UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

(Mark One)

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

 

For the quarterly period ended June 30, 2021

 

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

 

For the transition period from                  to               

 

Commission File No. 001-38615

 

TATTOOED CHEF, INC.

 

(Exact name of registrant as specified in its charter)

 

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

 

6305 Alondra Blvd., Paramount, CA 90723

 

(Address of Principal Executive Offices, including zip code)

 

(562) 602-0822

 

(Registrant’s telephone number, including area code)

 

 

 

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

 

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

 

Title of each class Trading Symbol(s)   Name of each exchange on
which registered
Common stock, par value $0.0001 per share TTCF   The Nasdaq Stock Market LLC

 

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

 

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

 

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

 

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

  

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

 

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

 

As of August 2, 2021, there were 81,952,543 shares of common stock, par value $0.0001 issued and outstanding.

 

 

 

 

 

 

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 June 30, 2021, as originally filed with the Securities and Exchange Commission (the “SEC”) on August 16, 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 June 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/A

For the Quarter Ended June 30, 2021

 

TABLE OF CONTENTS

 

  Page
     
PART I – FINANCIAL INFORMATION 1
     
Item 1. Financial Statements 1
     
Condensed Consolidated Balance Sheets as of June 30, 2021 (As Restated) (Unaudited) and December 31, 2020 1
     
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 (As Restated) (Unaudited) and 2020 (Unaudited) 2
     
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 (As Restated) (Unaudited) and 2020 (Unaudited) 3
     
Condensed Consolidated Statements of Cash Flows for the Six Months June 30, 2021 (As Restated) (Unaudited) and 2020 (Unaudited) 5
     
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations4 41
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 48
     
Item 4. Controls and Procedures 48
     
PART II – OTHER INFORMATION 50
     
Item 1. Legal Proceedings 50
     
Item 1A. Risk Factors 50
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
     
Item 3. Defaults Upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
     
Item 6. Exhibits 50
     
SIGNATURES   51

 

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)

 

   June 30,
2021
   December 31,
2020
 
  (As Restated)     
ASSETS        
CURRENT ASSETS        
Cash  $140,182   $131,579 
Accounts receivable, net   21,855    16,281 
Inventory   49,586    38,002 
Prepaid expenses and other current assets   8,564    18,416 
TOTAL CURRENT ASSETS   220,187    204,278 
Property, plant and equipment, net   36,313    16,083 
Operating lease right-of-use asset, net   5,659    - 
Finance lease right-of-use asset, net   5,726    - 
Intangible assets, net   206    
-
 
Deferred taxes   
-
    47,549 
Goodwill   17,973    
-
 
Other assets   503    605 
TOTAL ASSETS  $286,567   $268,515 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES          
Accounts payable   29,250    24,075 
Accrued expenses   5,610    3,610 
Line of credit   2,115    22 
Notes payable to related parties, current portion   25    66 
Notes payable, current portion   3,322    111 
Forward contract derivative liability   935    
-
 
Operating lease liabilities, current   1,155    - 
Other current liabilities   1,801    1,403 
TOTAL CURRENT LIABILITIES   44,213    29,287 
Warrant liability   2,215    5,184 
Operating lease, net of current portion   4,548    
-
 
Notes payable, net of current portion   2,724    1,990 
TOTAL LIABILITIES  $53,700   $36,461 
           
COMMITMENTS AND CONTINGENCIES (See Note 20)   
 
    
 
 
           
STOCKHOLDERS’ EQUITY          
Preferred stock - $0.0001 par value; 10,000,000 shares authorized, none issued and outstanding at June 30, 2021 and December 31, 2020   
-
    
-
 
Common shares- $0.0001 par value; 1,000,000,000 shares authorized; 81,938,668 shares issued and outstanding at June 30, 2021, 71,551,067 shares issued and 71,469,980 shares outstanding at December 31, 2020  8    7 
Treasury stock- 0 shares at June 30, 2021, 81,087 shares at December 31, 2020   
-
    
-
 
Additional paid in capital  235,383    168,448 
Accumulated other comprehensive (loss) income  (100)   1 
Retained (deficit) earnings  (2,424)   63,598 
TOTAL STOCKHOLDERS’ EQUITY   232,867    232,054 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $286,567   $268,515 

 

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
June 30,
   Six Months Ended
June 30,
 
   2021   2020   2021   2020 
   (As Restated)       (As Restated)     
NET REVENUE  $50,270   $34,767   $102,739   $67,939 
COST OF GOODS SOLD   41,953    30,850    87,242    54,886 
GROSS PROFIT   8,317    3,917    15,497    13,053 
OPERATING EXPENSES   16,419    2,610    30,615    4,970 
(LOSS) INCOME FROM OPERATIONS   (8,102)   1,307    (15,118)   8,083 
Interest expense   (94)   (157)   (114)   (381)
Other income (expense)   733    288    (1,948)   288 
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES   (7,463)   1,438    (17,180)   7,990 
INCOME TAX EXPENSE   (50,009)   (553)   (48,534)   (1,283)
NET (LOSS) INCOME   (57,472)   885    (65,714)   6,707 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   
-
    294    
-
    1,306 
NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC.  $(57,472)  $591   $(65,714)  $5,401 
                     
NET (LOSS) INCOME PER SHARE                    
Basic  $(0.70)  $0.02   $(0.81)  $0.19 
Diluted  $(0.70)  $0.02   $(0.81)  $0.19 
WEIGHTED AVERAGE COMMON SHARES                    
Basic   81,981,428    28,324,038    81,121,795    28,324,038 
Diluted   81,981,428    28,324,038    81,258,427    28,324,038 
                     
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX                    
Foreign currency translation adjustments   (210)   735    (101)   383 
Total other comprehensive (loss) income, net of tax   (210)   735    (101)   383 
                     
Comprehensive (loss) income   (57,682)   1,620    (65,815)   7,090 
Less: comprehensive income attributable to the noncontrolling interest   
-
    339    
-
    1,340 
Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders  $(57,682)  $1,281   $(65,815)  $5,750 

 

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 six months ended June 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   71,551,067    (81,087)  $    7   $168,448   $    1   $63,598   $232,054 
                                    
FOREIGN CURRENCY TRANSLATION ADJUSTMENT             
-
    
-
    (101)   
-
    (101)
                                    
DISTRIBUTIONS             
-
    
-
    
-
    (308)   (308)
                                    
STOCK-BASED COMPENSATION   -         
-
    3,766    
-
    
-
    3,766 
                                   
NON-EMPLOYEE STOCK-BASED COMPENSATION   835,000         
-
    181    
-
    
-
    181 
                                    
FORFEITURE OF STOCK-BASED AWARDS   (395,084)        
-
    (445)   
-
    
-
    (445)
                                    
CANCELLATION OF TREASURY SHARES   (81,087)   81,087    
-
    
-
    
-
    
-
    
-
 
                                    
EXERCISE OF WARRANTS   10,028,772         1    63,433    
-
    
-
    63,434 
                                    
NET LOSS   -    -    
-
    
-
    
-
    (65,714)   (65,714)
                                    
BALANCE AS OF JUNE 30, 2021   81,938,668    -   $8   $235,383   $(100)  $(2,424)  $232,867 

 

 

For the three months ended June 30, 2021

 

   Common      Common   Additional   Accumulated        
   Stock   Treasury   Shares   Paid-In   Comprehensive   Retained     
   Shares   Shares   Amount   Capital   Income (Loss)   (Deficit)   Total 
               (As Restated)       (As Restated)   (As Restated) 
BALANCE AS OF APRIL 1, 2021   81,400,199         -   $    8   $234,994   $     110   $   55,048   $  290,160 
                                    
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   -         
-
    
-
    (210)   
-
    (210)
                                    
STOCK-BASED COMPENSATION   -         
-
    582    
-
    
-
    582 
                                   
NON-EMPLOYEE STOCK-BASED COMPENSATION   835,000         
-
    181    
-
    
-
    181 
                                    
FORFEITURE OF STOCK-BASED AWARDS   (300,000)        
-
    (445)   
-
    
-
    (445)
                                    
EXERCISE OF WARRANTS   3,469         
-
    71    
-
    
-
    71 
                                    
NET LOSS   -    -    
-
    
-
    
-
    (57,472)   (57,472)
                                    
BALANCE AS OF JUNE 30, 2021   81,938,668    -   $8   $235,383   $(100)  $(2,424)  $232,867 

 

3

 

 

For the six months ended June 30, 2020

 

   Redeemable   Common       Common   Additional   Accumulated   Retained         
   Noncontrolling   Stock   Treasury   Shares   Paid-In   Comprehensive   Earnings   Noncontrolling     
   Interest Amount   Shares   Shares   Amount   Capital   Income (Loss)   (Deficit)   Interests   Total 
BALANCE AS OF JANUARY 1, 2020  $6,900    28,324,038                -   $3   $2,314   $(692)  $1,056   $256   $2,937 
                                              
CAPITAL CONTRIBUTIONS   
 
    -    -    
           -
    
-
    
         -
    
-
    355    355 
                                              
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   
-
    -    -    
-
    
-
    349    
-
    34    383 
                                              
DISTRIBUTIONS   
 
    -    -    
-
    
-
    
-
    (1,950)   
-
    (1,950)
                                              
ACCRETION OF REDEEMABLE NONCONTROLLING INTEREST TO REDEMPTION VALUE   36,277    -    -    
-
    (2,314)   
-
    (33,963)   
-
    (36,277)
                                              
NET INCOME   638    -    -    
-
    
-
    
-
    5,401    668    6,069 
                                              
BALANCE AS OF JUNE 30, 2020   43,815    28,324,038    -   $3   $-   $(343)  $(29,456)  $1,313   $(28,483)

 

For the three months ended June 30, 2020

 

   Redeemable   Common       Common   Additional   Accumulated   Retained         
   Noncontrolling   Stock   Treasury   Shares   Paid-In   Comprehensive   Earnings   Noncontrolling     
   Interest Amount   Shares   Shares   Amount   Capital   Income (Loss)   (Deficit)   Interests   Total 
BALANCE AS OF APRIL 1, 2020  $11,745    28,324,038               -   $         3   $2,314   $(1,033)  $(3)  $1,198   $2,479 
                                              
FOREIGN CURRENCY TRANSLATION ADJUSTMENT   
-
         -    
-
    
-
    690    
-
    45    735 
                                              
DISTRIBUTIONS   
-
    -    -    
-
    
-
    
-
    (512)   
-
    (512)
                                              
ACCRETION OF REDEEMABLE NONCONTROLLING INTEREST TO REDEMPTION VALUE   31,846    -    -    
-
    (2,314)   
-
    (29,532)   
-
    (31,846)
                                              
NET INCOME   224    -    -    
-
    
-
    
-
    591    70    661 
                                              
BALANCE AS OF JUNE 30, 2020   43,815    28,324,038    -   $3   $-   $(343)  $(29,456)  $1,313   $(28,483)

  

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)

 

   Six Months Ended
June 30,
 
   2021   2020 
   (As Restated)     
CASH FLOWS FROM OPERATING ACTIVITIES        
Net (loss) income  $(65,714)  $6,707 
Adjustments to reconcile net (loss) income to net cash from operating activities:          
Depreciation and amortization   1,462    471 
Bad debt expense   311    
-
 
Accretion of debt financing costs   3    34 
Revaluation of warrant liability   51    
-
 
Unrealized forward contract loss   1,074    
-
 
Stock compensation expense   3,502    
-
 
Deferred taxes, net   47,549    
-
 
Non-cash lease cost   44    
-
 
Changes in operating assets and liabilities:          
Accounts receivable   (2,320)   (6,222)
Inventory   (8,415)   (8,694)
Prepaid expenses and other assets   (3,613)   (503)
Accounts payable   (664)   9,118 
Accrued expenses   1,922    732 
Other current liabilities   436    829 
Net cash (used in) provided by operating activities   (24,372)   2,472 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchases of property, plant and equipment   (10,140)   (4,156)
Acquisition of subsidiaries, net of cash acquired   (33,918)   
-
 
Proceeds from sale of property, plant and equipment   
-
    36 
Net cash used in investing activities   (44,058)   (4,120)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Net borrowings in line of credit   2,093    4,468 
Borrowings of notes payable to related parties   
-
    33 
Repayments of notes payable to related parties   (42)   (644)
Borrowings of notes payable   1,168    29 
Repayments of notes payable   (140)   (327)
Capital contributions   
-
    355 
Proceeds from the exercise of warrants   73,957    
-
 
Distributions   (308)   (1,888)
Net cash provided by financing activities   76,728    2,026 
           
NET INCREASE IN CASH   8,298    378 
EFFECT OF EXCHANGE RATE ON CASH   305    287 
           
CASH AT BEGINNING OF PERIOD   131,579    4,537 
           
CASH AT END OF PERIOD  $140,182   $5,202 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for          
Interest  $100   $192 
Income taxes  $249   $16 
Noncash investing and financing activities          
Distributions  $
-
   $1,950 
Capital expenditures included in accounts payable  $776   $
-
 

  

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, the sole stockholder of Ittella International, Inc. contributed all of his share ownership of Ittella International, Inc. to Myjojo (California) in exchange for 100% interest in the latter, becoming Myjojo (California)’s sole stockholder.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

6

 

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

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

 

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

 

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

 

Revision of Previously Issued Financial Statements for Correction of Immaterial Errors

 

The Company identified errors in its previously issued annual financial statements that were determined to be individually, and in the aggregate, quantitatively and qualitatively immaterial based on its analysis of Staff Accounting Bulletin (“SAB”) No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”. These immaterial errors have been corrected in the accompanying consolidated balance sheet as of December 31, 2020, and the consolidated statements of operations and comprehensive income, stockholders’ equity for the three and six months ended June 30, 2020 and cash flows for the six months ended June 30, 2020. The nature of these error corrections is as follows:

 

  In further consideration of the guidance in Accounting Standards Codification (“ASC”) 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, the Company concluded that a provision in the warrant agreement related to certain settlement methods specific to the Private Placement Warrants precludes the Private Placement Warrants from being accounted for as components of equity. As the Private Placement Warrants meet the definition of a derivative as contemplated in ASC 815, the Private Placement Warrants should have been recorded as derivative liabilities on the consolidated balance sheet and measured at fair value upon recognition on the Closing Date and at each reporting date in accordance with ASC 820, Fair Value Measurement, with changes in fair value recognized in the consolidated statement of operations and comprehensive income in the period of change. Therefore, the Company concluded that it is appropriate to revise the classification of the Private Placement Warrants as of and for the year ended December 31, 2020.

 

  The Company revised the accompanying consolidated balance sheet and statement of stockholders’ equity as of December 31, 2020 to reflect the correction of an immaterial error related to the presentation of 81,087 treasury shares. The treasury shares are now presented separately from common stock shares. This revision has an immaterial impact on the Company’s previously reported net income, earnings per share, or stockholders’ equity.
     
  The Company revised the accompanying consolidated statements of equity and operations and comprehensive income for the year ended December 31, 2020 to reflect the correction of an immaterial error related to the grant of 825,000 stock awards to Harrison Co. (“Harrison”) on October 15, 2020 as consideration for advisory services provided by Harrison to facilitate the successful completion of the Transaction (see Note 18). The stock awards were fully vested on grant date, and therefore a weighted average 174,041 shares should have been included in basic and diluted outstanding shares when calculating earnings per share for the year ended December 31, 2020. In addition, the fair value of the stock awards issued in the amount of $20.54 million should have been included as a reduction to the “Reverse Recapitalization” line item and an increase by the same amount to the “Transaction costs, net of tax” line item. Both items are included within the Company’s additional paid-in capital for the year ended December 31, 2020. The Company also identified a $4.0 million deferred tax asset (with the corresponding offset to additional paid-in capital) that should have been recorded in connection with this grant. The revision has no impact on the Company’s previously reported net income but reduced the earnings per share for the year ended December 31, 2020. The impact of the tax consequences associated with the grant have been reflected in the balance sheet and statement of stockholders’ equity.
     
  The Company revised the accompanying condensed consolidated statements of operations and comprehensive income for the period ended June 30, 2020 to reflect the correction of an immaterial error for amounts previously not reflected in the comprehensive income attributable to noncontrolling interest. This revision has no impact on the Company’s net income, retained earnings, or earnings per share.
     
  The Company revised the accompanying condensed consolidated statements of stockholder’s equity (deficit) for the quarterly periods ended June 30, 2020 to reflect the correct presentation of accretion to redeemable noncontrolling interest within the statement of stockholders’ equity (deficit). 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

 

7

 

 

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                    
    Originally                
As of December 31, 2020   Reported     Revisions     Re-classification*     As Revised  
Accounts receivable   $ 17,991     $ (1,710 )   $
-
    $ 16,281  
Inventory     38,660       (658 )     -       38,002  
Prepaid expenses and other current assets     18,240       176       -       18,416  
TOTAL CURRENT ASSETS     206,470       (2,192 )     -       204,278  
Deferred income taxes, net     43,525       4,024       -       47,549  
TOTAL ASSETS     266,683       1,832       -       268,515  
Accounts payable     25,391       -       (1,316 )     24,075  
Accrued expenses     2,961       649       -       3,610  
Deferred revenue     1,711       (1,711 )     -       -  
Other current liabilities     87       -       1,316       1,403  
TOTAL CURRENT LIABILITIES     30,349       (1,062 )     -       29,287  
Warrant liabilities     -       5,184       -       5,184  
TOTAL LIABILITIES     32,339       4,122       -       36,461  
Additional paid-in capital     170,799       (2,351 )     -       168,448  
Retained earnings     63,537       61       -       63,598  
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)     234,344       (2,290 )     -       232,054  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY     266,683       1,832       -       268,515  

 

(In thousands, except EPS)  Condensed Consolidated 
   Statements of Operations and
Comprehensive Income
 
   As
Originally
         
For the three months ended June 30, 2020  Reported   Revisions   As Revised 
Revenue  $34,764   $3   $34,767 
Cost of goods sold   31,019    (169)   30,850 
Gross profit   3,745    172    3,917 
Operating expense   2,068    542    2,610 
Income from operations   1,677    (370)   1,307 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   1,808    (370)   1,438 
Net income (loss)   1,255    (370)   885 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   339    (45)   294 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   916    (325)   591 
Basic net income (loss) per share   0.03    (0.01)   0.02 
Diluted net income (loss) per share   0.03    (0.01)   0.02 
                
Comprehensive income  $1,990    (370)  $1,620 
Less: income (loss) attributable to the noncontrolling interest   45    294    339 
Comprehensive income attributable to Tattooed Chef, Inc. stockholders  $1,945    (664)  $1,281 

 

8

 

 

(In thousands, except EPS)  Condensed Consolidated 
   Statements of Operations
and Comprehensive Income
 
   As         
For the six months ended June 30, 2020  Originally
Reported
   Revisions   As Revised 
Revenue  $67,934   $5   $67,939 
Cost of goods sold   54,946    (60)   54,886 
Gross profit   12,988    65    13,053 
Operating expense   4,458    512    4,970 
Income from operations   8,530    (447)   8,083 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES   8,437    (447)   7,990 
Net income (loss)   7,154    (447)   6,707 
LESS: INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS   1,361    (55)   1,306 
NET INCOME (LOSS) ATTRIBUTABLE TO TATTOOED CHEF, INC.   5,793    (392)   5,401 
Basic net income (loss) per share   0.20    (0.01)   0.19 
Diluted net income (loss) per share   0.20    (0.01)   0.19 
                
Comprehensive income  $7,537    (447)  $7,090 
Less: income (loss) attributable to the noncontrolling interest   34    1,306    1,340 
Comprehensive income attributable to Tattooed Chef, Inc. stockholders  $7,503    (1,753)  $5,750 

 

(In thousands)  Condensed Consolidated
Statements of Stockholders’ Equity (Deficit)
 
For the three months ended June 30, 2020  As
originally
reported
   Revisions   As revised 
             
Redeemable noncontrolling interest beginning balance  $11,785    (40)  $11,745 
Net income in redeemable noncontrolling interest   269    (45)   224 
Redeemable noncontrolling interest ending balance   43,900    (85)   43,815 
Additional paid-in capital - Accretion of redeemable noncontrolling interest to redemption value   
-
    (2,314)   (2,314)
Additional paid-in capital ending balance   2,314    (2,314)   
-
 
Retained earnings beginning balance   273    (276)   (3)
Retained earnings - Accretion of redeemable noncontrolling interest to redemption value   
-
    (29,532)   (29,532)
Net income in retained earnings   916    (325)   591 
Retained earnings ending balance   677    (30,133)   (29,456)
Total Stockholders’ equity beginning balance   2,755    (276)   2,479 
Total Stockholders’ equity ending balance   3,964    (32,447)   (28,483)

 

9

 

 

(In thousands)  Condensed Consolidated Statements of
Stockholders’ Equity (Deficit)
 
For the six months ended June 30, 2020  As
originally
reported
   Revisions   As revised 
             
Redeemable noncontrolling interest beginning balance  $6,930    (30)  $6,900 
Net income in redeemable noncontrolling interest   693    (55)   638 
Redeemable noncontrolling interest ending balance   43,900    (85)   43,815 
Additional paid-in capital - Accretion of redeemable noncontrolling interest to redemption value   
-
    (2,314)   (2,314)
Additional paid-in capital ending balance   2,314    (2,314)   
-
 
Retained earnings beginning balance   1,265    (209)   1,056 
Retained earnings - Accretion of redeemable noncontrolling interest to redemption value   (4,431)   (29,532)   (33,963)
Net income in retained earnings   5,793    (392)   5,401 
Retained earnings ending balance   677    (30,133)   (29,456)
Total Stockholders’ equity beginning balance   3,146    (209)   2,937 
Total Stockholders’ equity ending balance   3,964    (32,447)   (28,483)

 

(In thousands)  Condensed Consolidated
Statements of Cash Flows
 
For the six months ended June 30, 2020  As
originally
reported
   Revisions   As revised 
Cash Flows from Operating Activities:            
Net income  $7,154    (447)  $6,707 
Adjustments to reconcile net income (loss) to net cash from operating activities:               
Inventory   (9,141)   447    (8,694)
Net cash (used in) provided by operating activities   2,472    
-
    2,472 

  

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 six months ended June 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 resulting from the restatement, the reclassification, and the as restated balances for the quarterly period ended June 30, 2021 (in thousands):

  

(in thousands, Unaudited)  Condensed consolidated balance sheet 
As of June 30, 2021  As
Reported
   Adoption
of ASC
842
   Adjustments   Re-classification   As
Restated
 
Accounts receivable, net  $23,018    -    (1,163)   -   $21,855 
Inventory   50,818    -    (1,232)   -    49,586 
Prepaid expenses and other current assets   8,592    (28)   -    -    8,564 
TOTAL CURRENT ASSETS   222,610    (28)   (2,395)   -    220,187 
Property, plant and equipment, net   39,231    (2,918)   -    -    36,313 
Operating lease right-of-use asset, net   -    5,659    -    -    5,659 
Finance lease right-of-use asset, net   -    5,726    -    -    5,726 
Goodwill   19,351    (1,378)   -    -    17,973 
Other assets   1,947    (1,444)   -    -    503 
TOTAL ASSETS  $283,345    5,617    (2,395)   -   $286,567 
Accounts payable   29,269    -    -    (19)   29,250 
Notes payable, current portion   405    -    2,917    -    3,322 
Deferred revenue   950    -    (950)   -    - 
Finance lease liabilities, current   2,917    -    (2,917)   -    - 
Operating lease liabilities, current   -    1,155    -    -    1,155 
Other current liabilities   1,840    (57)   (1)   19    1,801 
TOTAL CURRENT LIABILITIES   44,066    1,098    (951)   -    44,213 
Operating lease, net of current portion   -    4,548    -    -    4,548 
TOTAL LIABILITIES   49,005    5,646    (951)   -    53,700 
Additional paid in capital   231,359    -    4,024    -    235,383 
Retained earnings   3,073    (29)   (5,468)   -    (2,424)
Total equity   234,340    (29)   (1,444)   -    232,867 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $283,345    5,617    (2,395)   -   $286,567 

 

(in thousands except per share amounts, Unaudited) 

Condensed consolidated statements of operations and

comprehensive income (loss)

 
For Three Months Ended June 30, 2021  As
Reported
   Adoption
of ASC
842
   Adjustments   As
Restated
 
REVENUE  $50,716    -    (446)  $50,270 
COST OF GOODS SOLD   42,750    -    (797)   41,953 
GROSS PROFIT   7,966    -    351    8,317 
OPERATING EXPENSES   15,900    22    497    16,419 
(LOSS) INCOME FROM OPERATIONS   (7,934)   (22)   (146)   (8,102)
Other (expense) income   817    -    (84)   733 
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES   (7,211)   (22)   (230)   (7,463)
INCOME TAX EXPENSE   (45,985)   -    (4,024)   (50,009)
NET (LOSS) INCOME   (53,196)   (22)   (4,254)   (57,472)
NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC.  $(53,196)   (22)   (4,254)  $(57,472)
Basic net (loss) income per share   (0.65)   -    (0.05)   (0.70)
Diluted net (loss) income per share   (0.65)   -    (0.05)   (0.70)
Comprehensive (loss) income   (53,406)   (22)   (4,254)   (57,682)
Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders  $(53,406)   (22)   (4,254)  $(57,682)

 

11

 

 

(in thousands except per share amounts, Unaudited)   Condensed consolidated statements of operations and comprehensive income (loss) 
For Six Months Ended June 30, 2021  As
Reported
   Adoption
of ASC
842
   Adjustments   As
Restated
 
REVENUE  $103,398    -    (659)  $102,739 
COST OF GOODS SOLD   89,534    -    (2,292)   87,242 
GROSS PROFIT   13,864    -    1,633    15,497 
OPERATING EXPENSES   28,816    29    1,770    30,615 
(LOSS) INCOME FROM OPERATIONS   (14,952)   (29)   (137)   (15,118)
Other (expense) income   (1,772)   -    (176)   (1,948)
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES   (16,838)   (29)   (313)   (17,180)
INCOME TAX EXPENSE   (44,510)   -    (4,024)   (48,534)
NET (LOSS) INCOME   (61,348)   (29)   (4,337)   (65,714)
NET (LOSS) INCOME ATTRIBUTABLE TO TATTOOED CHEF, INC.  $(61,348)   (29)   (4,337)  $(65,714)
Basic net (loss) income per share   (0.76)   -    (0.05)   (0.81)
Diluted net (loss) income per share   (0.76)   -    (0.05)   (0.81)
Comprehensive (loss) income   (61,449)   (29)   (4,337)   (65,815)
Comprehensive (loss) income attributable to Tattooed Chef, Inc. stockholders  $(61,449)   (29)   (4,337)  $(65,815)

 

 

(in thousands, Unaudited)   Condensed consolidated statements of
stockholders’ equity
 
For Three Months Ended June 30, 2021  As
Reported
   Adjustments   As
Restated
 
Additional Paid-In Capital beginning balance  $230,970    4,024   $234,994 
Additional Paid-In Capital ending balance   231,359    4,024    235,383 
Retained earnings (Deficit) beginning balance   56,269    (1,221)   55,048 
Net loss in retained earnings (Deficit)   (53,196)   (4,276)   (57,472)
Retained earnings (Deficit) ending balance   3,073    (5,497)   (2,424)
Total Stockholders’ equity beginning balance   287,357    2,515    289,872 
Total Stockholders’ equity ending balance   234,340    (1,473)   232,867 

 

(in thousands, Unaudited)  Condensed consolidated statements of stockholders’ equity 

For Six Months Ended June 30, 2021

  As
Reported
   Adjustments   As
Restated
 
Additional Paid-In Capital beginning balance  $164,423    4,024   $168,447 
Additional Paid-In Capital ending balance   231,359    4,024    235,383 
Retained earnings (Deficit) beginning balance   64,729    (1,131)   63,598 
Net loss in retained earnings (Deficit)   (61,348)   (4,366)   (65,714)
Retained earnings (Deficit) ending balance   3,073    (5,497)   (2,424)
Total Stockholders’ equity beginning balance   229,160    2,893    232,053 
Total Stockholders’ equity ending balance   234,340    (1,473)   232,867 

 

(in thousands, Unaudited)  Condensed consolidated statements of cash flows 

For Six Months Ended June 30, 2021

  As
Reported
   Adoption of ASC 842   Adjustments   Re-classification   As
Restated
 
CASH FLOWS FROM OPERATING ACTIVITIES                         
Net (loss) income  $(61,348)   (29)   (4,337)   -   $(65,714)
Adjustments to reconcile net (loss) income to net cash from operating activities:                         
Depreciation and amortization   1,448    14    -    -    1,462 
Deferred taxes, net   43,525    -    4,024    -    47,549 
Non-cash lease cost   -    44    -    -    44 
Changes in operating assets and liabilities:        -    -    -    - 
Accounts receivable   (1,772)   -    (548)   -    (2,320)
Inventory   (8,988)   -    573    -    (8,415)
Prepaid expenses and other assets   (3,641)   28    -    -    (3,613)
Accounts payable   (1,961)   -    -    1,297    (664)
Accrued expenses   2,571    -    (649)   -    1,922 
Deferred revenue   (761)   -    761    -    - 
Other current liabilities   1,614    (57)   176    (1,297)   436 
Net cash used in operating activities   (24,372)   -    -    -    (24,372)

 

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.

 

12

 

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

In February 2020, the Company entered into a trading facility for derivative forward contracts. Under this facility, the Company has access to open foreign exchange forward contract instruments to purchase a specific amount of funds in Euros and to settle, on an agreed-upon future date, in a corresponding amount of funds in United States dollars. During the six-months ended June 30, 2021 and 2020, the Company entered into foreign currency exchange forward contracts to purchase 36.36 million Euros and 21.25 million Euros, respectively. The notional amounts of these derivatives are $44.19 million and $23.38 million for the period ended June 30, 2021 and 2020, respectively.

 

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

 

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

 

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

 

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

 

13

 

 

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

 

Goodwill. The Company evaluates and tests the recoverability of goodwill for impairment at least annually, on October 31, or more frequently if circumstances indicate that goodwill may not be recoverable. The Company performs the impairment testing by first assessing qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of its reporting unit (currently only one reporting unit) is less than its carrying amount (“Qualitative Assessment”). In assessing the qualitative factors, the Company considers the impact of certain key factors including macroeconomic conditions, industry and market considerations, management turnover, changes in regulation, litigation matters, changes in enterprise value, and overall financial performance. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company tests for impairment by comparing the estimated fair value of the reporting unit with its carrying amount. The Company estimates the fair value of the reporting unit using a “step one” analysis using a fair-value-based approach based on a discounted cash flow analysis of projected future results to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Any excess of the carrying amount of the reporting unit’s goodwill over its fair value is recognized as an impairment loss, and the carrying value of goodwill is written down. No goodwill impairment was recorded during the six and three months ended June 30, 2021.

 

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

 

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

 

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

 

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

 

14

 

 

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 form are discounts and demonstration costs. Variable consideration is treated as a reduction in revenue when product revenue is recognized. Depending on the specific type of variable consideration, the Company uses either the expected value or most likely amount method to determine the variable consideration. The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements, historical experience, and any recent changes in the market.

 

The Company does not have significant unbilled receivable balances arising from transactions with customers. The Company does not capitalize contract inception costs as contracts are generally one year or less and the Company does not incur significant fulfillment costs requiring capitalization.

 

The Company recognizes shipping and handling costs related to products transferred to the end customer as fulfillment cost and includes these costs in cost of goods sold upon delivery of the product to the customer.

 

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

 

Sales and Marketing Expenses (As Restated). The Company expenses costs associated with sales and marketing as incurred. Sales and marketing expenses were $8.18 million and $1.59 million for the three months ended June 30, 2021 and 2020, respectively, and $14.83 million and $2.80 million for the six months ended June 30, 2021 and 2020, respectively. Sales and marketing expenses are included in operating expenses in the condensed consolidated statements of operations and comprehensive income (loss).

 

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

 

Deferred Financing Costs. Deferred financing costs include fees associated with the Company’s line of credit agreement. Such fees are amortized on a straight-line basis over the term of the related line of credit agreement as a component of interest expense, which approximates the effective interest rate method, in accordance with the terms of the agreement. Deferred financing costs were $0.08 million and $0.08 million as of June 30, 2021 and December 31, 2020, respectively, and are recorded as a component of other assets in the accompanying condensed consolidated balance sheets. Amortization expense of deferred financing costs were $0.02 million and $0.02 million during the six months ended June 30, 2021 and 2020, respectively. Amortization expense of deferred financing costs were $0.01 million and $0.01 million during the three months ended June 30, 2021 and 2020, respectively.

 

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

 

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

 

Income Taxes (As restated). As part of the process of preparing its condensed consolidated financial statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which it conducts business, in accordance with the Income Tax Topic 740 of the ASC (“ASC 740”). The Company computes its annual tax rate based on the statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it earns income. Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The factors used to assess the likelihood of realization include the Company’s forecast of the reversal of temporary differences, future taxable income, and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income in applicable tax jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in the Company’s effective tax rate on future earnings. Based on our assessment, we recognized a valuation allowance on our deferred tax assets of $51.24 million in the second quarter of 2021.

 

15

 

 

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

 

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

 

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

  

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

 

Three customers accounted for 78% and 86% of the Company’s revenue during the three months ended June 30, 2021 and 2020, respectively.

 

Customer  2021   2020 
         
Customer C   29%   38%
Customer A   37%   35%
Customer B   12%   13%

 

Three customers accounted for 84% and 86% of the Company’s revenue during the six months ended June 30, 2021 and 2020, respectively.

 

Customer  2021   2020 
         
Customer C   35%   39%
Customer A   38%   32%
Customer B   11%   15%

 

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

 

   June 30,   December 31, 
Customer  2021   2020 
Customer A    25%   24%
Customer B    *    10%
Customer C   34%   53%

 

*Customer B accounted for less than 10% of accounts receivable as of June 30, 2021. However, Customer B accounted for 10% as of December 31, 2020 and as such was included in the disclosure above for comparison purposes.

 

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

 

Long-lived assets consist of property, plant and equipment - net and other non-current assets. The geographic location of long-lived assets is as follows:

 

   June 30,   December 31, 
Definite Lived Intangible Assets (in thousands)  2021   2020 
Italy  $
-
   $
    -
 
United States - tradenames   206    
-
 
Total  $206   $
-
 

 

16

 

 

   Remaining 
Definite Lived Intangible Assets  useful life 
Description:     
Tradenames   2 

 

Long Lived Assets (in thousands)  June 30,
2021
 
    December 31, 2020   
   (As Restated)     
Italy   $16,132   $9,113 
United States    20,181    6,970 
Total   $36,313   $16,083 

 

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

 

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

 

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

 

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

 

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

 

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

 

2.RECENT ACCOUNTING PRONOUNCEMENTS (As restated for the adoption of ASC 842)

 

The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startup Act, (JOBS Act), and elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies until the Company is no longer an EGC, including the extended transition period for complying with new or revised accounting standards. As of December 31, 2021, the Company will become a large accelerated filer under the rules of the SEC and will cease to qualify as an EGC.

 

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

 

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

 

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 loses 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 12.50% ownership interest in Ittella International. The Company incurred issuance costs of $0.13 million resulting in net consideration received of $5.87 million.

 

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

 

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

 

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

 

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

 

   Amount 
Redeemable Noncontrolling Interest as of April 1, 2020  $11,745 
Net income attributable to redeemable noncontrolling interest   224 
Accretion to redeemable noncontrolling interest   31,846 
Redeemable Noncontrolling Interest as of June 30, 2020  $43,815 

  

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

 

   Amount 

Redeemable Noncontrolling Interest as of January 1, 2020

  $6,900 
Net income attributable to redeemable noncontrolling interest   638 
Accretion to redeemable noncontrolling interest   36,277 
Redeemable Noncontrolling Interest as of June 30, 2020  $43,815 

 

All redeemable noncontrolling interest classified as mezzanine equity were reclassified to permanent equity in connection with the contribution of UMB’s 12.50% equity interests in Ittella International to Myjojo (Delaware) in exchange for Myjojo’s (Delaware)’s common stock and were subsequently exchanged for Forum Class A common stock upon consummation of the Transaction (see Note 1).

 

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4.REVENUE RECOGNITION

 

Nature of Revenues

 

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

 

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

 

Revenue streams for the three months ended June 30, 2021 (as restated) and 2020 were as follows:

 

   2021   2020    
Revenue Streams (in thousands)  Revenue   % Total   Revenue   % Total 
   (As Restated) 
Tattooed Chef  $32,798    65%  $20,390    59%
Private Label   17,136    34%   14,261    40%
Other revenues   336    1%   116    1%
Total  $50,270        $34,767      

 

Revenue streams for the six months ended June 30, 2021 (as restated) and 2020 were as follows:

 

   2021   2020   
Revenue Streams (in thousands)  Revenue   % Total   Revenue    % Total 
   (As Restated)
Tattooed Chef $68,640    67%  $38,254    56%
Private Label    33,448    32%   29,151    43%
Other revenues    651    1%   534    1%
Total   $102,739        $67,939      

 

Significant Judgments

 

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

 

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

 

5.ACCOUNTS RECEIVABLE, NET

 

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

 

20

 

 

The Company evaluates the creditworthiness of its customers regularly and estimates the collectability of current and non-current accounts receivable based on historical bad debt experience, current market conditions, and reasonable and supportable forecasts of future economic conditions. In times of economic turmoil, including COVID-19, the Company’s estimates and judgments with respect to the collectability of its receivables are subject to greater uncertainty than in more stable periods. The Company writes off accounts receivable whenever they become uncollectible, and any payments subsequently received on such receivables are recorded as bad debt recoveries in the period the payment is received. Credit losses from continuing operations have consistently been within management’s expectations. The allowance for doubtful accounts was $0.07 million and $0.00 million as of June 30, 2021 and December 31, 2020, respectively.

 

6.INVENTORY

 

Inventory consists of the following (in thousands):

 

   June 30,   December 31, 
   2021   2020 
   (As Restated)     
Raw materials  $18,041   $16,534 
Work-in-process   4,659    5,040 
Finished goods   23,164    13,424 
Packaging   3,722    3,004 
Total  $49,586   $38,002 

 

7.PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

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

 

   June 30,   December 31, 
   2021   2020 
   (As Restated)     
Prepaid advertising expenses  $4,958   $
-
 
Prepaid expenses, other   1,853    1,897 
Tax credits   1,699    1,884 
Warrants receivable (see Note 17)   
-
    13,542 
Other current assets   54    1,093 
Total  $8,564   $18,416 

 

8.PROPERTY, PLANT, AND EQUIPMENT, NET

 

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

 

   June 30,
2021
   December 31,
2020
 
   (As Restated) 
Building  $4,872   $2,574 
Leasehold improvements   3,806    2,106 
Machinery and equipment   26,285    12,526 
Computer equipment   265    187 
Furniture and fixtures   162    109 
Land   771    
-
 
Construction in progress   5,190    1,533 
    41,351    19,035 
Less: accumulated depreciation   (5,038)   (2,952)
Property, plant, and equipment, net  $36,313   $16,083 

 

The Company recorded depreciation expense for the six months ended June 30, 2021 and 2020 of $1.43 million and $0.46 million, respectively. The Company recorded depreciation expense for three months ended June 30, 2021 and 2020 of $0.88 million and $0.23 million, respectively.

 

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9.INTANGIBLE ASSETS, NET

 

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

 

   June 30,   December 31, 
   2021   2020 
Tradenames  $220   $
      -
 
Less: accumulated amortization   (14)   
-
 
Net  $206   $
-
 

 

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

 

The Company recorded amortization expense of $0.01 million and $0.00 million, respectively, for the six months ended June 30, 2021 and 2020. The Company recorded amortization expense of $0.01 million and $0.00 million, respectively, for the three months ended June 30, 2021 and 2020, respectively.

 

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

 

Six months ended December 31, 2021     $55 
2022    110 
2023    41 
Total     $206 

 

10.BUSINESS COMBINATION AND ASSET PURCHASES (As Restated)

 

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

 

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

 

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

 

Under the acquisition method of accounting, the assets acquired and liabilities assumed by the Company in connection with the NMFD Transaction are initially recorded at their respective fair values. The Company made an election under Section 338(h)(10) to treat the NMFD Transaction as an asset acquisition for income tax purposes, which allows for any goodwill recognized to be tax deductible and amortized over a 15-year statutory life. The Company considered the potential impact to the depreciation and amortization expense as a result of the fair values assigned to the acquired assets. The excess of the purchase price over the fair value of assets acquired and liabilities assumed of approximately $17.97 million is recorded as goodwill.

 

Transaction costs of $0.47 million were incurred in relation to the acquisition of which $0.07 million pertained to reimbursement of costs incurred by the sellers and included as part of the purchase consideration. The remaining $0.40 million is recorded to operating expense within the consolidated condensed statement of operations for the three months and the six months ended June 30, 2021.

 

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

 

  

Amount

(As Restated)

 
Purchase consideration  $34,091 
Assets acquired and liabilities assumed     
Cash  $173 
Accounts receivable   3,567 
Inventory   2,267 
Prepaid expenses and other current assets   122 
Operating lease, ROU asset   207 
Property, plant and equipment   9,819 
Finance lease, ROU assets *   5,749 
Other noncurrent assets   29 
Intangible assets – tradenames   220 
Accounts payable   (2,833)
Accrued expenses   (78)
Operating lease liability   (207)
Note payable *   (2,917)
Goodwill   17,973 
Total assets acquired and liabilities assumed  $34,091 

 

*In December 2015 (prior to the NMFD and Karsten Acquisition), NMFD and Karsten entered into an agreement to purchase an industrial revenue bond (“IRB”) issued by Bernalillo County, New Mexico (“Bernalillo”) to be used to finance the costs of the constructing, renovating and equipping of the manufacturing plant and concurrently, assigned ownership of the manufacturing plant including building and land (“Property”) to Bernalillo as consideration for the purchase of the IRB, as well as entered into a lease agreement to lease the Property from Bernalillo (“Lease”). The Lease provides NMFD the option to purchase the Property for $1 following the payoff of the Lease. The sale of the Property to Bernalillo and concurrent leaseback of the Property in December 2015 did not meet the sale-leaseback accounting requirements as a result of NMFD’s and Karsten’s continuous involvement with the Property and thus, the IRB was not recorded as a sale but as a financing obligation, with the Property remaining on NMFD’s financial statements. The Lease and the IRB have the same counterparty, therefore a right of offset exists so long as NMFD continues to make rent payments under the terms of the Lease.

 

On May 14, 2021, the balance of the IRB asset and the lease obligation to Bernalillo were $2.92 million and $2.92 million, respectively. Upon the acquisition of NMFD and Karsten, the Company received all rights and assumed obligations related to the IRB, the Property and the Lease. Under business combination accounting literature and prior to the adoption of ASC 842, the transaction involving the IRB and the Lease should not be reassessed and, therefore, the failed sale-leaseback accounting should be reflected in the Company’s purchase accounting. There were no changes to the right of offset as a result of the acquisition and, thus, the lease obligation was offset against the IRB asset and is presented net on the Company’s consolidated balance sheet with no impact to the consolidated operations of income or consolidated cash flow statements. The leased assets are accounted for as a right of use (“ROU”) asset under ASC 842 and the fair value of the ROU asset was determined to be $5.7 million. As such, the lease for the land and the building will be presented on the consolidated balance sheet as an ROU asset of $5.7 million. The Note payable bears interest at 3.8% and has a maturity date of December 29, 2025. The note payable balance is reflected at the present value of future principal payments. The Company recognized the entire balance as a current liability due to noncompliance with certain financing covenants. See Note 16.

 

The excess of purchase consideration over the fair value of the assets acquired and liabilities assumed was recorded as goodwill, which is primarily attributable to the assembled workforce and expanded market opportunities. Goodwill was assigned to the Company’s single reporting unit. The fair value assigned to the assets acquired and liabilities assumed are based on management’s estimates and assumptions, which are preliminary, are based on provisional amounts and may be subject to change as additional information is received. The Company expects to finalize the valuation of these assets not later than one year from the acquisition date.

 

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

 

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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 (As Restated).

 

  Three Months Ended   Six Months Ended 
   June 30,   June 30, 
(in thousands except share and per share amounts, Unaudited)  2021   2020   2021   2020 
 

(As Restated)

     

(As Restated)

    
Net Revenue - pro forma combined  $54,579   $40,578   $115,666   $80,366 
Net (Loss) Income - pro forma combined   (57,505)   308    (65,815)   5,692 
Weighted Average Shares:                    
Basic   81,981,428    28,324,038    81,121,795    28,324,038 
Diluted   81,981,428    28,324,038    81,258,427    28,324,038 
Net Income (Loss) per Share:                    
Basic  $(0.70)  $0.01   $(0.81)  $0.20 
Diluted  $(0.70)  $0.01   $(0.81)  $0.20 

  

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

 

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

 

Assets acquired – Esogel    
Specialized machinery – facility  $2,168 
Machinery and equipment   534 
Other   10 
Total assets acquired – Esogel  $2,712 
Assets acquired – Ferdifin     
Building  $1,396 
Land   776 
Total assets acquired – Ferdifin  $2,172 

 

11.DERIVATIVE INSTRUMENTS

 

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

 

24

 

 

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

 

      June 30,   December 31, 
   Balance Sheet Line Item  2021   2020 
Derivatives not designated as hedging instruments:     (As Restated)     
Foreign currency derivatives  Prepaid expenses and other current assets  $
-
   $1,042 
Foreign currency derivatives  Forward contract derivative liability   (935)   
-
 
Total     $(935)  $1,042 

 

The effect on the accompanying condensed consolidated statements of operations and comprehensive income (loss) of derivative instruments not designated as hedges is summarized as follows (in thousands):

 

      Three months   Six months 
      ended   ended 
   Line Item in Statements  June 30,   June 30, 
   of Operations  2021   2021 
Derivatives not designated as hedging instruments:     (As Restated)   (As Restated) 
Foreign currency derivatives  Other income (expense)  $1,023   $(1,978)
Total     $1,023   $(1,978)

 

      Three months   Six months 
      ended   ended 
   Line Item in Statements  June 30,   June 30, 
   of Operations  2020   2020 
Derivatives not designated as hedging instruments:           
Foreign currency derivatives  Other income (expense)  $288   $288 
Total     $288   $288 

 

Unrealized and realized gains on forward currency derivatives for the three months ended June 30, 2021 and 2020 were $1.02 million and $0.29 million, respectively. Unrealized and realized (losses) gains on forward currency derivatives for the six months ended June 30, 2021 and 2020 were $(1.98) million and $0.29 million, respectively. The Company has notional amounts of $45.68 million and $45.60 million on outstanding derivatives as of June 30, 2021 and December 31, 2020, respectively.

 

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12.FAIR VALUE MEASUREMENTS

 

Contingent Consideration Liabilities – Holdback Shares

 

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

 

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

 

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

 

There were no changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2021 and 2020, respectively.

 

Sponsor Earnout Shares Subject to Transfer Restrictions

 

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

 

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

 

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

 

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

 

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Warrant Liabilities

 

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

 

Initial Measurement

 

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

 

Subsequent Measurement

 

At each reporting period or upon exercise of the Warrants, the Company remeasures the Private Placement Warrants at their fair values with the change in fair value reported to current operations within the statements of operations and other comprehensive income (loss). During the six months ended June 30, 2021, Private Placement Warrants totaling 226,510 were settled, resulting in an aggregate loss on settlements of $0.37 million.

 

For the three months and the six months ended June 30, 2021, the change in the fair value of the warrant liabilities charged to current operations amounted to $0.37 million and $0.98 million, respectively.

 

Fair Value Measurement

 

The fair value of the Private Placement Warrants was determined to be $12.23 per warrant as of June 30, 2021, using Monte Carlo simulations and certain Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock warrants based on implied volatility from its traded warrants and historical volatility of select peers’ common stock with similar expected term of the Warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield on the grant date with a maturity similar to the expected remaining term of the warrants. The expected term of the Warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company estimated to remain at zero.

 

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

 

   October 15,         
   2020         
   (Initial   December 31,   June 30, 
Input  Measurement)   2020   2021 
Risk-free interest rate   0.32%   0.34%   0.72%
Expected term (years)   5    4.79    4.30 
Expected volatility   35.00%   35.00%   45.00%
Exercise price  $11.50   $11.50   $11.50 
Fair value of warrants  $13.85   $12.72   $12.23 

 

27

 

 

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

 

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

 

On June 30, 2021, the aggregate fair value of the Private Placement Warrants was determined to be $2.21 million, based on the estimated fair value per Private Placement Warrant on that date of $12.23 for 181,067 outstanding warrants.

 

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

 

   Private 
   Placement 
Fair value at initial measurement on October 15, 2020  $9,072 
Exercise of Private Placement Warrants   (2,696)
Change in fair value(1)   (1,192)
Fair value as of December 31, 2020  $5,184 
Exercise of Private Placement Warrants   (3,020)
Change in fair value(1)   51 
Fair value as of June 30, 2021  $2,215 

 

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

 

28

 

 

13.LEASES

 

As of June 30, 2021, the Company’s primary leasing activities were related to office space, production and storage facilities and certain Company vehicles and equipment. In connection with the NMFD acquisition in May 2021, the Company assumed several operating leases and a finance lease (the “Karsten Lease”) (see Note 10). The Karsten Lease provides the Company the option to purchase the leased facility for $1.00 (one dollar) following the payoff of the lease obligation balance. The leased facility was accounted for as a finance lease ROU asset in connection with the NMFD Transaction under ASC 842 (see Note 10).

 

Significant assumptions and judgments were made in the application of GAAP for leases, including those related to the lease discount rate. The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate, when the interest rate implicit in the Company’s leases is not readily determinable. The incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms of the lease payments at commencement date, and in similar economic environments.

 

Upon adoption, ASC 842, Leases had an impact in the Company’s consolidated balance sheet and in its consolidated statement of operations. As part of the transition, the Company elected the following practical expedients:

 

Package of practical expedients which eliminates the need to reassess (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) the initial direct costs for any existing leases.

 

The practical expedient whereby the lease and non-lease components will not be separated for all classes of assets.

 

Not to recognize ROU assets and corresponding lease liabilities with a lease term of 12 months or less from the lease commencement date for all class of assets.

 

For existing leases, the Company did not elect the use of hindsight and did not reassess lease term upon adoption. The Company leases office and manufacturing facilities, equipment and vehicles under various operating arrangements. Certain of the leases are subject to escalation clauses and renewal periods. The Company recognizes lease expense, including predetermined fixed escalations, on a straight-line basis over the initial term of the lease from the time that the Company controls the leased property.

 

The Company adjusted the adoption date opening ROU asset balance by $0.04 million and $0.03 million previously recorded as deferred rent liabilities and prepaid expenses, respectively. On January 1, 2021, the Company recorded $4.16 million in operating lease ROU assets and $4.17 million in operating lease liabilities. The adoption of ASC 842 had no significant impact on the Company’s statement of operations.

 

The components of lease costs are as follows:

 

      Three  months   Six months 
(in thousands)  Statement of Operations Location  Ended June 30, 2021 
Operating leases:             
Lease cost  Cost of goods sold  $237   $391 
Lease cost  Operating expenses