UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
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Indicate by check mark whether
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Indicate by check mark whether
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(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
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| ☒ | |
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As of November 18, 2021, there were
Explanatory Note
This Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Form 10-Q/A”) amends and restates certain items noted below in the Quarterly Report on Form 10-Q of Tattooed Chef, Inc. (the “Company”) for the quarter ended September 30, 2021, as originally filed with the Securities and Exchange Commission (the “SEC”) on November 22, 2021 (the “Original Filing”). This Form 10-Q/A amends the Original Filing to reflect (1) the correction of errors related to (i) deferred tax assets resulting from the reverse recapitalization transaction that occurred in 2020 and related valuation allowance; (ii) classification among accounts receivable and deferred revenue; and (iii) other immaterial previously uncorrected adjustments and (2) the retrospective adoption of ASC 842, Leases, to the quarter ended September 30, 2021 because the Company adopted ASC 842 in the fourth quarter of 2021 with an effective date of January 1, 2021.
See Note 1, under the caption “Restatement of Previously Issued Financial Statements”, to the Condensed Consolidated Financial Statements included in Item 1 of this Form 10-Q/A for additional information and a reconciliation of the previously reported amounts to the restated amounts.
Items Amended in this Filing
For the convenience of the reader, this Form 10-Q/A sets forth the Original Filing, as amended, in its entirety; however, this Form 10- Q/A amends and restates the following Items of the Original Filing to the extent necessary to reflect the adjustments discussed above and to make corresponding revisions to the Company’s financial data cited elsewhere in this Form 10-Q/A:
-Part I, Item 1 – Financial Statements
-Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition, the Company’s Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this filing (Exhibits 31.1, 31.2, 32.1 and 32.2), and the Company has provided its restated consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibit 101.
Except as described above, no other changes have been made to the Original Filing. This Form 10-Q/A speaks as of the date of the Original Filing and does not reflect events that may have occurred after the date of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.
TATTOOED CHEF, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2021
TABLE OF CONTENTS
i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
TATTOOED CHEF, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands, except for par value and share information)
| September 30, 2021 | December 31, 2020 | |||||||
| (As Restated) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Operating lease right-of-use asset, net | - | |||||||
| Finance lease right-of-use asset, net | - | |||||||
| Intangible assets, net | ||||||||
| Deferred taxes | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Line of credit | ||||||||
| Notes payable to related parties, current portion | ||||||||
| Notes payable, current portion | ||||||||
| Forward contract derivative liability | ||||||||
| Operating lease liabilities, current | - | |||||||
| Other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Warrant liability | ||||||||
| Operating lease, net of current portion | - | |||||||
| Notes payable, net of current portion | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES (See Note 20) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock - $ | ||||||||
| Common shares- $ | ||||||||
| Treasury stock- | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Retained (deficit) earnings | ( | ) | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
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 September 30 | Nine Months Ended September 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (As Restated) | (As Restated) | |||||||||||||||
| NET REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF GOODS SOLD | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ( | ) | ( | ) | ||||||||||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME TAX BENEFIT (EXPENSE) | ( | ) | ( | ) | ( | ) | ||||||||||
| NET (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ||||||||||
| LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ) | ||||||||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| NET (LOSS) INCOME PER SHARE | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| WEIGHTED AVERAGE COMMON SHARES | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total other comprehensive (loss) income, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Less: comprehensive income attributable to the noncontrolling interest | ( | ) | ||||||||||||||
| Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
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 | ||||||||||||||||||||||
| (As Restated) | (As Restated) | (As Restated) | ||||||||||||||||||||||||||
| BALANCE AS OF JULY 1, 2021 | $ | | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENT | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| STOCK-BASED COMPENSATION | - | - | ||||||||||||||||||||||||||
| NON-EMPLOYEE STOCK-BASED COMPENSATION | - | |||||||||||||||||||||||||||
| EXERCISE OF WARRANTS | - | |||||||||||||||||||||||||||
| NET LOSS | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
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 | ||||||||||||||||||||||
| (As Restated) | (As Restated) | (As Restated) | ||||||||||||||||||||||||||
| BALANCE AS OF JANUARY 1, 2021 | ( | ) | $ | $ | $ | $ | $ | |||||||||||||||||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENT | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| DISTRIBUTIONS | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| STOCK-BASED COMPENSATION | - | - | ||||||||||||||||||||||||||
| NON-EMPLOYEE STOCK-BASED COMPENSATION | - | |||||||||||||||||||||||||||
| FORFEITURE OF STOCK-BASED AWARDS | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||
| CANCELLATION OF TREASURY SHARES | ( | ) | ||||||||||||||||||||||||||
| EXERCISE OF WARRANTS | - | |||||||||||||||||||||||||||
| NET LOSS | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
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 | $ | $ | | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENT | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| DISTRIBUTIONS | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| ACCRETION OF REDEEMABLE NONCONTROLLING INTEREST TO REDEMPTION VALUE | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| NET INCOME | ( | ) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
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 | $ | $ | | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||
| CAPITAL CONTRIBUTIONS | - | - | ||||||||||||||||||||||||||||||||||
| FOREIGN CURRENCY TRANSLATION ADJUSTMENT | - | - | ( | ) | - | ( | ) | |||||||||||||||||||||||||||||
| DISTRIBUTIONS | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| ACCRETION OF REDEEMABLE NONCONTROLLING INTEREST TO REDEMPTION VALUE | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| NET INCOME | - | - | ||||||||||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||||||||||||||||
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 | (As Restated) | |||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Bad debt expense | ||||||||
| Accretion of debt financing costs | ||||||||
| Revaluation of warrant liability | ( | ) | ||||||
| Unrealized forward contract loss | ( | ) | ||||||
| Stock compensation expense | ||||||||
| Deferred taxes, net | ||||||||
| Non-cash lease cost | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Other current liabilities | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Acquisition of subsidiaries, net of cash acquired | ( | ) | ||||||
| Proceeds from sale of property, plant and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net borrowings in line of credit | ||||||||
| Borrowings of notes payable to related parties | ||||||||
| Repayments of notes payable to related parties | ( | ) | ( | ) | ||||
| Borrowings of notes payable | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Capital contributions | ||||||||
| Proceeds from the exercise of warrants | ||||||||
| Distributions | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| EFFECT OF EXCHANGE RATE ON CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF PERIOD | $ | $ | ||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash investing and financing activities | ||||||||
| Distributions | $ | $ | ||||||
| Capital expenditures included in accounts payable | $ | $ | ||||||
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
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
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
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 $
6
Basis of Consolidation. The condensed consolidated financial statements include the accounts of Tattooed Chef and its subsidiaries in which Tattooed Chef has a controlling interest directly or indirectly, and variable interest entities for which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed, consolidated or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC on March 19, 2021, which contains the audited financial statements and notes thereto. The financial information as of December 31, 2020 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
The Transaction was accounted for as a reverse recapitalization in accordance with GAAP (the “Reverse Recapitalization”). Under this method, Forum was treated as the “acquired” company (“Accounting Acquiree”) and Myjojo (Delaware), the accounting acquirer, was assumed to have issued stock for the net assets of Forum, accompanied by a recapitalization.
The net assets of Forum were stated at historical cost, with no goodwill or other intangible assets recorded. The consolidated assets, liabilities and results of operations prior to the reverse recapitalization were those of Myjojo (Delaware). The shares and corresponding capital amounts and earnings per share available for common stockholders, prior to the reverse recapitalization, have been retroactively restated.
Revision of Previously Issued Financial Statements for Correction of Immaterial Errors.
The Company identified errors in its previously issued annual financial statements that were determined to be individually, and in the aggregate, quantitatively and qualitatively immaterial based on its analysis of Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. These immaterial errors have been corrected in the accompanying consolidated balance sheet as of December 31, 2020, and the consolidated statements of operations and comprehensive income, stockholders’ equity for the three and six months ended June 30, 2020 and cash flows for the six months ended June 30, 2020. The nature of these error corrections is as follows:
| ● | In further consideration of the guidance in Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, the Company concluded that a provision in the warrant agreement related to certain settlement methods specific to the Private Placement Warrants precludes the Private Placement Warrants from being accounted for as components of equity. As the Private Placement Warrants meet the definition of a derivative as contemplated in ASC 815, the Private Placement Warrants should have been recorded as derivative liabilities on the consolidated balance sheet and measured at fair value upon recognition on the Closing Date and at each reporting date in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in the consolidated statement of operations and comprehensive income in the period of change. Therefore, the Company concluded that it is appropriate to revise the classification of the Private Placement Warrants as of and for the year ended December 31, 2020. |
| ● | The Company revised the accompanying consolidated balance sheet and statement of stockholders’ equity as of December 31, 2020 to reflect the correction of an immaterial error related to the presentation of |
7
| ● | The Company revised the accompanying consolidated statements of equity and operations and comprehensive income for the year ended December 31, 2020 to reflect the correction of an immaterial error related to the grant of | |
| ● | The Company revised the accompanying condensed consolidated statements of operations and comprehensive income for the period ended September 30, 2020 to reflect the correction of an immaterial error for amounts previously not reflected in the comprehensive income attributable to noncontrolling interest. This revision has no impact on the Company’s net income, retained earnings, or earnings per share. | |
| ● | The Company identified errors related to inventoriable costs and the classification of certain expense accounts that primarily impacted revenue, cost of goods sold and operating expenses.
| |
| ● | The Company identified a classification error between accounts receivable and deferred revenue, which affected the balance sheet as of December 31, 2020. |
The following table summarizes the effect of the revision on each financial statement line item as of the dates, and for the periods ended, indicated:
| (In thousands) | Consolidated Balance Sheet | |||||||||||||||
| As of December 31, 2020 | As Originally Reported | Revisions | Re- classification | As Revised | ||||||||||||
| Accounts receivable | $ | $ | ( | ) | $ | - | $ | |||||||||
| Inventory | ( | ) | ||||||||||||||
| Prepaid expenses and other current assets | ||||||||||||||||
| TOTAL CURRENT ASSETS | ( | ) | ||||||||||||||
| Deferred income taxes, net | ||||||||||||||||
| TOTAL ASSETS | ||||||||||||||||
| Accounts payable | ( | ) | ||||||||||||||
| Accrued expenses | ||||||||||||||||
| Deferred revenue | ( | ) | ||||||||||||||
| Other current liabilities | ||||||||||||||||
| TOTAL CURRENT LIABILITIES | ( | ) | ||||||||||||||
| Warrant liabilities | ||||||||||||||||
| TOTAL LIABILITIES | ||||||||||||||||
| Additional paid-in capital | ( | ) | ||||||||||||||
| Retained earnings | ||||||||||||||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
8
| Condensed Consolidated Statements of | ||||||||||||
| (In thousands, except EPS) | Operations and Comprehensive Income | |||||||||||
| As Originally | ||||||||||||
| For the three months ended September 30, 2020 | Reported | Revisions | As Revised | |||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of goods sold | ( | ) | ||||||||||
| Gross profit | ||||||||||||
| Operating expense | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||||||
| INCOME TAX BENEFIT (EXPENSE) | ( | ) | ( | ) | ( | ) | ||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||
| LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ) | ( | ) | ||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC. | ( | ) | ( | ) | ||||||||
| Basic net loss per share | ( | ) | ( | ) | ||||||||
| Diluted net loss per share | ( | ) | ( | ) | ||||||||
| Comprehensive income | ( | ) | ( | ) | ||||||||
| Less: income (loss) attributable to the noncontrolling interest | ( | ) | ( | ) | ||||||||
| Comprehensive income attributable to Tattooed Chef, Inc. stockholders | ( | ) | ( | ) | ||||||||
| Condensed Consolidated Statements of | ||||||||||||
| (In thousands, except EPS) | Operations and Comprehensive Income | |||||||||||
| As Originally | ||||||||||||
| For the nine months ended September 30, 2020 | Reported | Revisions | As Revised | |||||||||
| Revenue | $ | $ | $ | |||||||||
| Cost of goods sold | ( | ) | ||||||||||
| Gross profit | ||||||||||||
| Operating expense | ||||||||||||
| Income from operations | ( | ) | ||||||||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( | ) | ||||||||||
| Net income (loss) | ( | ) | ||||||||||
| LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ) | ||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC. | ( | ) | ||||||||||
| Basic net income per share | ( | ) | ||||||||||
| Diluted net income per share | ( | ) | ||||||||||
| Comprehensive income | ( | ) | ||||||||||
| Less: income (loss) attributable to the noncontrolling interest | ||||||||||||
| Comprehensive income attributable to Tattooed Chef, Inc. stockholders | ( | ) | ||||||||||
9
| (In thousands) | Condensed Consolidated Statements of Stockholders’ Equity (Deficit) | |||||||||||
| For the three months ended September 30, 2020 | As originally reported | Revisions | As revised | |||||||||
| Redeemable noncontrolling interest beginning balance | $ | ( | ) | $ | ||||||||
| Net income in redeemable noncontrolling interest | ( | ) | ( | ) | ||||||||
| Redeemable noncontrolling interest ending balance | ( | ) | ||||||||||
| Retained earnings beginning balance | ( | ) | ( | ) | ( | ) | ||||||
| Net income in retained earnings | ( | ) | ( | ) | ||||||||
| Retained earnings ending balance | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ equity beginning balance | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ equity ending balance | ( | ) | ( | ) | ( | ) | ||||||
| (In thousands) | Condensed Consolidated Statements of Stockholders’ Equity (Deficit) | |||||||||||
| For the nine months ended September 30, 2020 | As originally reported | Revisions | As revised | |||||||||
| Redeemable noncontrolling interest beginning balance | $ | ( | ) | $ | ||||||||
| Net income in redeemable noncontrolling interest | ( | ) | ||||||||||
| Redeemable noncontrolling interest ending balance | ( | ) | ||||||||||
| Retained earnings beginning balance | ( | ) | ||||||||||
| Net income in retained earnings | ( | ) | ||||||||||
| Retained earnings ending balance | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ equity beginning balance | ( | ) | ||||||||||
| Total Stockholders’ equity ending balance | ( | ) | ( | ) | ( | ) | ||||||
| (In thousands) | Condensed Consolidated Statements of Cash Flows | |||||||||||
| As Originally | ||||||||||||
| For the nine months ended September 30, 2020 | Reported | Revisions | As revised | |||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net income | $ | $ | ( | ) | $ | |||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Inventory | ( | ) | ( | ) | ||||||||
| Net cash provided by operating activities | ||||||||||||
10
Restatement of Previously Issued Financial Statements
In connection with the preparation of the consolidated financial statements as of and for the year ended December 31, 2021 included in the Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2022, the Company identified errors related to (i) deferred tax assets resulting from the reverse recapitalization transaction that occurred in 2020 and related valuation allowance; (ii) classification among accounts receivable and deferred revenue; and (iii) other immaterial previously uncorrected adjustments. Amounts depicted as “As Restated” throughout the accompanying condensed consolidated financial statements and footnotes include the impact of the restatement, as well as the impact of the adoption of ASC 842, Leases as of January 1, 2021 to the quarter and nine months ended September 30, 2021. See Note 24 to the consolidated financial statements and Item 8 of the Form 10-K as aforementioned.
The table below sets forth the condensed consolidated financial statements, including as originally reported, the impacts resulting from ASC 842 adoption, the adjustments from the restatement, the reclassification, and the as restated balances for the quarterly period ended September 30, 2021 (in thousands):
| Condensed consolidated balance sheet | ||||||||||||||||
| As of September 30, 2021 (in thousands, Unaudited) | As Reported | Adoption of ASC 842 | Adjustments | As Restated | ||||||||||||
| Accounts receivable, net | $ | ( | ) | $ | ||||||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||||||||||
| TOTAL CURRENT ASSETS | ( | ) | ( | ) | ||||||||||||
| Property, plant and equipment, net | ( | ) | ||||||||||||||
| Operating lease right-of-use asset, net | ||||||||||||||||
| Finance lease right-of-use asset, net | ||||||||||||||||
| Goodwill | ( | ) | ||||||||||||||
| Other assets | ( | ) | ||||||||||||||
| TOTAL ASSETS | $ | ( | ) | $ | ||||||||||||
| Notes payable, current portion | ||||||||||||||||
| Deferred revenue | ( | ) | ||||||||||||||
| Forward contract derivative liability | ( | ) | ||||||||||||||
| Finance lease liabilities, current | ( | ) | ||||||||||||||
| Operating lease liabilities, current | ||||||||||||||||
| Other current liabilities | ( | ) | ||||||||||||||
| TOTAL CURRENT LIABILITIES | ( | ) | ||||||||||||||
| Operating lease, net of current portion | ||||||||||||||||
| TOTAL LIABILITIES | ( | ) | ||||||||||||||
| Additional paid in capital | ||||||||||||||||
| Retained earnings | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total equity | ( | ) | ( | ) | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | ( | ) | $ | ||||||||||||
11
| Condensed consolidated statements of operations and comprehensive income (loss) | ||||||||||||||||
| For Three Months Ended September 30, 2021 (in thousands except per share amounts, Unaudited) | As Reported | Adoption of ASC 842 | Adjustments | As Restated | ||||||||||||
| REVENUE | $ | ( | ) | $ | ||||||||||||
| GROSS PROFIT | ( | ) | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ( | ) | ( | ) | ||||||||||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC. | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
| NET (LOSS) INCOME PER SHARE | ||||||||||||||||
| Basic | ( | ) | ( | ) | ||||||||||||
| Diluted | ( | ) | ( | ) | ||||||||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
| Condensed consolidated statements of operations and comprehensive income (loss) | ||||||||||||||||
| For Nine Months Ended September 30, 2021 (in thousands except per share amounts, Unaudited) | As Reported | Adoption of ASC 842 | Adjustments | As Restated | ||||||||||||
| REVENUE | $ | ( | ) | $ | ||||||||||||
| COST OF GOODS SOLD | ( | ) | ||||||||||||||
| GROSS PROFIT | ( | ) | ||||||||||||||
| OPERATING EXPENSES | ( | ) | ||||||||||||||
| (LOSS) INCOME FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| (LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| INCOME TAX EXPENSE | ( | ) | ( | ) | ( | ) | ||||||||||
| NET (LOSS) INCOME | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC. | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
| NET (LOSS) INCOME PER SHARE | ||||||||||||||||
| Basic | ( | ) | ( | ) | ( | ) | ||||||||||
| Diluted | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
| For Three Months Ended September 30, 2021 | Condensed consolidated statements of stockholders’ equity | |||||||||||
| (in thousands, Unaudited) | As Reported | Adjustments | As Restated | |||||||||
| Additional Paid-In Capital beginning balance | $ | $ | ||||||||||
| Additional Paid-In Capital ending balance | ||||||||||||
| Retained earnings (Deficit) beginning balance | ( | ) | ( | ) | ||||||||
| Net loss in retained earnings (Deficit) | ( | ) | ( | ) | ( | ) | ||||||
| Retained earnings (Deficit) ending balance | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ equity beginning balance | ( | ) | ||||||||||
| Total Stockholders’ equity ending balance | ( | ) | ||||||||||
12
| For Nine Months Ended September 30, 2021 | Condensed consolidated statements of stockholders’ equity | |||||||||||
| (in thousands, Unaudited) | As Reported | Adjustments | As Restated | |||||||||
| Additional Paid-In Capital beginning balance | $ | $ | ||||||||||
| Additional Paid-In Capital ending balance | ||||||||||||
| Retained earnings (Deficit) beginning balance | ( | ) | ||||||||||
| Net loss in retained earnings (Deficit) | ( | ) | ( | ) | ( | ) | ||||||
| Retained earnings (Deficit) ending balance | ( | ) | ( | ) | ( | ) | ||||||
| Total Stockholders’ equity beginning balance | ||||||||||||
| Total Stockholders’ equity ending balance | ( | ) | ||||||||||
| Condensed consolidated statements of cash flows | ||||||||||||||||
| For Nine Months Ended September 30, 2021 (in thousands, Unaudited) | As Reported | Adoption of ASC 842 | Adjustments | As Restated | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||||
| Net (loss) income | $ | ( | ) | ( | ) | ( | ) | $ | ( | ) | ||||||
| Adjustments to reconcile net (loss) income to net cash from operating activities: | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Deferred taxes, net | ||||||||||||||||
| Non-cash lease cost | ||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | ( | ) | ( | ) | ( | ) | ||||||||||
| Prepaid expenses and other assets | ( | ) | ( | ) | ||||||||||||
| Accrued expenses | ( | ) | ||||||||||||||
| Deferred revenue | ( | ) | ||||||||||||||
| Other current liabilities | ( | ) | ||||||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||||||
Reclassifications. Reclassifications of certain prior period amounts to conform to the current period presentation. Reclassifications have no impact on net income (loss) and do not relate to errors and are included here in order to conform the presentation across the periods presented.
13
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
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.
14
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.
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.
15
Warrants. The Public Warrants are considered freestanding equity-classified instruments due to their detachable and separately exercisable features and meet the indexation criteria in ASC 815-40-15-7C. Accordingly, the Public Warrants are presented as a component of Stockholders’ Equity in accordance with ASC 815-40-25. All of the public warrants have been exercised as of September 30, 2021. See note 17. The agreements with respect to the Company’s Private Placement Warrants include provisions related to determining settlement amounts that preclude the Private Placement Warrants from being accounted for as components of equity. As these warrants meet the definition of a derivative as contemplated in ASC 815-40, the Private Placement Warrants are recorded as derivative liabilities on the condensed consolidated balance sheets and measured at fair value at inception (on the Closing Date) and at each reporting date in accordance with ASC 820, with changes in fair value recognized in the condensed consolidated statements of operations and other comprehensive income (loss) in the period of change.
Revenue Recognition (As Restated). The Company recognizes revenue in accordance with ASC Topic 606. The Company’s principal business is the manufacturing of plant-based foods including, but not limited to, acai and smoothie bowls, zucchini spirals, riced cauliflower, vegetable bowls and cauliflower crust pizza primarily in the United States and Italy. Revenue recognition is determined by (a) identifying the contract, or contracts, with a customer; (b) identifying the performance obligation in each contract; (c) determining the transaction price;(d) allocating the transaction price to the performance obligation in each contract; and (e) recognizing revenue when, or as, the Company satisfies performance obligations by transferring the promised goods or services. Each unit of product delivered is determined as a separate performance obligation and in the event there is more than one unit of a product ordered, there will be multiple performance obligations satisfied under the same contract. When control of the promised products and services are transferred to the Company’s customers, the Company recognizes revenue in the amount that reflects the consideration the Company expects to receive in exchange for these products and services.
Control generally transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms. Customer contracts generally do include more than one performance obligation and the performance obligations in the Company’s contracts are satisfied within one year. No payment terms beyond one year are granted at contract inception.
The Company disaggregates revenue based on the type of products sold to its customers – private label, Tattooed Chef and other. The other revenue stream constitutes sale of similar food products directly to customers through a third-party vendor and the Company acts as a principal in these transactions.
Some contracts also include some form of variable consideration. The most common forms of variable consideration include slotting fees, trade discounts, promotional programs, and demonstration costs. Variable consideration is treated as a reduction in revenue when product revenue is recognized. Depending on the specific type of variable consideration, the Company uses either the expected value or most likely amount method to determine the variable consideration. The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements, historical experience, and any recent changes in the market.
The Company generally does not have unbilled receivable balances arising from transactions with customers. The Company does not capitalize contract inception costs as contracts are generally one year or less and the Company does not incur significant fulfillment costs requiring capitalization.
The Company recognizes shipping and handling costs related to products transferred to the end customer as fulfillment cost and includes these costs in cost of goods sold upon delivery of the product to the customer.
The Company enters into certain arrangements with its customers to provide inventory for promotional purposes (“Promotional Items”). Such arrangements are not tied to immediate or future sales of any particular product. Instead, the Company will occasionally offer these Promotional Items in a targeted way to increase product awareness. Since a Promotional Item does not provide a material right, it is not considered a distinct performance obligation. As such, the cost of the Promotional Item is not presented within cost of goods sold and is instead treated as an operating expense.
16
Cost of Sales. Cost of sales consists of the costs of raw materials utilized in the manufacture process, co-packing or repacking fees, in-bound freight charges, internal transfer costs, cold storage expenses incurred prior to the manufacture of the Company’s finished products, and out-bound freight to transfer the finished goods to the end customers. In addition, the Company includes in costs of sales certain costs such as depreciation, amortization and payroll costs that relate to the direct manufacture by the Company.
Operating Expenses. Operating expenses include selling expenses, cold storage expenses after manufacture, as well as expenses for advertising, sampling costs, costs for merchandise displays, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), depreciation and other general and administrative costs.
Sales and Marketing Expenses (As Restated).
The Company expenses costs associated with sales and marketing as incurred. Sales and marketing expenses were $
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 $
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.
17
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
Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive loss is defined as the change in equity resulting from transactions from non-owner sources. Other comprehensive income consisted of gains and losses associated with changes in foreign currency as a result of the translation of the financial results of the Company’s Italian subsidiary.
Use of Estimates. The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from these estimates.
Concentrations of Credit Risk (As Restated).
The Company grants credit, generally without collateral, to customers primarily in the United States. Consequently, the Company is
subject to potential credit risk related to changes in business and economic factors in this geographical area. No external suppliers
accounted for more than
Three customers accounted for
| Customer | 2021 | 2020 | ||||||
| (As Restated) | ||||||||
| Customer A | % | % | ||||||
| Customer C | % | % | ||||||
| Customer B | % | % | ||||||
Three customers accounted for
| Customer | 2021 | 2020 | ||||||
| (As Restated) | ||||||||
| Customer C | % | % | ||||||
| Customer A | % | % | ||||||
| Customer B | % | % | ||||||
18
Customers accounting for more than 10% of the Company’s accounts receivable as of September 30, 2021 (as restated) and December 31, 2020 were:
| September 30, | December 31, | |||||||
| Customer | 2021 | 2020 | ||||||
| (As Restated) | ||||||||
| Customer A | % | % | ||||||
| Customer B | % | |||||||
| Customer C | % | % | ||||||
| Customer D | % | |||||||
| * | Customer B accounted for less than 10% of accounts receivable as of September 30, 2021. However, customer B accounted for 10% as of December 31, 2020 and as such was included in the disclosure above for comparison purposes. |
| ** | Customer D is a new customer in 2021, accounted for 15% as of September 30, 2021 and as such was included in the disclosure above for comparison purposes. |
Segment Information. The Company manages its operations on a company-wide basis as one operating segment, thereby making determinations as to the allocation of resources to the business as a whole rather than on a segment-level basis. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the Chief Operating Decision Maker (“CODM”) in making decisions regarding resource allocation and assessing performance. The Company has determined that its Chief Executive Officer is the CODM. To date, the Company’s CODM has made such decisions and assessed performance at the Company-level.
Long-lived assets consist of property, plant and equipment, net of depreciation, and are categorized based on geographic location as follows:
| September 30, | December 31, | |||||||
| Definite Lived Intangible Assets (in thousands) | 2021 | 2020 | ||||||
| Italy | $ | $ | ||||||
| United States - tradenames | ||||||||
| Total | $ | $ | ||||||
| Remaining | ||||
| Definite Lived Intangible Assets | useful life | |||
| Description: | ||||
| Tradenames | ||||
| September 30, | December 31, | |||||||
| Long Lived Assets (in thousands) | 2021 | 2020 | ||||||
| (As Restated) | ||||||||
| Italy | $ | $ | ||||||
| United States | ||||||||
| Total | $ | $ | ||||||
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.
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The extent to which this pandemic could adversely impact the Company’s future business, financial condition and results of operations is dependent upon various factors, many of which are highly uncertain and outside the control of the Company.
Earnings per share. Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. The weighted-average number of common shares outstanding during the period includes common stock but is exclusive of certain unvested stock awards that have no economic or participating rights. Diluted earnings per share is computed by dividing the net income by the weighted-average number of common shares and common share equivalents outstanding for the period. Common stock equivalents are only included when their effect is dilutive. The Company’s potentially dilutive securities which include outstanding stock options and restricted stock awards under the Company’s equity incentive plan and warrants have been considered in the computation of diluted earnings per share.
Emerging Growth Company (“EGC”). Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts EGCs from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an EGC, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of its financial statements with another public company, which is neither an EGC nor an EGC which has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used. As of December 31, 2021, the Company will lose EGC status and be required to adopt standards on the public company timeframe.
2. RECENT ACCOUNTING PRONOUNCEMENTS (As restated for the adoption of ASC 842)
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of Topic 740, Income Taxes, and simplification in several other areas. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods therein. The Company adopted the new standard on January 1, 2021, the first day of the reporting year. One of the amendments eliminates a limitation on the amount of income tax benefit that can be recognized in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021.
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides guidance for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. Interest on borrowings under the Company’s revolving credit facility is calculated based upon LIBOR. ASU 2020-04 was issued on March 12, 2020 and may be applied prospectively through December 31, 2022. This guidance has had no material effect on the Company’s condensed consolidated financial statements for the nine months ended September 30, 2021.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02” or “Topic 842”). The purpose of ASU 2016-02 is to provide financial statement users a better understanding of the amount, timing, and uncertainty of cash flows arising from leases. The adoption of ASU 2016-02 resulted in the recognition of a right-of-use asset and a lease liability for all leases. New disclosure requirements included qualitative and quantitative information about the amounts recorded in the financial statements. The original guidance required application on a modified retrospective basis with adjustments to the earliest comparative period presented. In August 2018, the FASB issued ASU No. 2018-11, “Targeted Improvements to ASC 842,” which included an option to not restate comparative periods in transition and elect to use the effective date of ASU No. 2016-02 as the date of initial application, which the Company elected. As the Company will lose EGC status as of December 31, 2021, the Company was required to apply the provisions of ASU 2016-02 beginning with the annual reporting period ended December 31, 2021 with an effective date as of January 1, 2021. Accordingly, these financial statements have been adjusted to reflect the adoption of Topic 842. See Note 13.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) regarding ASC Topic 326, Financial Instruments - Credit Losses, which modifies the measurement of expected credit losses of certain financial instruments. The Company will be required to use a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The amendments will become effective for the Company for periods beginning after December 15, 2021. Adoption of the standard will be applied using a modified retrospective approach. The Company is currently evaluating the impact the adoption of ASU 2016-13 will have on its condensed consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments. ASU 2020-06 removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under ASC 815 or for convertible debt issued at a substantial premium. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years and early adoption is permitted in annual reporting periods ending after December 15, 2020. The Company is currently evaluating the impact this guidance may have on its condensed consolidated financial statements and related disclosures.
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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
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 | $ | |||
| Net loss attributable to redeemable noncontrolling interest | ( | ) | ||
| Accretion to redeemable noncontrolling interest | ||||
| Redeemable Noncontrolling Interest as of September 30, 2020 | $ | |||
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 | $ | |||
| Net income attributable to redeemable noncontrolling interest | ||||
| Accretion to redeemable noncontrolling interest | ||||
| Redeemable Noncontrolling Interest as of September 30, 2020 | $ | |||
All Redeemable Noncontrolling Interest classified
as mezzanine equity were reclassified to permanent equity in connection with the contribution of UMB’s
21
4. REVENUE RECOGNITION
Nature of Revenues
Substantially all of the Company’s revenue from contracts with customers consist of the sale of plant-based foods including, but not limited to, acai and smoothie bowls, zucchini spirals, riced cauliflower, vegetable bowls and cauliflower crust pizza in the United States and is recognized at a point in time in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods. Each unit of food product sold to the customer is the performance obligation. Revenue from the sale of frozen food products is recognized upon the transfer of control to the customer. Control generally transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms.
The Company disaggregates revenue based on the type of products sold to its customers – private label, Tattooed Chef and other. The other revenue stream constitutes sale of similar food products directly to customers through third-party vendors and the Company acts as a principal in these transactions. All sales are recorded within revenue on the accompanying condensed consolidated statements of operations and comprehensive income (loss). The Company does not have any contract assets or contract liabilities as of September 30, 2021 and 2020.
Revenue streams for the three months ended September 30, 2021 (as restated) and 2020 were as follows:
| 2021 | 2020 | |||||||||||||||
| Revenue Streams (in thousands) | Revenue | % Total | Revenue | % Total | ||||||||||||
| (As Restated) | ||||||||||||||||
| Tattooed Chef | $ | % | $ | % | ||||||||||||
| Private Label | % | % | ||||||||||||||
| Other revenues | % | % | ||||||||||||||
| Total | $ | $ | ||||||||||||||
| Revenue streams for the nine months ended September 30, 2021 (as restated) and 2020 were as follows: |
| 2021 | 2020 | |||||||||||||||
| Revenue Streams (in thousands) | Revenue | % Total | Revenue | % Total | ||||||||||||
| (As Restated) | ||||||||||||||||
| Tattooed Chef | $ | % | $ | % | ||||||||||||
| Private Label | % | % | ||||||||||||||
| Other revenues | % | % | ||||||||||||||
| Total | $ | $ | ||||||||||||||
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 $
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6. INVENTORY
Inventory consists of the following (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Packaging | ||||||||
| Total | $ | $ | ||||||
| 7. | PREPAID EXPENSES AND OTHER CURRENT ASSETS |
The following table provides additional information related to the Company’s prepaid expenses and other current assets (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (As Restated) | ||||||||
| Prepaid advertising expenses | $ | $ | ||||||
| Prepaid expenses, other | ||||||||
| Tax credits | ||||||||
| Warrants receivable (see Note 17) | ||||||||
| Other current assets | ||||||||
| Total | $ | $ | ||||||
8. PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant and equipment consists of the following (in thousands) :
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (As Restated) | ||||||||
| Building | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Computer equipment | ||||||||
| Furniture and fixtures | ||||||||
| Land | ||||||||
| Construction in progress | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant, and equipment, net | $ | $ | ||||||
Approximately $
The Company recorded depreciation expense for the three months ended
September 30, 2021 and 2020 of $
9. INTANGIBLE ASSETS, NET
Intangible assets consist of the following as of (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Tradenames | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ||||||
| Net | $ | $ | ||||||
The estimated useful lives of the identifiable definite-lived intangible assets acquired in the NMFD Transaction were determined to be two years.
23
The Company recorded amortization expense of $
Estimated future amortization expense for the definite-lived intangible assets is as follows (in thousands):
| Three months ended December 31, 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| Total | $ |
10. BUSINESS COMBINATION AND ASSET PURCHASES (As Restated)
New Mexico Food Distributors, Inc. (NMFD) and Karsten Acquisition
On May 14, 2021, the Company acquired all outstanding
stock of NMFD, a distributor and manufacturer of frozen and ready-to-eat New Mexico food products for a total purchase price amounting
to $
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 $
Transaction costs of $
The following table summarizes the provisional fair value of assets acquired and liabilities assumed in the NMFD Transaction as of the date of acquisition:
| Amount | ||||
| (As Restated) | ||||
| Purchase consideration | $ | |||
| Assets acquired and liabilities assumed | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Inventory | ||||
| Prepaid expenses and other current assets | ||||
| Operating lease, ROU asset | ||||
| Property, plant and equipment | ||||
| Finance lease, ROU assets * | ||||
| Other noncurrent assets | ||||
| Intangible assets – tradenames | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Note payable * | ( | ) | ||
| Goodwill | ||||
| Total assets acquired and liabilities assumed | $ | |||
| * | In December 2015 (prior to the NMFD and Karsten Acquisition), NMFD and Karsten entered into an agreement
to purchase an industrial revenue bond (“IRB”) issued by Bernalillo County, New Mexico (“Bernalillo”) to be used
to finance the costs of the constructing, renovating and equipping of the manufacturing plant and concurrently, assigned ownership of
the manufacturing plant including building and land (“Property”) to Bernalillo as consideration for the purchase of the IRB,
as well as entered into a lease agreement to lease the Property from Bernalillo (“Lease”). The Lease provides NMFD the option
to purchase the Property for $ |
24
On May 14, 2021,
The excess of purchase consideration over the fair value of the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributable to the assembled workforce and expanded market opportunities. Goodwill was assigned to the Company’s single reporting unit. The fair value assigned to the assets acquired and liabilities assumed are based on management’s estimates and assumptions, which are preliminary, are based on provisional amounts and may be subject to change as additional information is received. The Company expects to finalize the valuation of these assets not later than one year from the acquisition date.
The estimated useful lives of the identifiable definite-lived intangible assets acquired in the NMFD Transaction were determined to be two years.
The following unaudited pro forma financial information presents the combined results of operations for each of the periods presented as if the NMFD Transaction had occurred as of January 1, 2020.
| (in thousands except share and per share amounts) | Three Months Ended | Nine Months Ended | ||||||||||||||
| (Unaudited) | September 30, | September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (As Restated) | (As Restated) | |||||||||||||||
| Net Revenue - pro forma combined | $ | $ | $ | $ | ||||||||||||
| Net (Loss) Income - pro forma combined | ( | ) | ( | ) | ( | ) | ||||||||||
| Weighted Average Shares: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net Income (Loss) per Share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
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 $
| Assets acquired – Esogel | ||||
| Specialized machinery – facility | $ | |||
| Machinery and equipment | ||||
| Other | ||||
| Total assets acquired – Esogel | $ | |||
| Assets acquired – Ferdifin | ||||
| Building | $ | |||
| Land | ||||
| Total assets acquired – Ferdifin | $ | |||
25
11. DERIVATIVE INSTRUMENTS
The Company enters into foreign currency exchange forward contracts to reduce the short-term effects of foreign currency fluctuations on assets and liabilities such as foreign currency inventory purchases, receivables and payables. The Company’s primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. The Company’s derivatives expose the Company to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company does, however, seek to mitigate such risks by limiting its counterparties to major financial institutions, and management does not expect material losses as a result of defaults by counterparties.
The fair values of the Company’s derivative instruments classified as Level 2 financial instruments and the line items within the accompanying condensed consolidated balance sheets to which they were recorded are summarized as of September 30, 2021 (as restated) and December 31, 2020, follows (in thousands):
| September 30, | December 31, | |||||||||
| Balance Sheet Line Item | 2021 | 2020 | ||||||||
| Derivatives not designated as hedging instruments: | (As Restated) | |||||||||
| Foreign currency derivatives | Prepaid expenses and other current assets | $ | $ | |||||||
| Foreign currency derivatives | Forward contract derivative liability | |||||||||
| Total | $ | $ | ||||||||
The effect on the accompanying condensed consolidated statements of operations and comprehensive income (loss) of derivative instruments not designated as hedges is summarized as follows (in thousands):
| Three months | Nine months | |||||||||
| ended | ended | |||||||||
| Line Item in Statements | September 30, | September 30, | ||||||||
| of Operations | 2021 | 2021 | ||||||||
| Derivatives not designated as hedging instruments: | (As Restated) | (As Restated) | ||||||||
| Foreign currency derivatives | Other income (expense) | $ | ( | ) | $ | ( | ) | |||
| Total | $ | ( | ) | $ | ( | ) | ||||
| Three months | Nine months | |||||||||
| ended | ended | |||||||||
| Line Item in Statements | September 30, | September 30, | ||||||||
| of Operations | 2020 | 2020 | ||||||||
| Derivatives not designated as hedging instruments: | ||||||||||
| Foreign currency derivatives | Other income (expense) | $ | $ | |||||||
| Total | $ | $ | ||||||||
Unrealized and realized (losses) gains on forward
currency derivatives for the three months ended September 30, 2021 and 2020 were $(
26
12. FAIR VALUE MEASUREMENTS
Contingent Consideration Liabilities – Holdback Shares
The Company recognized and measured a contingent
consideration liability associated with Holdback Shares at a fair value of $
On November 16, 2020, the contingencies were met
and accordingly the Holdback Shares were released. The remeasured fair value of the liability was $
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
27
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 $
The
Company recognized and measured an asset associated with the Sponsor Earnout Shares at a fair value of $
The
Sponsor Earnout Shares were released on November 16, 2020 based on the remeasured fair value on the release date of $
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
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 $
Fair Value Measurement
The
fair value of the Private Placement Warrants was determined to be $
The following table provides quantitative information regarding the inputs to the fair value measurement of the Private Placement Warrants as of each measurement date:
| October 15, | ||||||||||||
| 2020 | ||||||||||||
| (Initial | December 31, | September 30, | ||||||||||
| Input | Measurement) | 2020 | 2021 | |||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Expected term (years) | ||||||||||||
| Expected volatility | % | % | % | |||||||||
| Exercise price | $ | $ | $ | |||||||||
| Fair value of warrants | $ | $ | $ | |||||||||
28
On
October 15, 2020, the fair value of the Private Placement Warrants was determined to be $
On
December 31, 2020, the fair value of the Private Placement Warrants was determined to be $
On
September 30, 2021, the fair value of the Private Placement Warrants was determined to be $
The following table presents the changes in the fair value of warrant liabilities:
| Private
Placement | ||||
| Fair value at initial measurement on October 15, 2020 | $ | |||
| Exercise of Private Placement Warrants | ( | ) | ||
| Change in fair value (1) | ( | ) | ||
| Fair value as of December 31, 2020 | $ | |||
| Exercise of Private Placement Warrants | ( | ) | ||
| Change in fair value (1) | ( | ) | ||
| Fair value as of September 30, 2021 | $ | |||
| (1) | Changes in fair value are recognized in change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive income (loss). |
13. LEASES
As
of September 30, 2021, the Company’s primary leasing activities were related to office space, production and storage facilities
and certain Company vehicles and equipment. In connection with the NMFD acquisition in May 2021, the Company assumed several operating
leases and a finance lease (the “Karsten Lease”) (see Note 10). The Karsten Lease provides the Company the option to purchase
the leased facility for $
Significant assumptions and judgments were made in the application of GAAP for leases, including those related to the lease discount rate. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, when the interest rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms of the lease payments at commencement date, and in similar economic environments.
Upon adoption, ASC 842, Leases had an impact in the Company’s consolidated balance sheet and in its consolidated statement of operations. As part of the transition, the Company elected the following practical expedients:
| ● | Package of practical expedients which eliminates the need to reassess (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) the initial direct costs for any existing leases. |
| ● | The practical expedient whereby the lease and non-lease components will not be separated for all classes of assets. |
| ● | Not
to recognize ROU assets and corresponding lease liabilities with a lease term of |
For existing leases, the Company did not elect the use of hindsight and did not reassess lease term upon adoption. The Company leases office and manufacturing facilities, equipment and vehicles under various operating arrangements. Certain of the leases are subject to escalation clauses and renewal periods. The Company recognizes lease expense, including predetermined fixed escalations, on a straight-line basis over the initial term of the lease from the time that the Company controls the leased property.
The
Company adjusted the adoption date opening ROU asset balance by $
29
The components of lease costs are as follows:
| Three months | Nine months | |||||||||
| (in thousands) | Statement of Operations Location | Ended September 30, 2021 | ||||||||
| Operating leases: | ||||||||||
| Lease cost | Cost of goods sold | $ | $ | |||||||
| Lease cost | Operating expenses | |||||||||
| Operating lease cost | ||||||||||
| Finance leases: | ||||||||||
| Amortization of right-of use assets | Operating expenses | |||||||||
| Interest on IRB lease note payable | Interest expenses | |||||||||
| Finance lease cost | ||||||||||
| Other: | ||||||||||
| Variable lease cost | Cost of goods sold | |||||||||
| Variable lease cost | Operating expenses | |||||||||
| Variable lease cost* | ||||||||||
| Total lease cost | $ | $ | ||||||||
| * | Variable lease cost primarily consists of month to month rent, charges based on usage and maintenance. |
The
Company’s rent expense amounted to $
Supplemental balance sheet information as of September 30, 2021 related to leases are as follows:
| September 30, | ||||||
| (in thousands) | 2021 | |||||
| Assets | Balance Sheet Location | |||||
| ROU assets-Finance lease** | Finance lease right-of-use asset, net | $ | ||||
| Less: accumulated amortization | Finance lease right-of-use asset, net | ( | ) | |||
| Finance lease right-of-use assets, net | Finance lease right-of-use asset, net | |||||
| ROU assets-Operating lease | Operating lease right-of-use assets | |||||
| Less: accumulated amortization | Operating lease right-of-use assets | ( | ) | |||
| Operating lease right-of-use assets, net | Operating lease right-of-use assets | |||||
| Total Lease ROU assets | $ | |||||
| Liabilities | ||||||
| Current: | ||||||
| Operating lease liabilities, current | Operating lease liabilities, current | $ | ( | ) | ||
| Finance lease liability** | ** | ( | ) | |||
| Long term: | ||||||
| Operating lease liabilities, noncurrent | Operating lease liabilities, noncurrent | ( | ) | |||
| Total Lease liabilities | $ | ( | ) | |||
| ** | The finance lease ROU asset and liability under an IRB arrangement were acquired and assumed through NMFD acquisition (see Note 11). The finance lease liability was offset with IRB assets. The amounts of the finance lease liability and IRB assets were the same as the balance of note payable (see Note 16). |
30
Supplemental cash flow information related to leases was as follows:
| Nine months ended | ||||
| September 30, | ||||
| (in thousands) | 2021 | |||
| Operating cash flows paid for operating leases | $ | ( | ) | |
| Financing cash flows paid for note payable related to IRB lease | ( | ) | ||
| Non-cash investing and financing activities: | ||||
| ROU assets obtained in exchange for lease obligations: | ||||
| Operating lease | ||||
The following table represents the weighted-average remaining lease term and discount rates for operating lease as of September 30, 2021:
| Operating Leases | Finance Leases | |||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | |||||||
The following table reconciles the undiscounted future lease payments for operating leases to the operating leases recorded in the condensed consolidated balance sheet at September 30, 2021:
| (in thousands) | Operating Leases | |||
| Three months ended December 31, 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total lease payments | $ | |||
| Less imputed interest | ||||
| Present value of future lease payments | $ | |||
| Current Lease liabilities | ||||
| Noncurrent Lease liabilities | ||||
14. ACCRUED EXPENSES
The following table provides additional information related to the Company’s accrued expenses as of (in thousands):
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Accrued customer incentives | $ | $ | ||||||
| Accrued payroll | ||||||||
| Accrued commission | ||||||||
| Other accrued expenses | ||||||||
| Total | $ | $ | ||||||
31
15. INCOME TAXES
The following table presents the provision for income taxes and the effective tax rate for the three months ended September 30, 2021 (as restated) and September 30, 2020 in thousands:
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| (As Restated) | ||||||||
| Income tax benefit (expense) | $ | $ | ( | ) | ||||
| Effective tax rate | ( | )% | % | |||||
The following table presents the provision for income taxes and the effective tax rate for the nine months ended September 30, 2021 (as restated) and September 30, 2020 in thousands:
| September 30, | September 30, | |||||||
| 2021 | 2020 | |||||||
| (As Restated) | ||||||||
| Income tax benefit (expense) | $ | ( | ) | $ | ( | ) | ||
| Effective tax rate | % | ( | )% | |||||
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 $
The income tax (benefit) expense for the three and nine months ended September 30, 2021 was primarily attributable to foreign income tax expenses on the Company’s foreign income in Italy and the expense recorded in the second quarter relating to a full valuation allowance on the net deferred tax asset.
The Company also believes that quarterly effective tax rates will vary from the fiscal 2021 effective tax rate as a result of recording a full valuation allowance, recognizing the income tax effects of items that the Company cannot anticipate such as the changes in tax laws, tax amounts associated with foreign earnings at rates different from the United States federal statutory rate, the tax impact of stock-based compensation. The Company’s foreign earnings on Italian operations are subject to foreign taxes applicable to its income derived in Italy.
As of September 30, 2021, the Company had no open tax examinations by any taxing jurisdiction in which it operates. The taxing authorities of the most significant jurisdictions are the United States Internal Revenue Service and the California Franchise Tax Board and the Agenzia delle Entrate. The statute of limitations for which the Company’s tax returns are subject to examination are as follows: Federal 2017-2020, California 2016-2020, and Italy 2016-2020.
16. INDEBTEDNESS
Debt consisted of the following (in thousands):
September
30, | December
31, | |||||||
| (As Restated) | ||||||||
| Notes payable | $ | $ | ||||||
| Notes payable to related parties (Note 19) | ||||||||
| Revolving credit facilities | ||||||||
| Total debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Total long-term portion – net | $ | $ | ||||||
32
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 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 $
The
Credit Facility included a capital expenditure loan (“Capex Loan”) in the amount of up to $
In
March 2021, Ittella Italy entered into a line of credit with a financial institution in the amount of
Notes payable
In
May 2021, Ittella Italy entered into a promissory note with a financial institution in the amount of
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 $
In
connection with the NMFD Transaction in May 2021 (see Note 10), the Company assumed a note payable in the amount of $
Future minimum principal payments due on the notes payable, including notes payable to related parties, for periods subsequent to September 30, 2021 are as follows (in thousands) (As Restated):
| Three months ended December 31, 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
33
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
On
June 1, 2021, the Company issued
Preferred Stock
The
Company is authorized to issue
Common Stock
The
Company is authorized to issue
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.
34
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 | $ | |||
| Net loss attributable to noncontrolling interest in Ittella International | ( | ) | ||
| Increase in noncontrolling interest due to foreign currency translation | ||||
| Change in net comprehensive income attributable to noncontrolling interest for the three months ended September 30 | $ | ( | ) | |
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 | $ | |||
| Net income attributable to noncontrolling interest in Ittella International | ||||
| Increase in noncontrolling interest due to foreign currency translation | ||||
| Change in net comprehensive income attributable to noncontrolling interest for the nine months ended September 30 | $ | |||
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 |
35
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 $
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.
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:
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 | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Issued and outstanding as of December 31, 2020 | ||||||||
| Exercised | ( | ) | ( | ) | ||||
| Issued and outstanding as of September 30, 2021 | ||||||||
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
Options
maybe granted at a price per share not less than
36
Stock Options
Stock
options under the Plan are generally granted with a strike price equal to
The table below summarizes the stock option activity in the Plan for the three months ended September 30, 2021:
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Number of | Average | Contractual | Intrinsic | |||||||||||||
| Awards | Exercise | Terms | Value | |||||||||||||
| Outstanding | Price | (Years) | (in thousands) | |||||||||||||
| Balance at June 30, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Cancelled and forfeited | ( | ) | ||||||||||||||
| Exercised | ||||||||||||||||
| Balance at September 30, 2021 | $ | $ | - | |||||||||||||
| Exercisable at September 30, 2021 | $ | - | $ | |||||||||||||
The table below summarizes the stock option activity in the plan for the nine months ended September 30, 2021:
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Number of | Average | Contractual | Intrinsic | |||||||||||||
| Awards | Exercise | Terms | Value | |||||||||||||
| Outstanding | Price | (Years) | (in thousands) | |||||||||||||
| Balance at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Cancelled and forfeited | ( | ) | ||||||||||||||
| Exercised | - | - | ||||||||||||||
| Balance at September 30, 2021 | $ | $ | - | |||||||||||||
| Exercisable at September 30, 2021 | - | $ | - | - | $ | - | ||||||||||
There were no options exercised during the three and nine months ended September 30, 2021.
Compensation
expense is recorded on a straight-line basis over the vesting period, which is the requisite service period, beginning on the grant date.
The compensation expense is based on the fair value of each option grant using the Black-Scholes option pricing model. During the three
and nine months ended September 30, 2021, the Company recorded in the aggregate $
37
The fair value of each option grant was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions for the three and nine months ended September 30, 2021:
| Three months | Nine months | |||||||
| ended | ended | |||||||
| September 30, | September 30, | |||||||