DIT 8-K/A
Amcon Distributing Co (DIT)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Act of 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
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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. ¨
Explanatory Note
The Initial Filing is being amended to provide the financial statements required by Item 9.01(a) and the pro forma information required by Item 9.01(b) with respect to the Acquisition, which were not included in the Initial Filing. Except for the filing of such financial statements and pro forma financial information, this Amendment No. 1 does not modify or update the Initial Filing.
| Item 9.01 | Financial Statements and Exhibits. |
(a) Financial Statements of Business Acquired.
The audited combined financial statements of the HFI Entities as of and for the years ended January 31, 2023 and 2022, together with the independent auditor’s reports thereon, are set forth in Exhibit 99.1 and incorporated by reference herein.
(b) Pro Forma Financial Information.
The accompanying unaudited pro forma condensed combined financial statements are set forth as Exhibit 99.2 and incorporated by reference herein.
(d) Exhibits.
The following additional exhibits are filed herewith:
| EXHIBIT NO. | DESCRIPTION |
| 99.1 | Combined Financial Statements of the HFI Entities |
| 99.2 | Unaudited Pro Forma Condensed Combined Financial Statements of the Company |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AMCON DISTRIBUTING COMPANY | |
| (Registrant) |
| Date: April 20, 2023 | /s/ Charles J. Schmaderer | |
| Name: | Charles J. Schmaderer | |
| Title: | Vice President, Chief Financial Officer and Secretary | |
Exhibit 99.1
Combined Financial Statements and
Independent Auditor’s Report
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
January 31, 2023 and 2022
CONTENTS
| Independent Auditor’s Report | 1-2 |
| Financial Statements: | |
| Combined Balance Sheets | 3 |
| Combined Statements of Income and Retained Earnings/Members’ Equity | 4 |
| Combined Statements of Cash Flows | 5 |
| Notes to Combined Financial Statements | 6-11 |
Independent Auditor’s Report
Board of Directors, Stockholders, and Members
Henry's Foods, Inc. and
The Eidsvold Family, LLC
Alexandria, Minnesota
Report on the Audit of the Combined Financial Statements
Opinion
We have audited the combined financial statements of Henry’s Foods, Inc. and The Eidsvold Family, LLC, which comprise the combined balance sheets as of January 31, 2023 and 2022, and the related combined statements of income and retained earnings/members’ equity and cash flows for the years then ended, and the related notes to the combined financial statements.
In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of Henry’s Foods, Inc. and The Eidsvold Family, LLC as of January 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Combined Financial Statements section of our report. We are required to be independent of Henry’s Foods, Inc. and The Eidsvold Family, LLC and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Henry’s Foods, Inc.’s and The Eidsvold Family, LLC’s ability to continue as a going concern for one year after the date that the combined financial statements are issued.
Henry’s Foods, Inc. and The Eidsvold Family, LLC
Page 2
Auditor’s Responsibilities for the Audit of the Combined Financial Statements
Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.
In performing an audit in accordance with GAAS, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. |
| · | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Henry’s Foods, Inc.’s and The Eidsvold Family, LLC’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Henry’s Foods, Inc.’s and The Eidsvold Family, LLC’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.
COPELAND BUHL & COMPANY PLLP
April 14, 2023
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
COMBINED BALANCE SHEETS
JANUARY 31, 2023 AND 2022
| ASSETS | 2023 | 2022 | ||||||
| Current Assets: | ||||||||
| Cash | $ | 19,843 | $ | 28,992 | ||||
| Accounts receivable | 8,554,389 | 7,324,869 | ||||||
| Inventories | 11,248,226 | 10,932,194 | ||||||
| Federal tax deposit | 429,164 | 452,476 | ||||||
| Due from related parties | - | 1,035,724 | ||||||
| Other current assets, including interest receivable from stockholder and officer of $269,000 in 2022 | 1,014,243 | 1,330,400 | ||||||
| Total Current Assets | 21,265,865 | 21,104,655 | ||||||
| Property and Equipment: | ||||||||
| Land and improvements | 1,648,968 | 1,648,968 | ||||||
| Building and improvements | 12,225,196 | 12,057,185 | ||||||
| Machinery and equipment | 14,642,125 | 14,189,658 | ||||||
| Transportation equipment | 14,588,380 | 13,378,333 | ||||||
| Office equipment | 1,130,664 | 1,130,664 | ||||||
| 44,235,333 | 42,404,808 | |||||||
| Accumulated depreciation | (25,728,425 | ) | (24,269,202 | ) | ||||
| Property and Equipment, net | 18,506,908 | 18,135,606 | ||||||
| Right of Use Asset - Operating Lease | 270,701 | - | ||||||
| Notes Receivable from Stockholder and Officer | - | 4,657,872 | ||||||
| TOTAL ASSETS | $ | 40,043,474 | $ | 43,898,133 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Short-term debt | $ | 279,844 | $ | 1,386,438 | ||||
| Current maturities of lease obligation - operating lease | 134,453 | - | ||||||
| Current maturities of long-term debt | 3,523,556 | 1,065,447 | ||||||
| Checks written in excess of bank balance | 1,860,057 | 887,108 | ||||||
| Accounts payable | 1,586,181 | 2,838,818 | ||||||
| Tobacco and sales taxes payable | 3,895,044 | 2,942,126 | ||||||
| Accrued expenses | 6,064,084 | 3,991,389 | ||||||
| Total Current Liabilities | 17,343,219 | 13,111,326 | ||||||
| Long-Term Liabilities: | ||||||||
| Lease obligation - operating lease | 100,383 | - | ||||||
| Long-term debt | - | 5,663,757 | ||||||
| Note payable to officer/stockholder | - | 129,000 | ||||||
| Total Long-Term Liabilities | 100,383 | 5,792,757 | ||||||
| Total Liabilities | 17,443,602 | 18,904,083 | ||||||
| Equity: | ||||||||
| Common stock - $1.00 par value; 25,000 shares authorized; 15,290 shares issued and outstanding | 15,290 | 15,290 | ||||||
| Additional paid in capital | 233,036 | 233,036 | ||||||
| Retained earnings/members' equity | 22,351,546 | 24,745,724 | ||||||
| Total Equity | 22,599,872 | 24,994,050 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 40,043,474 | $ | 43,898,133 | ||||
See notes to financial statements.
-3-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS/MEMBERS' EQUITY
YEARS ENDED JANUARY 31, 2023 AND 2022
| 2023 | 2022 | |||||||
| Net Sales | $ | 329,111,788 | $ | 306,420,939 | ||||
| Cost of Sales | 291,580,429 | 274,571,515 | ||||||
| Gross Margin | 37,531,359 | 31,849,424 | ||||||
| General and Administrative Expenses | 33,580,347 | 27,765,985 | ||||||
| Income from Operations | 3,951,012 | 4,083,439 | ||||||
| Non-Operating Income (Expense) | (18,356 | ) | 2,581,461 | |||||
| Net Income | 3,932,656 | 6,664,900 | ||||||
| Retained Earnings/Members' Equity - Beginning of Year | 24,745,724 | 19,877,514 | ||||||
| Dividends and distributions | (6,326,834 | ) | (1,796,690 | ) | ||||
| Retained Earnings/Members' Equity - End of Year | $ | 22,351,546 | $ | 24,745,724 | ||||
See notes to financial statements.
-4-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 31, 2023 AND 2022
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 3,932,656 | $ | 6,664,900 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by operating activities: | ||||||||
| Depreciation | 2,327,727 | 2,180,278 | ||||||
| Bad debts | 17,566 | 15,788 | ||||||
| Noncash lease expense | (35,865 | ) | - | |||||
| Noncash officer compensation | 717,277 | - | ||||||
| Noncash interest expense | 4,053 | 4,053 | ||||||
| Gain on sale of equipment | (86,221 | ) | (54,015 | ) | ||||
| Paycheck Protection Program (PPP) loan forgiveness | - | (2,676,300 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | (1,247,086 | ) | (426,801 | ) | ||||
| Inventories | (316,032 | ) | (3,881,712 | ) | ||||
| Federal tax deposit | 23,312 | 3,499 | ||||||
| Other current assets | 316,157 | 732,265 | ||||||
| Checks written in excess of bank balance | 972,949 | (573,122 | ) | |||||
| Accounts payable | (1,252,637 | ) | 409,470 | |||||
| Tobacco and sales taxes payable | 952,918 | (947,654 | ) | |||||
| Accrued expenses | 2,072,695 | 1,917,485 | ||||||
| Net Cash Provided by Operating Activities | 8,399,469 | 3,368,134 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Payments from (advances to) related parties | 1,035,724 | (778,710 | ) | |||||
| Payments from stockholder and officer on notes receivable | 3,940,595 | 1,274,894 | ||||||
| Advances to stockholder and officer on notes receivable | - | (107,000 | ) | |||||
| Purchases of equipment and improvements | (2,852,122 | ) | (1,514,584 | ) | ||||
| Proceeds from sale of equipment | 239,314 | 177,608 | ||||||
| Net Cash Provided by (Used in) Investing Activities | 2,363,511 | (947,792 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Net (repayments) borrowings under short-term debt | (1,106,594 | ) | 959,677 | |||||
| Principal payments on long-term debt | (3,209,701 | ) | (1,578,819 | ) | ||||
| Repayments of note payable to officer/stockholder | (129,000 | ) | - | |||||
| Dividends and distributions paid | (6,326,834 | ) | (1,796,690 | ) | ||||
| Net Cash Used in Financing Activities | (10,772,129 | ) | (2,415,832 | ) | ||||
| Net Increase (Decrease) in Cash | (9,149 | ) | 4,510 | |||||
| Cash - Beginning of Year | 28,992 | 24,482 | ||||||
| Cash - End of Year | $ | 19,843 | $ | 28,992 | ||||
See notes to financial statements.
-5-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 2023 AND 2022
| Note 1: | Nature of Operations and Summary of Significant Accounting Policies |
Henry’s Foods, Inc. is a distributor of candy, tobacco, paper, grocery and food service products to retail and commercial customers in the Upper Midwest. The Eidsvold Family, LLC owns and leases to Henry’s Foods, Inc. its operating facility located in Alexandria, Minnesota.
Statement Presentation
The accompanying combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Basis of Combination
The combined financial statements include the accounts of Henry’s Foods, Inc. and The Eidsvold Family, LLC (collectively “Companies”). Majority ownership of both Companies is with the same individuals. All intercompany transactions and balances have been eliminated.
Use of Estimates
When preparing combined financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the combined financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to operations and a credit to an allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to bad debt expense and a credit to accounts receivable.
Inventories
Inventories are stated at the lower of cost or net realizable value; cost is determined using last-in, first-out (LIFO) and average cost methods.
Property and Equipment
Depreciation is computed by the straight-line method using estimated useful lives of 15 to 20 years for land improvements, 5 to 40 years for buildings and improvements, 3 to 20 years for machinery and equipment, 5 to 10 years for transportation equipment, and 3 to 15 years for office equipment.
Expenditures for maintenance and repairs are charged to operations when the expense is incurred. Expenditures determined to represent additions and betterments are capitalized.
-6-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 2023 AND 2022
| Note 1: | Nature of Operations and Summary of Significant Accounting Policies (Continued) |
Revenue Recognition in Accordance with FASB ASC 606
Henry’s Foods, Inc.’s revenues are generally provided under at will arrangements under written terms and conditions. The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to the customer, which occurs upon delivery. The transaction price can include variable consideration, such as discounts and rebates. Typical payment terms are net 7, net 10, net 14, or net end of month.
Henry’s Foods, Inc. is a distributor of candy, tobacco, paper, grocery and food service products in the upper Midwest. All transactions are initiated by authorization from the customer and each item requested is considered a distinct performance obligation. The Company’s sales are spread over numerous customers, reducing the risk of loss.
The timing of revenue recognition, billings and cash collections results in accounts receivable on the balance sheet. Amounts are billed upon completion of the Company’s performance obligation.
The net accounts receivable ending balances were as follows as of January 31, 2023, 2022 and 2021, respectively: $8,554,389, $7,324,869, and $6,913,856.
Cigarette and Tobacco Sales Taxes
Henry’s Foods, Inc. is responsible for taxes on all cigarette and tobacco products purchased. The Company purchases stamps from the State of Minnesota, South Dakota, Iowa and Wisconsin on a monthly basis to cover expected purchases. Stamps are maintained as an inventoried item at cost. All cigarette packs shipped out are required to have a stamp affixed. For tobacco shipments outside Minnesota, the Company receives a credit from the state as part of its monthly Cigarette Tax Return filing. Taxes are paid to the out-of-state taxing authorities with the monthly returns filed with those states. Tobacco taxes are accrued as part of the inventory item cost, and paid monthly with the return filing.
Advertising
Henry’s Foods, Inc. expenses advertising costs as they are incurred. Advertising expenses for the years ended January 31, 2023 and 2022, were $148,661 and $69,178, respectively.
Income Taxes
Income taxes on net income of Henry’s Foods, Inc. are payable personally by the stockholders pursuant to an election under Subchapter S of the Internal Revenue Code not to have the Company taxed as a corporation. Income taxes on net income of The Eidsvold Family, LLC are payable personally by the members. Accordingly, no provision has been made for income taxes. The Companies’ federal and state income tax returns are subject to possible examination by the taxing authorities until the expiration of the related statutes of limitations on those tax returns. In general, the federal and state income tax returns have a three year statute of limitations.
The Companies have elected to be taxed at the entity level rather than the individual stockholder or member level for certain state income taxes. The stockholders and members will receive a pro rata benefit for the taxes paid by the Companies, and accordingly, such payments are deemed to be attributable to the owners. Consequently, qualifying tax payments made by the Companies have been recorded as dividends to the stockholders and distributions to the members.
-7-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 2023 AND 2022
| Note 1: | Nature of Operations and Summary of Significant Accounting Policies (Continued) |
Leases
Effective February 1, 2022, Henry’s Foods, Inc. adopted the new lease accounting guidance in Accounting Standards Update No. 2016-02, Leases (Topic 842). The Company has elected the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for its existing operating lease as an operating lease under the new guidance, without reassessing (a) whether the contract contains a lease under ASC Topic 842, (b) whether classification of the operating lease would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before transition adjustments (as of January 31, 2022) would have met the definition of initial direct costs in ASC Topic 842 at lease commencement. As a result of the adoption of the new lease accounting guidance, the Company recognized on February 1, 2022, a lease liability of $364,911 which represents the present value of the remaining lease payments using the Company’s incremental borrowing rate of 3.33%, and a right-of-use asset of $364,911.
| Note 2: | Inventories |
Inventories consist of the following as of January 31:
| 2023 | 2022 | |||||||
| FIFO Cost: | ||||||||
| Inventories | $ | 16,432,106 | $ | 14,518,059 | ||||
| Tobacco tax stamps | 2,470,968 | 2,227,034 | ||||||
| Total FIFO Cost | 18,903,074 | 16,745,093 | ||||||
| LIFO Reserve | (7,654,848 | ) | (5,812,899 | ) | ||||
| $ | 11,248,226 | $ | 10,932,194 | |||||
| Inventories (LIFO) | $ | 8,777,258 | $ | 8,705,160 | ||||
| Tobacco tax (FIFO) | 2,470,968 | 2,227,034 | ||||||
| $ | 11,248,226 | $ | 10,932,194 | |||||
If the first-in first-out (FIFO) method had been used for all inventories, net income would have been $5,774,605 and $7,286,586 for the years ended January 31, 2023 and 2022, respectively.
| Note 3: | Short-Term Debt |
At January 31, 2023 and 2022, Henry’s Foods, Inc. had a line of credit subject to borrowing base adjustments with original maturity of September 23, 2024. The line was paid in full in February 2023 in conjunction with the sale of the Company. The line was collateralized by substantially all of the Company’s assets and was guaranteed by certain stockholders of the Company. The note was subject to covenants.
Information related to the line of credit agreement is as follows as of January 31:
| 2023 | 2022 | |||||||
| Credit available | $ | 3,600,000 | $ | 8,995,575 | ||||
| Unused credit at January 31 | $ | 3,320,156 | $ | 7,609,137 | ||||
| Interest rate at January 31 | 6.35 | % | 2.65 | % | ||||
-8-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 2023 AND 2022
| Note 3: | Short-Term Debt (Continued) |
During the year ending January 31, 2022, the Company had an additional line of credit in the amount of $5,000,000 which bore interest at a variable rate (one month LIBOR +1.75%). The line of credit was available beginning June 25 through October 1, 2021. The line was drawn on and paid in full during the year ending January 31, 2022.
| Note 4: | Commitments |
On February 1, 2022, the Company adopted ASU 2016-02 Leases to account for the leases as described in Note 1 using the effective date transition method which applies the standard on a prospective basis. Consequently, leases for reporting periods beginning after February 1, 2022 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 840.
The Company conducts a portion of its operations in leased facilities under operating leases expiring through September 2025. The lease related asset and liability recorded on the combined balance sheets are as follows for the years ended January 31:
| 2023 | 2022 | |||||||
| Right of use asset - operating lease | $ | 270,701 | $ | - | ||||
| Lease obligation - operating lease | $ | 234,836 | $ | - | ||||
Minimum monthly payments under the lease commitment are as follows for years ending January 31:
| 2024 | $ | 139,996 | ||
| 2025 | 96,126 | |||
| 2026 | 5,591 | |||
| Total lease payments | 241,713 | |||
| Less: imputed interest | (6,877 | ) | ||
| Present value of net minimum lease payments | 234,836 | |||
| Current portion | (134,453 | ) | ||
| Long-term portion | $ | 100,383 |
Lease expense charged to operations on all operating leases was $109,616 and $143,894 in 2023 and 2022, respectively.
-9-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 2023 AND 2022
| Note 5: | Long-Term Debt |
Long-term debt consists of the following as of January 31:
| 2023 | 2022 | |||||||
| Term note - The Eidsvold Family, LLC | $ | 3,523,556 | $ | 3,869,142 | ||||
| Term note - Henry's Foods, Inc. | - | 2,806,591 | ||||||
| Vehicle loan | - | 53,471 | ||||||
| 3,523,556 | 6,729,204 | |||||||
| Current maturities | (3,523,556 | ) | (1,065,447 | ) | ||||
| $ | - | $ | 5,663,757 | |||||
The term note – The Eidsvold Family, LLC matures in April 2023 and therefore is presented entirely as current maturities of long-term debt on the balance sheet at January 31, 2023. Interest and principal is payable monthly. The note bears interest at 6.32% and is secured by substantially all assets of the Companies and is subject to certain financial covenants. The note is presented net of unamortized loan costs of $4,400 and $8,453 at January 31, 2023 and 2022, respectively. The note is guaranteed by Henry’s Foods, Inc. The note was paid in full in February 2023.
The term note – Henry’s Foods, Inc. had an original maturity of October 2026 but was paid in full during the year ended January 31, 2023. The note bore interest at a variable rate, with a floor of 2.65% and was secured by substantially all of the Companies' assets and was subject to covenants.
The vehicle loan was collateralized by a vehicle, bore no interest, and had an original maturity of July 2026 but was paid in full during the year ended January 31, 2023.
Cash payments for interest on all obligations for the years ended January 31, 2023 and 2022 amounted to $242,472 and $272,297, respectively.
| Note 6: | Paycheck Protection Program (PPP) Loan |
The Company was granted a $2,676,300 loan under the PPP administered by a Small Business Administration (SBA) approved partner. The loan was uncollateralized and was fully guaranteed by the Federal government. The Company initially recorded a note payable and subsequently recorded forgiveness when the loan obligations were legally released by the SBA. The Company recognized $2,676,300 of loan forgiveness in non-operating income for the year ended January 31, 2022.
| Note 7: | Non-Operating Income (Expense) |
Non-operating income (expense) consists of the following for the years ended January 31:
| 2023 | 2022 | |||||||
| PPP loan forgiveness | $ | - | $ | 2,676,300 | ||||
| Interest income | 34,056 | 180,983 | ||||||
| Interest expense | (248,715 | ) | (275,822 | ) | ||||
| Miscellaneous | 196,303 | - | ||||||
| $ | (18,356 | ) | $ | 2,581,461 | ||||
-10-
HENRY'S FOODS, INC. AND
THE EIDSVOLD FAMILY, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
JANUARY 31, 2023 AND 2022
| Note 8: | Related Party Transactions |
Henry’s Foods, Inc. credited to operations net sales from a related party owned by the stockholders of the Company in the amount of $480,997 and $6,949,067 for the years ended January 31, 2023 and 2022, respectively. As of January 31, 2022, the related party owed the Company $172,325. As of January 31, 2022, the Company owed the related party $108,546. There are no receivables from or payables to this related party at January 31, 2023.
Notes receivable from stockholder and officer bore interest at 3.5% with original maturities at various dates through March 2027. The notes were paid in full during the year ended January 31, 2023, in part through a bonus to an officer of $717,277. Total interest credited to operations from the stockholder and officer notes was $34,056 and $180,983 for the years ended January 31, 2023 and 2022, respectively.
The note payable to officer/stockholder bore interest at 9% with original maturity in February 2025. Interest charged to operations on the note payable to officer/stockholder for each of the years ended January 31, 2023 and 2022 was $11,610.
| Note 9: | Profit-Sharing Plan |
The Company has a profit-sharing plan that covers substantially all full-time employees with one year or more of service. Under the terms of the plan, annual contributions are determined by the Board of Directors. Contributions to the plan charged to operations were $281,679 and $195,356 in 2023 and 2022, respectively.
| Note 10: | Contingencies |
Guarantee
The Company has guaranteed debt incurred by a stockholder. The outstanding debt in the amount of $6,590,530 at January 31, 2023 is collateralized by 50% of the outstanding shares of the Company’s stock.
Self-Insurance
The Company is self-insured for employee health costs to a maximum of $80,000 per employee.
| Note 11: | Concentration of Credit Risk – Cash |
The Companies maintain cash balances at a financial institution in Minnesota which at times may exceed federally insured limits of up to $250,000. At January 31, 2023, the Companies’ uninsured balance totals $135,241.
| Note 12: | Subsequent Events |
Management has evaluated subsequent events through April 14, 2023, the date on which the combined financial statements were available to be issued.
On February 3, 2023, substantially all of the Companies’ assets were acquired by AMCON Distributing Company.
-11-
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On February 3, 2023, AMCON Distributing Company (“AMCON” or the “Company”) through its wholly owned subsidiary LOL Foods, Inc. (“LOL Foods”) paid approximately $55.0 million in cash to acquire substantially all of the operating assets of Henry’s Foods, Inc. and The Eidsvold Family, LLC (collectively, “Henry’s”), a wholesale distributor to convenience stores and other retail formats operating in Minnesota, North Dakota, South Dakota, Iowa, and Wisconsin. In connection with the transaction, the Company also assumed certain operating liabilities of Henry’s totaling approximately $1.2 million, including $0.2 million of operating leases. The transaction was funded with borrowings from the Company’s existing bank group. Costs to effectuate the acquisition were not significant and were expensed as incurred. Strategically, the acquisition expands the Company’s footprint in the North Central portion of the United States and enhances the product and service offerings available to its customer base. The Company paid cash consideration for the net acquired assets recorded at their related acquisition date fair values measured in accordance with Accounting Standards Codification (“ASC”) 805 – Business Combinations.
The following unaudited pro forma condensed combined statement of operations for the year ended September 30, 2022 combines the historical consolidated statement of operations of the Company and the historical combined financial information of Henry’s, giving effect to the acquisition and related financing as if it had been consummated on October 1, 2021. The unaudited pro forma condensed combined statement of operations for the six-month period ended March 31, 2023 combines the historical consolidated statement of operations of the Company and the historical combined financial information of Henry’s, giving effect to the acquisition and related financing as if it had been consummated on October 1, 2021.
The unaudited pro forma condensed combined statements of operations and accompanying notes are based on and should be read in conjunction with:
(i) the historical audited consolidated financial statements of the Company and the related notes included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2022, filed with the Securities and Exchange Commission (“SEC”) on November 23, 2022,
(ii) the historical unaudited consolidated financial statements of the Company and the related notes included in the Company’s Quarterly Report on Form 10-Q for the interim period ended March 31, 2023, filed with the SEC on April 18, 2023, and
(iii) the historical audited combined financial statements of Henry’s and the related notes for the years ended January 31, 2023 and January 31, 2022, which are included in Exhibit 99.1 of this Form 8-K/A.
The unaudited pro forma condensed combined statements of operations have been presented for illustrative purposes only. The pro forma results presented do not necessarily reflect what the combined results of operations would have been had the acquisition occurred on the dates indicated. Further, the unaudited pro forma condensed combined statements of operations also may not be useful in predicting the future results of operations of the combined companies.
The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent estimates based on information available as of the date of these unaudited pro forma condensed combined statements of operations and could be subject to change as additional information becomes available and analyses are performed. The unaudited pro forma condensed combined statements of operations should be read in conjunction with the section titled “Notes To The Unaudited Pro Forma Condensed Combined Financial Information”.
AMCON Distributing Company and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended September 30, 2022
| For the year ended September 30, 2022 | ||||||||||||||||||||
| Historical | Historical | Pro Forma | Pro Forma | |||||||||||||||||
| AMCON | Henry’s | Adjustments | Note 4 | Combined | ||||||||||||||||
| Sales | $ | 2,010,798,385 | $ | 321,985,708 | $ | — | $ | 2,332,784,093 | ||||||||||||
| Cost of Sales | 1,883,078,819 | 284,704,652 | (621,686 | ) | (a) | 2,167,161,785 | ||||||||||||||
| Gross Profit | 127,719,566 | 37,281,056 | 621,686 | 165,622,308 | ||||||||||||||||
| Selling, general and administrative expenses | 101,474,359 | 28,015,068 | (4,221,288 | ) | (b) | 125,268,139 | ||||||||||||||
| Depreciation and amortization | 3,643,840 | 2,211,278 | 2,219,678 | (c) | 8,074,796 | |||||||||||||||
| 105,118,199 | 30,226,346 | (2,001,610 | ) | 133,342,935 | ||||||||||||||||
| Operating income | 22,601,367 | 7,054,710 | 2,623,296 | 32,279,373 | ||||||||||||||||
| Interest expense | 2,249,552 | 270,012 | 2,306,255 | (d) | 4,825,819 | |||||||||||||||
| Change in fair value of mandatorily redeemable non-controlling interest | 1,476,986 | — | — | 1,476,986 | ||||||||||||||||
| Other (income) expense, net | (2,600,675 | ) | (93,208 | ) | — | (2,693,883 | ) | |||||||||||||
| 1,125,863 | 176,804 | 2,306,255 | 3,608,922 | |||||||||||||||||
| Income from operations before income taxes | 21,475,504 | 6,877,906 | 317,041 | 28,670,451 | ||||||||||||||||
| Income tax expense | 6,473,380 | — | 2,068,000 | (e) | 8,541,380 | |||||||||||||||
| Equity method investment earnings, net of tax | 1,670,133 | — | — | 1,670,133 | ||||||||||||||||
| Net income available to common shareholders | $ | 16,672,257 | $ | 6,877,906 | $ | (1,750,959 | ) | $ | 21,799,204 | |||||||||||
| Basic earnings per share | $ | 29.37 | $ | 38.40 | ||||||||||||||||
| Diluted earnings per share | $ | 28.59 | $ | 37.39 | ||||||||||||||||
| Basic weighted average shares outstanding | 567,697 | 567,697 | ||||||||||||||||||
| Diluted weighted average shares outstanding | 583,062 | 583,062 | ||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
AMCON Distributing Company and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
for the six months ended March 31, 2023
| Historical | Historical | |||||||||||||||||||
| AMCON | Henry’s | |||||||||||||||||||
| For the six months ended March 31, 2023 | For the four months ended January 31, 2023 | Pro Forma Adjustments | Note 4 | Pro Forma Combined | ||||||||||||||||
| Sales | $ | 1,150,983,356 | $ | 103,791,695 | $ | — | $ | 1,254,775,051 | ||||||||||||
| Cost of Sales | 1,074,881,211 | 91,226,798 | — | 1,166,108,009 | ||||||||||||||||
| Gross Profit | 76,102,145 | 12,564,897 | — | 88,667,042 | ||||||||||||||||
| Selling, general and administrative expenses | 62,376,176 | 13,380,499 | (4,116,573 | ) | (b) | 71,640,102 | ||||||||||||||
| Depreciation and amortization | 2,878,639 | 704,382 | 772,603 | (c) | 4,355,624 | |||||||||||||||
| 65,254,815 | 14,084,881 | (3,343,970 | ) | 75,995,726 | ||||||||||||||||
| Operating income | 10,847,330 | (1,519,984 | ) | 3,343,970 | 12,671,316 | |||||||||||||||
| Interest expense | 3,863,698 | 10,622 | 852,309 | (d) | 4,726,629 | |||||||||||||||
| Change in fair value of mandatorily redeemable non-controlling interest | 166,114 | — | — | 166,114 | ||||||||||||||||
| Other (income) expense, net | (227,257 | ) | (11,153 | ) | — | (238,410 | ) | |||||||||||||
| 3,802,555 | (531 | ) | 852,309 | 4,654,333 | ||||||||||||||||
| Income from operations before income taxes | 7,044,775 | (1,519,453 | ) | 2,491,661 | 8,016,983 | |||||||||||||||
| Income tax expense | 2,350,200 | — | 279,000 | (e) | 2,629,200 | |||||||||||||||
| Net income available to common shareholders | $ | 4,694,575 | $ | (1,519,453 | ) | $ | 2,212,661 | $ | 5,387,783 | |||||||||||
| Basic earnings per share | $ | 8.04 | $ | 9.23 | ||||||||||||||||
| Diluted earnings per share | $ | 7.94 | $ | 9.11 | ||||||||||||||||
| Basic weighted average shares outstanding | 583,725 | 583,725 | ||||||||||||||||||
| Diluted weighted average shares outstanding | 591,249 | 591,249 | ||||||||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 – Basis of Pro Forma Presentation
The unaudited pro forma condensed combined financial information is presented to illustrate the pro forma effects of the business combination. The condensed consolidated balance sheet included with the Company’s Quarterly Report on Form 10-Q for the interim period ended March 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on April 18, 2023 reflects the transaction, therefore, no pro forma balance sheet is presented in accordance with §11.02(c)(1) of Regulation S-X.
AMCON’s historical financial information is derived from its audited condensed consolidated statement of operations for the fiscal year ended September 30, 2022, and its unaudited condensed consolidated statement of operations for the six months ended March 31, 2023, which includes results from Henry’s since the acquisition date. All historical information for AMCON was prepared in accordance with U.S. GAAP.
Henry’s historical financial information for the year ended September 30, 2022 is derived from its audited combined statement of operations for the fiscal year ended January 31, 2022, less its unaudited interim combined statement of operations data for the eight months ended September 30, 2021, plus its unaudited interim combined statement of operations data for the eight months ended September 30, 2022. Henry’s historical information included in the Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended March 31, 2023 is derived from its unaudited interim combined statement of operations data for the four months ended January 31, 2023. All historical information for Henry’s was prepared in accordance with U.S. GAAP.
Note 2 – Description of the Business Combination
On December 7, 2022, LOL Foods, Inc. (“LOL Foods”), a wholly owned subsidiary of the Company, entered into an asset purchase agreement (the "Asset Purchase Agreement") with Henry's Foods, Inc., (“HFI”) and certain other parties. As set forth in the Asset Purchase Agreement, LOL Foods agreed to acquire substantially all of the operating assets of HFI and The Eidsvold Family, LLC (collectively, “Henry’s”).
Note 3 – Provisional Purchase Price Allocation
LOL Foods paid approximately $55.0 million in cash for the net assets of Henry’s described in the table below. The following purchase price allocation reflects the Company’s provisional (preliminary) estimates and analyses and is subject to change during the measurement period, which is generally one year from the acquisition date. All amounts are provisional and incomplete at the reporting date and may change materially in subsequent reporting periods during the measurement period while additional information is obtained, particularly as it relates to certain accounts receivable, property and equipment, inventory, other intangible assets and certain liability balances while final appraisal and valuation work is completed. Accordingly, any changes to the Company’s provisional recording of the transaction may materially impact its financial statements, including but not limited to its consolidated balance sheets, statements of operations, shareholders’ equity and cash flows, and related disclosures.
| Accounts receivable | $ | 8,237,652 | ||
| Inventories | 16,060,965 | |||
| Prepaid and other assets | 400,964 | |||
| Property and equipment | 27,216,323 | |||
| Other intangible assets | 3,607,000 | |||
| Liabilities assumed | (1,157,976 | ) | ||
| Total identifiable net assets | $ | 54,364,928 | ||
| Total identifiable assets | $ | 54,364,928 | ||
| Goodwill | 593,709 | |||
| Consideration transferred | $ | 54,958,637 |
Note 4 – Transaction Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations for the fiscal year ended September 30, 2022 and the six-month period ended March 31, 2023
(a) Represents a transaction accounting adjustment to cost of goods sold and inventory to eliminate the impact of LIFO accounting and to conform accounting methods to reflect at fair value.
(b) Represents transaction accounting adjustments for non-recurring expenses related to rent and certain historical compensation to the former owners of Henry’s.
(c) Represents transaction accounting adjustments related to depreciation expense for acquired property and equipment and amortization expense attributable to the intangible assets acquired in the acquisition. The expected useful lives of acquired property and equipment and acquired intangible assets range from 3-20 years and 5-15 years, respectively.
(d) Represents transaction accounting adjustments related to the removal of Henry’s historical interest expense as their debt was not assumed by the Company, and the interest expense and amortization of debt issuance costs attributed to debt related financing as described in the initial Form 8-K filed by the Company with the SEC on February 7, 2023.The pro forma adjustment presented substantially consists of interest expense related to acquisition financing.
(e) Represents the tax effect of Henry’s historical data and pro forma adjustments using an estimated combined statutory federal and state tax rate.