair value of the share-based consideration on the date of the Transaction amounted to $20.73 million. The share-based consideration was fully vested upon consummation of the Transaction and there were no future service conditions. The fair value of the shares is also included as Transaction costs and recognized within additional paid-in capital as a reduction to the total amount of equity raised on the Closing Date.

 

Preferred Stock

 

The Company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.

 

Common Stock

 

The Company is authorized to issue 1,000,000,000 shares of common stock with a par value of $0.0001 per share. Holders of common stock are entitled to one vote for each share. As of September 30, 2021, there were 81,982,392 shares issued and outstanding.

 

Noncontrolling Interest

 

Prior to the consummation of the Transaction, noncontrolling interest in Ittella Italy was included as a component of stockholders’ equity on the accompanying condensed consolidated balance sheets. Noncontrolling interest in Ittella International contained a redemption feature and was included as mezzanine equity on the accompanying condensed consolidated balance sheets (Note 3). The share of income attributable to noncontrolling interest was included as a component of net income in the accompanying consolidation statements of operations and comprehensive income prior to the Transaction.

 

As discussed in Note 3, all noncontrolling interest were converted into Myjojo (Delaware)’s common shares, which were subsequently exchanged for the Company’s common shares in the Transaction.

 

The following schedule discloses the components of the Company’s changes in other comprehensive income attributable to noncontrolling interest for the three months ended September 30, 2020 (in thousands):

 

   2020 
Net income attributable to noncontrolling interest in Ittella Italy  $282 
Net loss attributable to noncontrolling interest in Ittella International   (440)
Increase in noncontrolling interest due to foreign currency translation   57 
      
Change in net comprehensive income attributable to noncontrolling interest for the three months ended September 30  $(101)

 

The following schedule discloses the components of the Company’s changes in other comprehensive income attributable to noncontrolling interest for the nine months ended September 30, 2020 (in thousands):

 

   2020 
Net income attributable to noncontrolling interest in Ittella Italy  $950 
Net income attributable to noncontrolling interest in Ittella International   198 
Increase in noncontrolling interest due to foreign currency translation   91 
      
Change in net comprehensive income attributable to noncontrolling interest for the nine months ended September 30  $1,239 

 

Warrants

 

In connection with Forum’s initial public offering (IPO) and issuance of Private Placement Units in August 2018, Forum issued Units consisting of common stock with attached warrants as follows:

 

  1. Public Warrants – Forum issued 20,000,000 Units at a price of $10.00 per Unit, each Unit consisting of one share of common stock of Forum and one redeemable warrant.
     
  2. Private Placement Warrants – Forum issued 655,000 Private Placement Units, each consisting of one share of common stock and one warrant to the Sponsor, Jefferies LLC and EarlyBirdCapital, Inc.

 

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Each Public Warrant and Private Placement Warrant (together, the “Warrants”) entitled the holder to purchase one share of common stock at an exercise price of $11.50.

 

The Public Warrants contained a redemption feature that provided the Company the option to call the Public Warrants for redemption 30 days after notice to the holder when any of conditions described in the following paragraph were met, and to require that any Public Warrant holder who desired to exercise his, her or its Public Warrant prior to the redemption date do so on a “cashless basis,” by converting each Public Warrant for an equivalent number of shares of common stock, determined by dividing (i) the product of the number of shares of common stock underlying the Warrants, multiplied by the difference between the exercise price and the “Fair Market Value”, and (ii) the Fair Market Value (defined as the average last sale price of the common stock for the ten trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of the Public Warrants).

 

The Public Warrants became exercisable upon the occurrence of certain events (“trigger events”), which included the completion of the Transaction. Once the Public Warrants became exercisable, the Company could redeem the Public Warrants in whole, at a price of $0.01 per warrant within 30 days after a written notice of redemption, and if, and only if, the reported last sale price of the Company’s common stock equaled or exceeded $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sent the notice of redemption to the holder.

 

The Private Placement Warrants are identical to the Public Warrants, except that so long as they are held by the Sponsor, an underwriter of Forum’s IPO, or any of their permitted transferees, the Private Placement Warrants: (i) may be exercised for cash or on a cashless basis; (ii) may not be transferred, assigned, or sold 30 days after the completion of a defined business combination except to a permitted transferee who enters into a written agreement with the Company agreeing to be bound by the transfer restrictions, and (iii) are not redeemable by the Company.

 

A Warrant may be exercised only during the “Exercise Period” commencing on the later of: (i) the date that is 30 days after the first date on which Forum completes its initial business combination; or (ii) 12 months from the date of the closing of the IPO, and terminating on the earlier to occur (x) five years after Forum completes its initial business combination; (y) the liquidation of the Company or, the Redemption Date (as that term is defined in the Warrant Agreement), subject to any applicable conditions as set forth in the Warrant Agreement. The Company in its sole discretion may extend the duration of the Warrants by delaying the expiration date, provided it give at least 20 days prior written notice of any such extension to the registered holders of the Warrants.

 

As discussed in Note 1, Forum completed a business combination, which is one of the trigger events for exercisability of the Warrants.

 

Warrant activity is as follows:

 

   Public
Warrants
   Private
Placement
Warrants
 
Issued and outstanding as of October 15, 2020    20,000,000    655,000 
Exercised    (5,540,316)   (247,423)
Redeemed    
-
    
-
 
Issued and outstanding as of December 31, 2020    14,459,684    407,577 
Exercised    (14,602,942)   (278,542)
Redeemed    143,258    
-
 
Issued and outstanding as of September 30, 2021    
-
    129,035 

 

The Public Warrants were considered freestanding equity-classified instruments due to their detachable and separately exercisable features. Accordingly, the Public Warrants were presented as a component of Stockholders’ Equity in accordance with ASC 815-40-25.

 

As discussed in Note 12, the Private Placement Warrants are considered freestanding liability-classified instruments under ASC 815-40-25.

 

18. Equity INCENTIVE PLAN

 

On October 15, 2020, the Company’s Tattooed Chef, Inc. 2020 Incentive Plan (the “Plan”) became effective and permits the granting of equity awards of up to 5,200,000 common shares to executives, employees and non-employee directors, with the maximum number of common shares to be granted in a single fiscal year, when taken together with any cash fees paid to the non-employee director during that year in respect of his or her service as a non-employee director, not exceeding $100,000 in total value to any non-employee director. Awards available for grant under the Plan include Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other Share-based Awards, Other Cash-based Awards and Dividend Equivalents. Shares issued under the Plan may be newly issued shares or reissued treasury shares.

 

Options maybe granted at a price per share not less than 100% of the fair market value at the date of grant. Options granted generally vest over a period of three years, subject to the grantee’s continued service with the Company through the scheduled vested date and expire no later than 10 years from the grant date.

 

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Stock Options

 

Stock options under the Plan are generally granted with a strike price equal to 100% of the fair market value of the stock on the date of grant, with a three-year vesting period and a grant life of 10 years. The strike price may be higher than the fair value of the stock on the date of the grant but cannot be lower.

  

The table below summarizes the stock option activity in the Plan for the three months ended September 30, 2021:

 

   Number of
Awards
Outstanding
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Terms
(Years)
   Intrinsic
Value
(in thousands)
 
Balance at June 30, 2021   1,040,300   $22.88    9.57   $
                -
 
Granted   555,000    18.31         
 
 
Cancelled and forfeited   (1,500)   24.69         
 
 
Exercised   
-
    
-
         
 
 
Balance at September 30, 2021   1,593,800   $21.30    9.51   $- 
Exercisable at September 30, 2021   
-
   $
-
    -   $
-
 

 

The table below summarizes the stock option activity in the plan for the nine months ended September 30, 2021:

 

   Number of
Awards
Outstanding
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Terms
(Years)
   Intrinsic
Value
(in thousands)
 
Balance at December 31, 2020   773,300   $24.64    9.98   $
                     -
 
Granted   825,000    18.15           
Cancelled and forfeited   (4,500)   24.69           
Exercised   -    -           
Balance at September 30, 2021   1,593,800   $21.30    9.51   $- 
Exercisable at September 30, 2021   -   $-    -   $- 

 

There were no options exercised during the three and nine months ended September 30, 2021.

 

Stock-based 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 September 30, 2021 and December 31, 2020, the Company had stock-based compensation expense of $8.47 million and $5.65 million, respectively, related to unvested stock options not yet recognized that are expected to be recognized over an estimated weighted average period of approximately three years.

 

The fair value of each option grant was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions for the three and nine months ended September 30, 2021:

 

  

Three months ended

September 30, 2021

  

Nine months ended

September 30, 2021

 
Dividend yield   0.00%