UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(MARK ONE)
For the quarter ended
For the transition period from to
Commission file number:
(Exact Name of Registrant as Specified in Its Charter)
|
||
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
|
|
|||
|
|
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.
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).
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 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 |
☐ |
☒ |
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
At May 16, 2022,
STRYVE FOODS, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
STRYVE FOODS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
ASSETS |
|
(Unaudited) |
|
|
|
|
||
CURRENT ASSETS |
|
|
|
|
|
|
||
Cash and cash equivalent |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Inventory, net |
|
|
|
|
|
|
||
Prepaid media spend |
|
|
|
|
|
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Property and equipment, net |
|
|
|
|
|
|
||
Right of use asset, net |
|
|
|
|
|
|
||
Goodwill |
|
|
|
|
|
|
||
Intangible asset, net |
|
|
|
|
|
|
||
Prepaid media spend, net of current portion |
|
|
|
|
|
|
||
Other assets |
|
|
— |
|
|
|
|
|
TOTAL ASSETS |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
CURRENT LIABILITIES |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
$ |
|
||
Accrued expenses |
|
|
|
|
|
|
||
Current portion of lease liability |
|
|
|
|
|
|
||
Line of credit |
|
|
— |
|
|
|
|
|
Current portion of long-term debt |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Long-term debt, net of current portion |
|
|
|
|
|
|
||
Lease liability, net of current portion |
|
|
|
|
|
|
||
Financing obligation - related party operating lease |
|
|
|
|
|
|
||
Deferred tax liability, net |
|
|
|
|
|
|
||
Deferred stock compensation liability |
|
|
|
|
|
|
||
Warrant liability |
|
|
|
|
|
|
||
TOTAL LIABILITIES |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Preferred stock - $ |
|
|
|
|
|
|
||
Class A common stock - $ |
|
|
|
|
|
|
||
Class V common stock - $ |
|
|
|
|
|
|
||
Additional paid-in-capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
TOTAL STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
STRYVE FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months |
|
|
|||||
|
|
Ended March 31, |
|
|
|||||
|
|
2022 |
|
|
2021 |
|
|
||
SALES, net |
|
|
|
|
$ |
|
|
||
|
|
|
|
|
|
|
|
||
COST OF GOODS SOLD (exclusive of depreciation shown separately below) |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
GROSS MARGIN |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
OPERATING EXPENSES |
|
|
|
|
|
|
|
||
Selling expenses |
|
|
|
|
|
|
|
||
Operations expense |
|
|
|
|
|
|
|
||
Salaries and wages |
|
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
|
|
|
|
|
||
Loss on disposal of fixed assets |
|
|
- |
|
|
|
|
|
|
Total operating expenses |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
OPERATING LOSS |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
OTHER (EXPENSE) INCOME |
|
|
|
|
|
|
|
||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
PPP loan forgiveness |
|
|
- |
|
|
|
|
|
|
Change in fair value of Private Warrants |
|
|
|
|
|
— |
|
|
|
Other income |
|
|
- |
|
|
|
|
|
|
Total other (expense) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
NET LOSS BEFORE INCOME TAXES |
|
|
( |
) |
|
|
( |
) |
|
Income taxes |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
||
NET LOSS |
|
|
( |
) |
|
$ |
( |
) |
|
Loss per common share: |
|
|
|
|
|
|
|
||
Basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
||
Basic and diluted |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
STRYVE FOODS, INC.
THREE MONTHS ENDED MARCH 31, 2022
(Unaudited)
|
|
|
|
|||||||||||||||||||||||||||
|
|
|
|
Common Stock Class A |
|
|
Common Stock Class B/V |
|
|
Additional |
|
|
Retained |
|
|
|
|
|||||||||||||
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Paid-in-Capital |
|
|
Earnings |
|
|
Total |
|
|||||||
BALANCE, JANUARY 1, 2022 |
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PIPE Investment |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Prefunded Warrants converted into Common Stock Class A |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Post closing adjustment of BCA |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Issuance of Restricted Stock Awards |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net loss |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
BALANCE, MARCH 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Statement of Changes in Stockholders' Deficit |
|
|||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2021 |
|
|||||||||||||||||||
|
|
|||||||||||||||||||
|
|
|
||||||||||||||||||
|
|
Common Stock Class B/V |
|
|
Additional |
|
|
Retained |
|
|
|
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Paid-in-Capital |
|
|
Earnings |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
BALANCE, JANUARY 1, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Repurchase of member shares |
|
|
( |
) |
|
|
( |
) |
|
$ |
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
BALANCE, MARCH 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
STRYVE FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
|
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Depreciation expense |
|
|
|
|
|
|
||
Loss on disposal of fixed assets |
|
|
— |
|
|
|
|
|
Amortization of intangible assets |
|
|
|
|
|
|
||
Amortization of debt issuance costs |
|
|
— |
|
|
|
|
|
Net change in right-of-use assets and liabilities |
|
|
|
|
|
— |
|
|
Interest income on members loan receivable |
|
|
— |
|
|
|
( |
) |
Bad debt expense |
|
|
|
|
|
|
||
Forgiveness on paycheck protection program loan |
|
|
- |
|
|
|
( |
) |
Stock based compensation expense |
|
|
|
|
|
— |
|
|
Change in fair value of Private Warrants |
|
|
( |
) |
|
|
— |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
Inventory |
|
|
( |
) |
|
|
( |
) |
Vendor deposits |
|
|
|
|
|
— |
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Accrued liabilities |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Cash paid for purchase of equipment |
|
|
( |
) |
|
|
( |
) |
Cash received for sale of equipment |
|
|
— |
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
PIPE capital raise |
|
|
|
|
|
— |
|
|
Exercise of Prefunded Warrants |
|
|
|
|
|
— |
|
|
Repurchase of member shares |
|
|
— |
|
|
|
( |
) |
Post closing adjustment of BCA |
|
|
( |
) |
|
|
— |
|
Repayments on long-term debt |
|
|
( |
) |
|
|
( |
) |
Borrowings on related party debt |
|
|
— |
|
|
|
|
|
Repayments on related party debt |
|
|
— |
|
|
|
( |
) |
Borrowings on short-term debt |
|
|
— |
|
|
|
|
|
Repayments on short-term debt |
|
|
( |
) |
|
|
- |
|
Debt issuance costs |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Net change in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
SUPPLEMENTAL INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
STRYVE FOODS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2022
(Unaudited)
Note 1 - Organization and Description of Business
Stryve Foods, Inc. (f/k/a Andina Acquisition Corp. III) (“Stryve” or the “Company”) is an emerging healthy snacking company which manufactures, markets and sells highly differentiated healthy snacking products. The Company offers convenient snacks that are lower in sugar and carbohydrates and higher in protein than other snacks. The Company is headquartered in Plano, Texas, with manufacturing operations in Madill, Oklahoma.
On July 20, 2021 (the “Closing Date”), the Company completed a business combination (the “Business Combination”) pursuant to that certain Business Combination Agreement (the “BCA”) by and among the Company, Andina Holdings LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Holdings”), B. Luke Weil, in the capacity from and after the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”) as the representative for the shareholders of the Company (other than the Seller), Stryve Foods, LLC, a Texas limited liability company, Stryve Foods Holdings, LLC, a Texas limited liability company (the “Seller”), and R. Alex Hawkins, in the capacity from and after the Closing as the representative for the members of the Seller. Notwithstanding the legal form of the Business Combination, pursuant to the Business Combination Agreement, the Business Combination has been accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States ("GAAP"). Under this method of accounting, Stryve Foods, LLC is treated as the acquirer and the Company is treated as the acquired company for financial statement reporting purposes.
In connection with the completion of the Business Combination and as contemplated by the Business Combination Agreement, the Company: (i) issued
Prior to July 20, 2021, Stryve Foods, LLC was a “pass-through” (limited liability company) entity for income tax purposes and had no material income tax accounting reflected in its financial statements for financial reporting purposes since taxable income and deductions were “passed through” to its members. Following the consummation of the Business Combination, the combined company is organized in an “Up-C” structure and is now a taxable C corporation in which the business of Stryve Foods, LLC and its subsidiaries is held by Holdings, which is a subsidiary of the Company. By virtue of the Up-C structure, the Company's only direct assets consist of its equity interests in Holdings, an entity of which the Company maintains
The consolidated financial statements are under the name of the Company, the legal parent, but represent Stryve Foods, LLC, the legal subsidiary (accounting acquirer) with an adjustment to retrospectively adjust the legal capital to reflect the legal capital as earnings per share (“EPS”). EPS is calculated using the equity structure of the Company, including the equity interests issued to the Seller in the Business Combination. Prior to the Business Combination, EPS is based on Stryve Foods, LLC’s net income and weighted average common shares outstanding on an as exchanged basis that were received in the Business Combination. Subsequent to the Business Combination, EPS is based on the actual number of common shares on an as exchanged basis of the Company outstanding during that period. For any periods prior to the Closing, basic and diluted net income/loss per share have been retroactively adjusted to reflect the reverse recapitalization of the Company utilizing the number of Seller Consideration Units (adjusted as necessary to reflect the capital activity of Stryve Foods, LLC prior to the Closing) as the weighted average shares outstanding for those periods and the actual shares outstanding for any periods after the Closing, all on an as exchanged basis.
5
Note 2 - Liquidity
The Company incurred net losses of approximately $
At March 31, 2022, the Company had total current assets of $
The Company's operating plans are primarily focused on expanding its distribution base and increasing awareness of its products and brands while improving and expanding its manufacturing and distribution capabilities. Debt financing may require the Company to pledge assets and enter into covenants that could restrict certain business activities or its ability to incur further indebtedness; and may contain other terms that are not favorable to the Company or its stockholders.
On January 6, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with select accredited investors (the “2022 PIPE Investors”), relating to the issuance and sale of
On January 28, 2022, the Company repaid approximately $
While Stryve has materially improved its liquidity position through the Business Combination and the Offering, the unpredictable nature of the current COVID-19 pandemic may put the current manufacturing facility at risk, as it may relate to the supply chain and the welfare of the Company’s labor. Additionally, the uncertainty of current market conditions could also adversely impact capital markets, with the risk of significant contraction occurring. This risk still is apparent and constantly considered by management, as it relates to external capital availability.
Based on the Company's cash balance of approximately $
Note 3 - Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, these interim financial statements do not include all information and footnotes required under GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of operations, balance sheet, cash flows, and shareholders' equity for the periods presented. The unaudited condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2021. The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.
6
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Accounting estimates and assumptions discussed herein are those that management considers to be the most critical to an understanding of the condensed consolidated financial statements because they inherently involve significant judgements and uncertainties. Estimates are used for, but not limited to revenue recognition, allowance for doubtful accounts and customer allowances, useful lives for depreciation and amortization, standard costs of inventory, provisions for inventory obsolescence, impairments of goodwill and long-lived assets, warrant liabilities and valuation allowances for deferred tax assets. All of these estimates reflect management’s judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgements and estimates could change, which may result in future impairments of assets among other effects.
Accounts Receivable and Allowance for Doubtful Accounts, Returns, and Deductions
Accounts receivable are customer obligations due under normal trade terms. The Company records accounts receivable at their net realizable value, which requires management to estimate the collectability of the Company’s receivables. Judgment is required in assessing the realization of these receivables, including the credit worthiness of each counterparty and the related aging of past due balances. Management provides for an allowance for doubtful accounts equal to the estimated uncollectable amounts, in addition to a general provision based on historical experience. As of March 31, 2022 and December 31, 2021, the allowance for doubtful accounts and returns and deductions totaled $
Revenue Recognition Policy
The Company manufactures and markets a broad range of protein snack products through multiple distribution channels. The products are offered through branded and private label items. Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in the Accounting Standards Codification (“ASC”) 606:
The Company’s revenue derived from the sale of branded and private label products is considered variable consideration as the contract includes discounts, rebates, incentives and other similar items. Generally, revenue is recognized at the point in time when the customer obtains control of the product, which may occur upon either shipment or delivery of the product. The payment terms of the Company’s contracts are generally net to
The Company regularly experiences customer deductions from amounts invoiced due to product returns, product shortages, and delivery nonperformance penalty fees. This variable consideration is estimated using the expected value approach based on the Company’s historical experience, and it is recognized as a reduction to the transaction price in the same period that the related product sale is recognized.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to customers. Revenue is recognized when the Company satisfies its performance obligations under the contract by transferring the promised product to its customer.
The Company’s contracts generally do not include any material significant financing components.
7
Performance Obligations
The Company has elected the following practical expedients provided for in Topic 606, Revenue from Contracts with Customers:
Neither the type of good sold nor the location of sale significantly impacts the nature, amount, timing, or uncertainty of revenue and cash flows.
Disaggregation of Net Sales
The following table shows the net sales of the Company disaggregated by channel for the three months ended March 31, 2022 and 2021:
|
|
For the Three Months |
|
|||||
|
|
ended March 31, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
e-Commerce |
|
$ |
|
|
$ |
|
||
Wholesale |
|
|
|
|
|
|
||
Private label |
|
|
|
|
|
|
||
Ending balance |
|
$ |
|
|
$ |
|
Inventory
Stock Based Compensation
Stock-based compensation awards are accounted for in accordance with ASC Topic 718, Compensation –Stock Compensation (ASC 718). The Company expenses the fair value of stock awards granted to employees and members of the board of directors over the requisite service period, which is typically the vesting period. Compensation cost for stock-based awards issued to employees is measured using the estimated fair value at the grant date and is adjusted to reflect actual forfeitures.
Stock-based awards issued to non-employees, including directors for non-board-related services, are accounted for based on the fair value of such services received or the fair value of the awards granted on the grant date, whichever is more reliably measured. Stock-based awards subject to service-based vesting conditions are expensed on a straight-line basis over the vesting period.
Warrant Liability
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
8
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Net Income (Loss) per Share
The Company reports both basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted average number of shares of common stock outstanding and excludes the dilutive effect of warrants, stock options, and other types of convertible securities. However, certain pre-funded warrants are included in the calculation of basic earnings per share as the pre-funded warrants can be exercised for nominal value. Diluted earnings per share is calculated based on the weighted average number of shares of common stock outstanding and the dilutive effect of stock options, warrants and other types of convertible securities are included in the calculation. Dilutive securities are excluded from the diluted earnings per share calculation if their effect is anti-dilutive, such as in periods where the Company would report a net loss. For any periods prior to the closing of the Business Combination (the "Closing"), basic and diluted net income/loss per share have been retroactively adjusted to reflect the reverse recapitalization of the Company utilizing the Seller Consideration Units (adjusted as necessary to reflect the capital activity of the Company prior to the Closing) as the weighted average shares outstanding for those periods and the actual shares outstanding for any periods after the Closing all on an as exchanged basis. As of March 31, 2022 there were
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which requires the Company to recognize current tax liabilities or receivables for the amount of taxes as estimated are payable or refundable for the current year, and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible.
Under the terms of a Tax Receivable Agreement (the “TRA”) as part of the Business Combination Agreement, the Company generally will be required to pay to the Seller
The Company follows the provisions of ASC 740-10 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.
The benefit of tax positions taken or expected to be taken in the Company income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. The Company's policy is to classify assessments, if any, for tax related interest and penalties as a component of income tax expense. As of March 31, 2022,
9
Tax Receivable Agreement
In conjunction with the Business Combination, the Company entered into the TRA with Seller and Holdings. Pursuant to the TRA, the Company is required to pay Seller
Fair Value of Financial Instruments
The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, and vehicle notes payable. The carrying amounts of cash, accounts receivable, and accounts payable approximate their respective fair values because of the short-term maturities or expected settlement date of these instruments. The vehicle notes payable have fixed interest rates the Company believes reflect current market rates for notes of this nature. The Company believes the current carrying value of long-term debt approximates its fair value because the terms are comparable to similar lending arrangements in the marketplace.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Note 4 - Inventory