Village Farms International, Inc 8-K/A, filed Nov 1, 2021
Village Farms International, Inc. (VFF)
About this 8-K/A
Village Farms International, Inc filed this 8-K/A on November 1, 2021, reporting on events of August 16, 2021.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 9.01: Financial statements and exhibits
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 Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation) |
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(Commission File No.) |
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(IRS Employee Identification No.) |
(Address of Principal Executive Offices)
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(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
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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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Trading Symbol(s) |
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Name of Each Exchange on Which Registered |
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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 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. ☐
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Item 2.01 Completion of Acquisition or Disposition of Assets. |
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On August 16, 2021, Village Farms International, Inc. (the "Company") filed a Current Report on Form 8-K (the "Initial Report") to report the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”), dated as of August 16, 2021, by and among Village Farms International, Balanced Health Botanicals, LLC (“Balanced Health”) and the other parties thereto, including the members of Balanced Health (collectively, the “Sellers”), which provided for the acquisition of a 100% interest in Balanced Health pursuant to the terms of the Purchase Agreement (the “Acquisition”), at total purchase price comprised of a cash purchase price of $30 million, together with an aggregate of 4,707,113 of our common shares that were issued to the Sellers on a private placement basis, which total purchase price was valued at an aggregate of $45 million, based on the volume weighted average trading price on The Nasdaq Stock Market LLC for the ten (10) trading days ending the day prior to August 16, 2021, which was the closing date of the Acquisition (the “Closing Date”).
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Item 9.01 |
Financial Statements and Exhibits. |
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(a) |
Financial Statements of Business Acquired. |
The audited annual financial statements of Balanced Health for the year ended December 31, 2020 and 2019, together with the related audited notes to the financial statements, are included as Exhibit 99.1 to this Current Report and are incorporated herein by reference.
The unaudited interim financial statements of Balanced Health for the six months ended June 30, 2021, together with the related notes thereto, are included as Exhibit 99.2 to this Current Report and are incorporated herein by reference.
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(b) |
Pro Forma Financial Information. |
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The unaudited pro forma financial statements of Village Farms as of and for the six months ended June 30, 2021 and for the year ended December 31, 2020, together with the related unaudited notes to the financial statements, are included as Exhibit 99.3 to this Current Report and are incorporated herein by reference. |
(d) Exhibits.
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Exhibit Number |
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Description |
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23.1 |
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99.1 |
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99.2 |
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99.3 |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: November 1, 2021
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Village Farms International, Inc. |
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By: |
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/s/ Stephen C. Ruffini |
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Name: |
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Stephen C. Ruffini |
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Title: |
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Executive Vice President and Chief Financial Officer |
Exhibit 23.1
Consent of Independent Auditors
The consolidated financial statements of Balanced Health Botanicals, LLC as of December 31, 2020 and for the period then ended, included in Exhibit Number 99.1 of Village Farms International, Inc. Form 8-K/A (“Form 8-K/A”), have been audited by Eide Bailly LLP, independent auditors, as stated in our report appearing herein.
We consent to the inclusion in the Form 8-K/A of our report, dated June 1, 2021, on our audit of the financial statements of Balanced Health Botanicals, LLC.
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/s/ Eide Bailly LLP
Denver, Colorado November 1, 2021
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Exhibit 99.1
Balanced Health Botanicals, LLC
Consolidated Financial Statements
Years Ended December 31, 2020 and 2019
Balanced Health Botanicals, LLC
Index to Consolidated Financial Statements
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Consolidated Financial Statements |
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Report of Independent Registered Public Accounting Firm |
2 |
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Consolidated Balance Sheets as of December 31, 2020 and 2019 |
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Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 |
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Consolidated Statements of Comprehensive Income for years ended December 31, 2020 and 2019 |
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Consolidated Statements of Members’ Equity for the years ended December 31, 2020 and 2019 |
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Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 |
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Notes to Consolidated Financial Statements |
8 |
1
Independent Auditor’s Report
To the Members and the Board of Directors Balanced Health Botanicals, LLC
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Balanced Health Botanicals, LLC, which comprise the consolidated balance sheet as of December 31, 2020, and the related consolidated statements of operations, comprehensive income, members’ equity, and cash flows for the year then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Balanced Health Botanicals, LLC as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
What inspires you, inspires us. | eidebailly.com
7001 E. Belleview Ave., Ste. 700 | Denver, CO 80237-2733 | TF 866.740.4100 | T 303.770.5700 | F 303.770.7581 | EOE
2
Emphasis of Matter Regarding Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
Other Matter
The consolidated financial statements of Balanced Health Botanicals, LLC as of December 31, 2019, were audited by other auditors, whose report dated October 8, 2020, expressed an unmodified opinion on those statements.
Denver, Colorado June 1, 2021
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BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED BALANCE SHEETS
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December 31, |
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2020 |
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2019 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$1,678,576 |
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$ 2,311,883 |
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Restricted cash |
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250,000 |
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789,802 |
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Accounts receivable, net |
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506,456 |
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850,885 |
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Inventory |
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3,174,884 |
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10,758,914 |
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Prepaid expenses and other |
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820,273 |
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737,011 |
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Total current assets |
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6,430,189 |
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15,448,495 |
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Property & equipment, net |
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1,681,307 |
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2,020,214 |
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Intangible assets, net |
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975,189 |
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144,472 |
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Other assets |
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291,114 |
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712,709 |
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Total assets |
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$ 9,377,799 |
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$18,325,890 |
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Liabilities and members' equity |
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Current liabilities: |
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Accounts payable |
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$1,302,065 |
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$3,759,942 |
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Accrued expenses and other |
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4,219,554 |
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4,047,470 |
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Current portion of notes payable, net |
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6,889,012 |
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5,447,850 |
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Deferred revenue |
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2,401,511 |
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2,438,688 |
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Total current liabilities |
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14,812,142 |
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15,693,950 |
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Notes payable, net |
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2,846,771 |
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1,950,267 |
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Other long term liabilities |
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436,387 |
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260,635 |
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Total liabilities |
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18,095,300 |
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17,904,852 |
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Commitments and contingencies (Note 12) |
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Members’ equity |
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Members’ equity; 13,754,940 and 15,151,515 units issued and outstanding as of December 31, 2020 and 2019, respectively |
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(8,690,342) |
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429,736 |
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Accumulated other comprehensive loss |
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(27,159) |
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(8,698) |
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Total members’ equity |
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(8,717,501) |
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421,038 |
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Total liabilities and members’ equity |
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$ 9,377,799 |
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$ 18,325,890 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
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Year Ended December 31, |
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2020 |
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2019 |
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Net sales |
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$ 36,815,367 |
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$ 55,303,769 |
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Cost of goods sold |
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18,929,645 |
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27,899,999 |
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Gross profit |
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17,885,722 |
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27,403,770 |
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Sales and marketing |
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12,309,107 |
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13,580,553 |
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General and administrative |
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12,041,525 |
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12,509,393 |
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Operating expenses |
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24,350,632 |
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26,089,946 |
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Operating income |
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(6,464,910) |
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1,313,824 |
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Other expense, net |
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1,880,168 |
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368,470 |
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Net income |
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$ (8,345,078) |
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$ 945,354 |
The accompanying notes are an integral part of these consolidated financial statements.
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BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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Year Ended December 31, |
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2020 |
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2019 |
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Net income |
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$ (8,345,078) |
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$ 945,354 |
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Other comprehensive loss: |
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Foreign currency translation adjustment |
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(18,461) |
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(8,698) |
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Comprehensive income |
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$ (8,363,539) |
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$ 936,656 |
The accompanying notes are an integral part of these consolidated financial statements.
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BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY
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Members’ equity |
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Accumulated other comprehensive loss |
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Noncontrolling interest |
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Total members’ equity |
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Balance – December 31, 2018 |
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$ 5,202,688 |
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$ - |
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$ (13,236) |
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$ 5,189,452 |
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Purchase of units from noncontrolling interest |
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(13,236) |
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- |
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13,236 |
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- |
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Foreign currency translation adjustment |
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- |
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(8,698) |
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- |
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(8,698) |
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Distributions declared to members |
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(5,705,070) |
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- |
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- |
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(5,705,070) |
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Net income |
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945,354 |
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- |
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- |
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945,354 |
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Balance - December 31, 2019 |
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429,736 |
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(8,698) |
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- |
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421,038 |
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Foreign currency translation adjustment |
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- |
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(18,461) |
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- |
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(18,461) |
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Distributions declared to members |
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(100,000) |
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- |
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- |
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(100,000) |
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Repurchase of members units |
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(675,000) |
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- |
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- |
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(675,000) |
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Net income |
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(8,345,078) |
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- |
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- |
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(8,345,078) |
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Balance - December 31, 2020 |
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$ (8,690,342) |
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$ (27,159) |
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$ - |
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$ (8,717,501) |
The accompanying notes are an integral part of these consolidated financial statements.
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BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended December 31,
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2020 |
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2019 |
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Operating activities: |
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Net income |
$ (8,345,078) |
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$ 945,354 |
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Adjustments to reconcile net income to net cash flows (used in) provided by operating activities: |
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Depreciation and amortization |
777,319 |
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240,004 |
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Bad debt expense |
192,779 |
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244,249 |
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Loss on disposal of assets |
9,639 |
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3,424 |
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(Gain) loss on equity method investment |
- |
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(147,412) |
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Changes in operating assets and liabilities: |
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Accounts receivable |
151,650 |
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888,142 |
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Inventory |
7,584,030 |
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(5,972,596) |
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Related party receivable |
- |
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450,000 |
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Prepaid expenses and other current assets |
(83,262) |
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(291,071) |
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Other assets |
403,134 |
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(698,907) |
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Accounts payable |
(2,457,877) |
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344,059 |
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Accrued expenses and other |
172,084 |
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2,188,077 |
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Deferred revenue |
(37,177) |
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1,405,796 |
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Other liabilities |
175,752 |
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260,635 |
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Cash used in operating activities |
(1,457,007) |
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(140,246) |
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Investing activities: |
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Proceeds from sale of equity method investment |
- |
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147,412 |
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Purchase of software |
(770,972) |
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(279,786) |
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Purchase of property & equipment |
(507,796) |
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(2,055,395) |
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Cash used in investing activities |
(1,278,768) |
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(2,187,769) |
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Financing Activities: |
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Proceeds from borrowings |
2,875,051 |
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7,500,000 |
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Repayment of notes payable |
(492,385) |
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(28,133) |
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Debt issuance costs |
(45,000) |
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(73,750) |
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Repurchase of members units |
(675,000) |
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- |
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Distributions paid to members |
(100,000) |
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(4,773,066) |
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Cash provided by financing activities |
1,562,666 |
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2,625,051 |
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Net increase in cash, cash equivalents and restricted cash |
(1,173,109) |
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297,036 |
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Cash, cash equivalents and restricted cash, beginning of year |
3,101,685 |
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2,804,649 |
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Cash, cash equivalents and restricted cash, end of year |
$ 1,928,576 |
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$ 3,101,685 |
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Supplemental cash flow disclosures: |
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Interest paid |
$ 727,835 |
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$ 43,328 |
The accompanying notes are an integral part of these consolidated financial statements.
8
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. |
ORGANIZATION |
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Balanced Health Botanicals, LLC (“Balanced Health Botanicals”, “BHB”, “We”, or the “Company”), is a Colorado limited liability company formed on September 26, 2016, under the name ELS Universal, LLC. Effective January 4, 2019, the Company changed the name to Balanced Health Botanicals, LLC. On February 22, 2019, the Company increased its ownership in Bota Holdings, LLC from 51% to a wholly owned subsidiary. On August 30, 2019, the Company incorporated Balanced Health Botanicals International Limited, an Ireland entity, as a wholly owned subsidiary. On April 6, 2020, the Company incorporate Balanced Health Botanicals UK, LTD, a United Kingdom entity, as a wholly owned subsidiary.
The Company is headquartered in Denver, Colorado, and manufactures and distributes hemp-derived Cannabidiol (CBD) products within the United States and Europe under its CBDistillery™ and BOTA™ brands. The Company’s current product lines include tinctures, ingestible products, topicals, and pet products. The Company’s products are distributed through its eCommerce website, third party eCommerce websites, wholesalers, and various retailers.
Profits and losses are allocated to the members based on their ownership interests in accordance with the operating agreement. No member or manager shall be individually liable under judgment, decree or order of any court, or in any other matter, for debt, obligation or liability of the Company. The term of the Company is perpetual unless and until the Company is dissolved pursuant to applicable law.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Basis of Presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the accounts of Balanced Health Botanicals and its subsidiaries, CBDistillery, LLC, Bota Holdings, LLC, Balanced Health Botanicals International, Ltd, and Balanced Health Botanicals UK, LTD. Intercompany balances and transactions are eliminated in preparation of the consolidated financial statements.
Going Concern
The Company currently has debt in the form of an outstanding convertible note (the “Convertible Note Payable”) with TTCP Executive Fund with a principal balance of $5,000,000 and accrued interest of $1,103,853 as of December 31, 2020. The Convertible Note Payable matured in January 2020 and was subsequently extended for 90 days. Pursuant to the terms of the agreement, the Convertible Note Payable was mandatorily convertible in the event a qualified financing event or acquisition transaction occurred on or prior to the maturity date (as further described in Note 8). Since a qualified financing event or acquisition transaction had not occurred as of the maturity date, TTCP Executive Fund has the option to convert the note (as further described in Note 8), however, if not sooner converted, the entire unpaid principal balance and accrued but unpaid interest is due on demand. As of June 1, 2021, the issuance date of the annual consolidated financial statements for the year ended December 31, 2020, the Convertible Note Payable has not been converted to equity and the Company does not expect that its cash or cash provided by financing activities, would be sufficient to fund its debt service payments related to the Convertible Note Payable if called by the holder.
Based on the uncertainty of the Company’s cash position and the due on demand nature of the convertible note with TTCP Executive Fund, as of the issuance date of the annual consolidated financial statements for the year ended December 31, 2020, the Company has concluded that there is substantial doubt about its ability to continue as a going concern for one year after the date that the consolidated financial statements are issued. To mitigate this risk, the Company plans to focus on cost management while making strategic investments in marketing and selling strategies to support revenue growth. The Company also plans to pursue capital raising strategies. However, the Company may be unable to obtain incremental equity or debt financing at favorable terms, or at all. If we are unable to raise additional capital, we may be forced to reduce operations which would have a material impact on the Company.
The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates. Key estimates for the Company’s financial statements include valuation of inventory and assumptions related to deferred revenue and revenue recognition related to the Company’s loyalty program.
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BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segments
The Company currently operates one segment engaged in the sale of hemp-derived Cannabidiol (CBD) products. Information regarding revenues and operations for this segment is utilized on a regular basis by our chief operating decision maker ("CODM") to evaluate performance. Our Chief Executive Officer has been identified as the CODM.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable.
The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250,000 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $1,432,224 and $2,099,142 uninsured balance at December 31, 2020 and 2019, respectively.
Concentration of credit risk with respect to receivables is principally limited to receivables from credit card processors. As of December 31, 2020, and 2019, receivable balances of $609,954 and $1,400,912, respectively, were due from two credit card processors. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the years ended December 31, 2020 and 2019.
The restricted cash on the consolidated balance sheets relates to arrangements with the same credit card processors.
The Company purchases its inventory from various vendors. For the year ended December 31, 2020, approximately 61% of the Company's purchases were made from 3 vendors. For the year ended December 31, 2019, approximately 62% of the Company's purchases were made from 3 vendors.
Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgement used to estimate the fair value of assets and liabilities.
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Level 1 – uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. |
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Level 2 – uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgement because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. |
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Level 3 – used one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgement. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgement or estimation. |
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The carrying amount of cash, accounts receivable, accounts payable, and accrued expenses approximates their fair value due to their short maturity. The carrying amount of notes payable approximates fair value because stated or implied interest rates approximate current interest rates that are available for debt with similar terms.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. As of December 31, 2020 and 2019, the Company did not hold any cash equivalents.
10
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Restricted Cash
The Company has restricted cash with contracted credit card processors where the current arrangement provides those credit card processors the right to withhold a cash reserve balance from the Company’s credit card receipt transactions that is generally based off a percentage of sales. The Company had restricted cash of $250,000 and $789,802 as of December 31, 2020 and 2019, respectively. The amounts are classified as current as they are reasonably expected to be realized as an unrestricted asset within the next 12 months.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
December 31,
|
|
2020 |
|
2019 |
|
Cash and cash equivalents |
$ 1,678,576 |
|
$ 2,311,883 |
|
Restricted cash |
250,000 |
|
789,802 |
|
Total cash, cash equivalents, and restricted cash shown in the Statement of Cash Flows |
$ 1,928,576 |
|
$ 3,101,685 |
Accounts Receivable and Allowance for Doubtful Accounts
Generally, the Company requires payment prior to shipment of its products to customers. However, in certain circumstances, the Company extends credit to various wholesalers and retailers. Accounts receivable consists of receivables from credit card processors that are related to payments from customers and trade accounts arising in the normal course of business. The Company considers any receivables outstanding greater than 90 days to be delinquent. Accounts receivable are carried at original invoice amount less a reserve made for doubtful receivables based on a review of all outstanding amounts.
Management has determined the allowance for doubtful accounts by evaluating individual customer receivables and considering a customer’s financial condition and credit history, and current economic conditions. As of December 31, 2020 and 2019, the Company’s allowance for doubtful accounts related to accounts receivable was $79,191 and $20,951, respectively. Bad debt expense for the years ended December 31, 2020 and 2019, was $192,779 and $244,249 respectively, of which $0 and $248,216 related to a receivable with a single credit card processor that was not collected.
|
|
|
Balance at beginning of year |
|
Charged to income |
|
Write-down |
|
Balance at end of year |
|
Allowance for doubtful accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020 |
|
$ 20,951 |
|
$ 192,779 |
|
$ 134,539 |
|
$ 79,191 |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019 |
|
$ 174,743 |
|
$ 244,249 |
|
$ 398,041 |
|
$ 20,951 |
Inventory
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Cost includes all expenses directly attributable to procurement of raw materials and finished goods, manufacturing of finished goods and suitable portions of related production overheads, based on normal operating capacity. Cost is determined by use of the first-in, first-out method.
The Company performs an assessment of inventory obsolescence to measure inventory at the lower of cost or net realizable value. Factors considered in the determination of obsolescence include slow-moving or non-marketable items.
Property and Equipment, net
Property and equipment is stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance or repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis over the assets estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of the useful life or the remaining life of the related lease. Estimated useful lives for property and equipment are as follows:
Machinery and Equipment5-10 years
Furnitures and Fixtures5-7 years
Leasehold ImprovementsShorter of lease life or estimated useful life
Upon sale or disposition, the historical asset cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.
11
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Long-lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances that may lead to impairment of property and equipment include a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition and a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset including an adverse action or assessment by a regulator. As of December 31, 2020, and 2019, the Company determined there were no impairments of long-lived assets.
Intangible Assets, net
The Company’s intangible assets consists of software and a trademark. Software is stated at cost less accumulated amortization. The Company’s trademark is determined to have an indefinite life and therefore not subject to amortization. The Company evaluates the carrying value of intangible assets annually during the fourth quarter and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount. Such circumstances could include but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. If the fair value of the intangible asset is less than its carrying amount, an impairment loss is recognized in an amount equal to the difference. Estimated useful lives for intangible assets are as follows:
Software3-5 years
TrademarksIndefinite
No impairments were identified during the years ended December 31, 2020 and 2019.
Revenue Recognition
The Company records revenue from the sales of its products when control passes to the customer, which is when the performance obligation has been satisfied. Net sales are comprised of gross revenues less estimated product returns, trade promotional programs, consumer incentives, and allowances and discounts used to incentivize sales growth and build brand awareness. These incentive costs are recognized at the date on which the Company recognizes the related revenue. The Company accepts returns for goods that do not meet the customer’s expectations, are unopened and within seven days of receipt, and accrues for an estimated level of returns. Shipping fees charged to customers are included in sales and totaled $856,546 and $1,202,641 for the years ended December 31, 2020 and 2019, respectively. Taxes collected from customers that are remitted to governmental agencies are accounted for on a net basis and not included as revenue.
Additionally, the Company offers a loyalty program in which direct-to-consumer customers who elect to enroll in the program can earn loyalty points which are primarily earned through spend-based activities. Loyalty members earn one point for every dollar spent, with a stated value of $0.10 per point. Points cannot be redeemed for cash. The Company recognizes revenue for the redeemed points upon delivery of the free or discounted product purchased. The Company also estimates points expected to never be redeemed (“estimated breakage”) based on historical experience and expectations of future loyalty member’s behavior.
Disaggregated Revenue
The majority of the Company’s revenue is derived from sales of branded products to consumers via our direct-to-consumer ecommerce website, and wholesale and retail business-to-business customers. We believe that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors.
A description of our principal revenue generating activities are as follows:
|
|
- |
Direct-to-consumer product sales – products sold through our online channel. Revenue is recognized when control of the purchased goods is transferred to the customer, which occurs upon delivery, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Payment is due prior to the date of shipment. |
|
|
|
- |
Business-to-business product sales – products sold to our wholesale and retail customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer. |
|
12
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table represents a disaggregation of revenue by sales channel:
Year ended December 31,
|
|
2020 |
|
2019 |
|
Direct-to-consumer |
$ 28,231,624 |
|
$ 32,943,699 |
|
Business-to-business |
8,583,743 |
|
22,360,070 |
|
Net sales |
$ 36,815,367 |
|
$ 55,303,769 |
The Company recognizes revenues following the five step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company has reviewed its various revenue streams for its existing contracts under the five-step approach. Direct-to-consumer product sales for non-loyalty members and business-to-business product sales contain a single performance obligation of the Company, the delivery of the underlying purchased goods. Direct-to-consumer product sales for loyalty members include multiple performance obligations: (i) the delivery of the underlying purchased goods, and (ii) the promise to provide a free or discounted product upon future redemption.
Allocation of Transaction Price
Direct-to-consumer product sales for loyalty members contain two distinct performance obligations for which the Company allocates the transaction price based on the relative stand-alone value of each performance obligation, such that both revenue related to the delivery of the underlying purchased goods and deferred revenue for loyalty points issued to the customer are recognized based on the allocated consideration of value, after giving consideration to loyalty point breakage. The loyalty liability represents a performance obligation to provide goods for free or at a discount to loyalty members in exchange for the redemption of points earned from past activities.
Contract Balances
Contract balances as a result of transactions with customers primarily consist of receivables included in accounts receivable, net, and deferred revenue in the Company's consolidated balance sheets. Deferred revenue consists of cash received prior to transfer of control of goods to a customer, as well as the liability for loyalty points. The beginning and ending balances for accounts receivable, unbilled receivables, and deferred revenues were as follows for the years ended December 31, 2020 and December 31, 2019.
|
|
|
December 31, 2020 |
|
December 31, 2019 |
|
January 1, 2019 |
|
Accounts receivable, net |
|
$ 506,456 |
|
$ 850,885 |
|
$ 1,983,276 |
|
Unbilled receivables |
|
$ - |
|
$ - |
|
$ - |
|
Deferred revenues |
|
$ 2,401,511 |
|
$ 2,438,688 |
|
$ 1,032,892 |
Cost of Sales
The Company’s cost of sales includes costs associated with procurement, distribution, fulfillment and labor expense, manufacturing overhead, third-party providers, inbound and outbound freight and inventory cost adjustments to recognize inventory at their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value.
Compensation and Benefits
Compensation and benefits are presented within cost of goods sold, sales and marketing, and general and administrative in the consolidated statements of operations, based on the function of the employee or contractor. The Company records compensation and benefits expense for all cash compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees, primarily information technology, human resources, and project management activities. The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary, are determined on an individual basis and are limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan. The Company did not make any matching contributions during the years ended December 31, 2020 or 2019.
13
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Research and Development Expense
Research and development expenses are presented within general and administrative in the consolidated statements of operations. Research and development costs are charged to expense as incurred and include, but are not limited to, employee salaries and benefits, cost of inventory used in product development, and consulting service fees. For the years ended December 31, 2020 and 2019, cost related to research and development were $531,863 and $326,015, respectively.
Advertising
Advertising costs are presented within sales and marketing in the consolidated statement of operations. The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing team. The Company believes the continual investment in advertising is critical to the development and sale of its CBDistillery™ and BOTA™ branded products. Advertising costs of $5,727,866 and $5,382,468 were expensed as incurred during the years ending December 31, 2020 and 2019, respectively.
Sales Taxes
Various states impose a sales tax on the Company’s sales to non-exempt customers. The Company collects the sales tax from customers and remits the entire amount to each respective state. The Company’s accounting policy is to exclude the tax collected and remitted to the states from revenues and cost of sales.
Income Taxes
As a limited liability corporation, the Company’s taxable income or loss is allocated to the members in proportion to their respective ownership percentages. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements.
The Company is not subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years ending December 31, 2020 and 2019.
Cumulative Translation Adjustment
The reporting currency of the Company is the U.S. dollar. The functional currency of our foreign operation is the applicable local currency for the foreign subsidiary. Assets and liabilities of the foreign subsidiary (including intercompany balance for which settlement is not anticipated in the foreseeable future) are translated at the spot rate in effect at the applicable reporting date. The amounts reported in our consolidated statements of operations are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as a component of other comprehensive earnings in our consolidated statements of comprehensive income.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Indirect tax contingencies related to historical sales tax collection that are both probable and reasonably estimable total $1,694,060 and $1,546,532 as of December 31, 2020 and 2019, respectively, and are recorded in accrued expenses and other on the consolidated balance sheets.
Legal fees and related litigation costs are expensed as incurred.
14
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40). This Update addresses users’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and also adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This Update is effective for fiscal years beginning after December 15, 2020, and interim periods in annual periods beginning after December 15, 2021. The amendments in this Update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently in the process of evaluating the impact of this new standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 was effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), to delay the adoption date for ASU 2016-02. ASU 2016-02 is now effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is still permitted. The Company is currently in the process of evaluating the impact of this new standard.
|
|
3. |
INVENTORY |
|
Inventory as of December 31, 2020 and 2019 was comprised of the following:
December 31,
|
|
2020 |
|
2019 |
|
Finished goods |
$ 2,249,754 |
|
$ 4,890,479 |
|
Work in process |
925,130 |
|
5,868,435 |
|
Inventory |
$ 3,174,884 |
|
$ 10,758,914 |
The Company recorded inventory cost adjustments to recognize inventory at their net realizable value of $3,956,548 and $1,264,999 for the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, the Company incurred inventory losses of $2,329,912 related to net realizable adjustments and $1,361,059 related to excess and obsolete inventory. During the year ended December 31, 2019, the Company incurred inventory losses of $1,264,999 related to inventory received from a contract manufacturer that did not meet the Company’s quality standards.
|
|
4. |
INVESTMENTS |
|
On February 21, 2018, the Company purchased 50% of Iso-Pharm LLC for cash consideration of $100,620. On March 1, 2019, the Company sold its interest in Iso-Pharm LLC for cash consideration of $147,412 and recognized a gain on the sale of $147,412 included in other expense, net on the consolidated statements of operations. Prior to its sale, the Company used the equity method of accounting to record its portion of income or loss as the Company did not exercise control over the significant economic decisions of Iso-Pharm LLC.
|
|
5. |
PROPERTY & EQUIPMENT, NET |
|
Property and equipment, net, as of December 31, 2020 and 2019 were as follows:
December 31,
|
|
|
|
2020 |
|
2019 |
|
Leasehold improvements |
|
|
$ 959,866 |
|
$ 797,723 |
|
Machinery and equipment |
|
|
792,054 |
|
772,544 |
|
Furniture and fixtures |
|
|
724,811 |
|
694,557 |
|
|
|
|
2,476,731 |
|
2,264,824 |
|
Less: accumulated depreciation |
|
|
(795,424) |
|
(244,610) |
|
Property and equipment, net |
|
|
$ 1,681,307 |
|
$ 2,020,214 |
Depreciation expense for the years ended December 31, 2020 and 2019 was $557,278 and $240,004, respectively.
15
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
6. |
INTANGIBLES ASSETS, NET |
|
Intangible assets, net, as of December 31, 2020 and 2019 were as follows:
December 31,
|
|
|
|
2020 |
|
2019 |
|
Software |
|
|
$ 1,050,758 |
|
$ - |
|
Trademarks |
|
|
144,472 |
|
144,472 |
|
|
|
|
1,195,230 |
|
144,472 |
|
Less: accumulated amortization |
|
|
(220,041) |
|
- |
|
Intangible assets, net |
|
|
$ 975,189 |
|
$ 144,472 |
Amortization expense for the years ended December 31, 2020 and 2019 was $220,041 and $0, respectively. Amortization expense on intangibles assets subsequent to December 31, 2020 are as follows:
|
2021 |
|
$ 351,772 |
|
2022 |
|
351,772 |
|
2023 |
|
127,173 |
|
2024 |
|
- |
|
2025 and thereafter |
|
- |
|
|
|
$ 830,717 |
|
|
7. |
ACCRUED EXPENSES AND OTHER |
|
Accrued expenses and other as of December 31, 2020 and 2019 were as follows:
December 31,
|
|
|
2020 |
|
2019 |
|
Sales tax reserve |
|
$ 1,694,060 |
|
$ 1,546,532 |
|
Interest payable |
|
1,112,963 |
|
467,742 |
|
Compensation related |
|
683,264 |
|
687,787 |
|
Accrued distributions |
|
- |
|
932,005 |
|
Other accrued liabilities |
|
729,267 |
|
413,404 |
|
Accrued expenses and other |
|
$ 4,219,554 |
|
$ 4,047,470 |
|
|
8. |
DEFERRED REVENUE |
|
Deferred revenue as of December 31, 2020 and 2019 was as follows:
December 31,
|
|
|
2020 |
|
2019 |
|
Loyalty deferred revenue |
|
$ 2,113,509 |
|
$ 1,414,912 |
|
Deferred revenue |
|
284,762 |
|
1,020,105 |
|
Other |
|
3,240 |
|
3,671 |
|
Deferred revenue |
|
$ 2,401,511 |
|
$ 2,438,688 |
|
|
9. |
NOTES PAYABLE |
|
The Company’s notes payable, net as of December 31, 2020 and 2019 were as follows:
December 31,
|
|
|
|
2020 |
|
2019 |
|
Convertible note payable |
|
|
$ 5,000,000 |
|
$ 5,000,000 |
|
Secured notes payable, net |
|
|
3,360,732 |
|
2,398,117 |
|
Paycheck protection program |
|
|
1,375,051 |
|
- |
|
|
|
|
9,735,783 |
|
7,398,117 |
|
Current portion of notes payable, net |
|
|
6,889,012 |
|
5,447,850 |
|
Notes payable, net |
|
|
$ 2,846,771 |
|
$ 1,950,267 |
16
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Convertible Note Payable
In January 2019, the Company issued the Convertible Note Payable for a notional amount of $5,000,000 to TTCP Executive Fund. The Convertible Note Payable bears interest at a rate of 10.0% per annum with an original maturity date of January 2020 and an option to extend the maturity for 90 days. The Convertible Note Payable represents an unsecured obligation of the Company and shall be paid prior to any payments in full of any senior indebtedness incurred by the Company. Pursuant to the terms of the agreement, the outstanding principal and accrued interest are mandatorily redeemable in the event any qualified financing event occurs, in which the Company issues preferred equity securities, on or before the maturity date with total proceeds to the Company of at least $20,000,000, at a conversion price equal to 80% of the lowest price per preferred equity security issued. Additionally, the outstanding principal and accrued interest was mandatorily redeemable in the event an acquisition transaction occurred on or before the maturity date, at a conversion price equal to 80% of the lower of $350,000,000 or the enterprise value of the Company ascribed to such acquisition transaction. In the event that the Company closed a transaction or series of transactions in which the Company sold any equity securities, including, but not limited to, preferred equity securities, on or before the maturity date, and such financing did not constitute a qualified financing event, TTCP Executive Fund had the option to convert all of the outstanding principal and accrued interest at a conversion price equal to 80% of the lowest price per equity security issued. If neither a qualified financing event nor an acquisition transaction has been consummated by the maturity date, TTCP Executive Fund has the option to convert all or a portion of the outstanding principal and accrued interest into equity securities at a conversion price equal to a) the price per common unit of the Company based on the Company’s first completed valuation determination under Section 409A of the Internal Revenue Code of 1986, as amended, or b) if no such 409A valuation has been completed by the Company at or near the date of the note, the price per equity security shall be based on a valuation of the Company equal to $200,000,000, and the outstanding balance of the note shall be the greater of a) the then outstanding principal amount plus a premium amount, as provided for in the agreement, or b) the then outstanding principal amount plus all accrued interest thereon.
Secured Notes Payable
In November 2019, the Company entered into a loan arrangement for $2,000,000. The note bears interest at a rate of 19.0% per annum, matures March 2024 and is secured by inventory. Principal and interest payments of $59,800 are due monthly. In connection with the loan arrangement, the Company incurred $60,000 in debt issuance costs.
In December 2019, the Company entered into a loan arrangement for $500,000. The note bears interest at a rate of 19.0% per annum, matures April 2024, and is secured by inventory. Principal and interest payments of $14,950 are due monthly. In connection with the loan arrangement, the Company incurred $15,000 in debt issuance costs.
In January 2020, the Company entered into a loan arrangement for $1,500,000. The note bears interest at a rate of 19.0% per annum, matures April 2024 and is secured by inventory. Principal and interest payments of $44,850 are due monthly. In connection with the loan arrangement, the Company incurred $45,000 in debt issuance costs.
Paycheck Protection Program
On May 6, 2020, the Company signed a Paycheck Protection Program Promissory Note and Agreement for a loan of $1,375,051. The Loan is established under the terms and conditions of the SBA program of the United States Small Business Administration (“SBA”) and the USA CARES Act (2020)(H.R. 748)(15 U.S.C 636 et seq.) (the “Act”) and matures after two years on May 6, 2022, with monthly repayments of $77,384 commencing December, 2020.
Minimum principal payments on notes payable subsequent to December 31, 2020 are as follows:
|
2021 |
|
$ 6,917,131 |
|
2022 |
|
1,336,329 |
|
2023 |
|
1,240,618 |
|
2024 |
|
332,803 |
|
2025 and thereafter |
|
- |
|
|
|
$ 9,826,881 |
17
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
10. |
MEMBERS’ EQUITY |
|
The Company has authorized one class of units, Common Units. As of December 31, 2020, and 2019, the Company had 13,754,940 and 15,151,515 units, respectively, outstanding. Prior to January 22, 2019, membership equity was based on the proportional ownership interests of the respective LLC owners. On January 22, 2019, the Company issued units to members in proportion to their ownership interest. Certain stock appreciation rights were issued to executives of the Company. The terms of those awards provide for a cash payout commensurate to a percentage of excess value over the net equity value as defined in the award agreement. The awards vest upon a change in control, and as that has not yet occurred, no expense has been recorded.
In July 2020, in exchange for the amendment of certain non-compete arrangements with prior unitholders and officers, the Company entered into settlement agreements to repurchase 1,396,575 units of the Company for $675,000.
|
|
11. |
RELATED PARTY TRANSACTIONS |
|
During 2018, the Company provided financing to Industrial Hemp Partners, LLC for $450,000, bearing interest at 6.0% per annum. One member of Industrial Hemp Partners, LLC, PT Brothers, LLC, was an affiliate of a member of the Company. As of December 31, 2019, and 2018, unpaid principal of $0 and $450,000, respectively, is included in related party notes receivable on the consolidated balance sheets. In January 2019, the Company collected the receivable in full.
For the years ended December 31, 2020 and 2019, the Company recognized revenue for products sold to Feals, Inc. of $0 and $358,002, respectively. Feals, Inc. is an affiliate of a member of the Company’s Board of Directors. Revenue recognized to the related party is included in net sales on the consolidated statement of operations. No trade receivables are outstanding as of December 31, 2020 or 2019.
For the years ended December 31, 2020 and 2019, the Company recognized expenses related to marketing services provided by Parcon Media of $534,787 and $494,547, respectively, which are included in sales and marketing on the consolidate statement of operations. Parcon Media is an affiliate of a member of the Company. As of December 31, 2020, and 2019, accounts payable outstanding are $23,500 and $67,000, respectively, and are included in accounts payable on the consolidated balance sheet.
The Company has entered into operating leases primarily for real estate. These leases are for the Company's operations, production, warehouse, sales, marketing and back office functions and have terms which range from 2 to 10 years. Certain leases are subject to renewal at the option of the Company.
The future minimum payments under non-cancelable operating leases with initial remaining terms in excess of one year as of December 31, 2020, are as follows:
|
Operating Lease Commitment |
||
|
2021 |
|
$ 971,564 |
|
2022 |
|
847,979 |
|
2023 |
|
861,069 |
|
2024 |
|
874,160 |
|
2025 and thereafter |
|
4,802,878 |
|
|
|
$ 8,357,650 |
The Company incurred rent expense of $1,093,715 and $549,634 for the years ended December 31, 2020 and 2019, respectively.
|
|
13. |
SUBSEQUENT EVENTS |
|
The Company has evaluated subsequent events through June 1, 2021, which is the date the financial statements were issued.
On January 26, 2021, the Company signed a Paycheck Protection Program Promissory Note and Agreement for a loan of $1,709,301. The Loan is established under the terms and conditions of the SBA program of the United States Small Business Administration (“SBA”) and the USA CARES Act (2020)(H.R. 748)(15 U.S.C 636 et seq.) (the “Act”) and matures on January 26, 2026, with monthly repayments of $32,546 commencing August, 2021.
18
Exhibit 99.2
Balanced Health Botanicals, LLC
Consolidated Financial Statements
Six Months Ended June 30, 2021
Balanced Health Botanicals, LLC
Index to Consolidated Financial Statements
|
Consolidated Financial Statements |
Page |
|
Consolidated Balance Sheet as of June 30, 2021 |
2 |
|
Consolidated Statement of Operations for the six months ended June 30, 2021 |
3 |
|
Consolidated Statement of Comprehensive Income for the six months ended June 30, 2021 |
4 |
|
Consolidated Statement of Members’ Equity for the six months ended June 30, 2021 |
8 |
|
Consolidated Statement of Cash Flows for the six months ended June 30, 2021 |
6 |
|
Notes to Consolidated Financial Statements |
7 |
1
BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except unit data)
|
|
|
June 30, 2021 |
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ 5,224 |
|
|
Restricted cash |
|
250 |
|
|
Accounts receivable, net |
|
748 |
|
|
Inventory |
|
1,918 |
|
|
Prepaid expenses and other |
|
686 |
|
|
Total current assets |
|
8,826 |
|
|
|
|
|
|
|
Property & equipment, net |
|
1,356 |
|
|
Intangible assets, net |
|
813 |
|
|
Other assets |
|
353 |
|
|
Total assets |
|
$ 11,348 |
|
|
|
|
|
|
|
Liabilities and members' equity |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ 591 |
|
|
Accrued expenses and other |
|
6,419 |
|
|
Current portion of notes payable, net |
|
7,616 |
|
|
Deferred revenue |
|
235 |
|
|
Total current liabilities |
|
14,861 |
|
|
|
|
|
|
|
Notes payable, net |
|
2,062 |
|
|
Other long-term liabilities |
|
441 |
|
|
Total liabilities |
|
17,364 |
|
|
|
|
|
|
|
Commitments and contingencies (Note 12) |
|
|
|
|
|
|
|
|
|
Members’ equity |
|
|
|
|
Members’ equity: 13,754,940 and 15,151,515 units issued and outstanding as of June 30, 2021, respectively |
|
(5,972) |
|
|
Accumulated other comprehensive loss |
|
(44) |
|
|
Total members’ equity |
|
(6,016) |
|
|
|
|
|
|
|
Total liabilities and members’ equity |
|
$ 11,348 |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands of dollars)
|
|
|
Six months ending |
|
|
|
June 30, 2021 |
|
Net sales |
|
$ 15,418 |
|
Cost of goods sold |
|
5,332 |
|
Gross profit |
|
10,086 |
|
|
|
|
|
Sales, general and administrative |
|
8,076 |
|
Operating income |
|
2,010 |
|
|
|
|
|
Interest expense |
|
676 |
|
Other income, net |
|
(1,374) |
|
|
|
|
|
Net income |
|
$ 2,708 |
The accompanying notes are an integral part of these consolidated financial statements.
3
BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands of dollars)
|
|
|
Six months ending |
|
|
|
June 30, 2021 |
|
Net income |
|
$ 2,708 |
|
Other comprehensive loss: |
|
|
|
Foreign currency translation adjustment |
|
(17) |
|
Comprehensive income |
|
$ 2,691 |
The accompanying notes are an integral part of these consolidated financial statements.
4
BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENT OF MEMBERS’ EQUITY
(In thousands of dollars)
|
|
|
Members’ equity |
|
Accumulated other comprehensive loss |
|
Noncontrolling interest |
|
Total members’ equity |
|
Balance - December 31, 2020 |
|
(8,690) |
|
(27) |
|
- |
|
(8,717) |
|
Foreign currency translation adjustment |
|
- |
|
(17) |
|
- |
|
(17) |
|
Net income |
|
2,708 |
|
- |
|
- |
|
2,708 |
|
Balance – June 30, 2021 |
|
$ (5,982) |
|
$ (44) |
|
$ - |
|
$ (6,026) |
The accompanying notes are an integral part of these consolidated financial statements.
5
BALANCED HEALTH BOTANICALS, LLC
CONSOLIDATED STATEMENT OF CASH FLOW
(In thousands of dollars)
|
|
Six months ending June 30, 2021 |
|
|
|
|
Operating activities: |
|
|
|
|
|
Net income |
$ 2,708 |
|
|
|
|
|
|
|||
|
|
Adjustments to reconcile net income to net cash flows (used in) provided by operating activities: |
|||
|
Depreciation and amortization |
501 |
|
|
|
|
Bad debt expense |
9 |
|
|
|
|
Interest expense |
676 |
|
|
|
|
Deferred financing fees |
13 |
|
|
|
|
Gain on extinguishment of debt |
(1,375) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
Accounts receivable |
(251) |
|
|
|
|
Inventory |
1,260 |
|
|
|
|
Prepaid expenses and other current assets |
134 |
|
|
|
|
Other assets |
(62) |
|
|
|
|
Accounts payable |
(810) |
|
|
|
|
Accrued expenses and other |
(169) |
|
|
|
|
Deferred revenue |
(50) |
|
|
|
|
Other liabilities |
5 |
|
|
|
|
Cash used in operating activities |
2,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
Purchase of software |
(14) |
|
|
|
|
Cash used in investing activities |
(14) |
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
Proceeds from borrowings |
1,709 |
|
|
|
|
Repayment of notes payable |
(405) |
|
|
|
|
Interest paid on borrowings |
(326) |
|
|
|
|
Cash provided by financing activities |
978 |
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
(8) |
|
|
|
|
Net increase in cash, cash equivalents and restricted cash |
3,545 |
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of year |
1,929 |
|
|
|
|
Cash, cash equivalents and restricted cash, end of year |
$ 5,474 |
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
Interest paid |
$ 326 |
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
|
|
1. |
ORGANIZATION |
|
Balanced Health Botanicals, LLC (“Balanced Health Botanicals”, “BHB”, “We”, or the “Company”), is a Colorado limited liability company formed on September 26, 2016, under the name ELS Universal, LLC. Effective January 4, 2019, the Company changed the name to Balanced Health Botanicals, LLC. On February 22, 2019, the Company increased its ownership in Bota Holdings, LLC from 51% to a wholly owned subsidiary. On August 30, 2019, the Company incorporated Balanced Health Botanicals International Limited, an Ireland entity, as a wholly owned subsidiary. On April 6, 2020, the Company incorporated Balanced Health Botanicals UK, LTD, a United Kingdom entity, as a wholly owned subsidiary.
The Company is headquartered in Denver, Colorado, and manufactures and distributes hemp derived Cannabidiol (CBD) products within the United States and Europe under its CBDistillery™ and BOTA™ brands. The Company’s current product lines include tinctures, ingestible products, topicals, and pet products. The Company’s products are distributed through its eCommerce website, third party eCommerce websites, wholesalers, and various retailers.
Profits and losses are allocated to the members based on their ownership interests in accordance with the operating agreement. No member or manager shall be individually liable under judgment, decree or order of any court, or in any other matter, for debt, obligation or liability of the Company. The term of the Company is perpetual unless and until the Company is dissolved pursuant to applicable law.
|
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
Basis of Presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the accounts of Balanced Health Botanicals and its subsidiaries, CBDistillery, LLC, Bota Holdings, LLC, Balanced Health Botanicals International, Ltd, and Balanced Health Botanicals UK, LTD. Intercompany balances and transactions are eliminated in preparation of the consolidated financial statements.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ from these estimates. Key estimates for the Company’s financial statements include valuation of inventory and assumptions related to deferred revenue and revenue recognition related to the Company’s loyalty program.
Segments
The Company currently operates one segment engaged in the sale of hemp derived Cannabidiol (CBD) products. Information regarding revenues and operations for this segment is utilized on a regular basis by our chief operating decision maker ("CODM") to evaluate performance. Our Chief Executive Officer has been identified as the CODM.
Concentrations of Credit Risk
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash and accounts receivable.
The Company places its cash and cash equivalents on deposit with financial institutions in the United States. The Federal Deposit Insurance Corporation (“FDIC”) covers $250 for substantially all depository accounts. The Company from time to time may have amounts on deposit in excess of the insured limits. The Company had a $5,202 uninsured balance as of June 30, 2021.
Concentration of credit risk with respect to receivables is principally limited to receivables from credit card processors. As of June 30, 2021, a receivable balance of $378 was due from two credit card processors. Management considers these customer receivables to represent normal business risk. The Company did not have any customers that represented a significant amount of our sales for the six months ending June 30, 2021.
The restricted cash on the consolidated balance sheets relates to arrangements with the same credit card processors.
The Company purchases its inventory from various vendors. For the six months ending June 30, 2021, approximately 53% of the Company's purchases were made from 3 vendors.
7
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgement used to estimate the fair value of assets and liabilities.
|
|
• |
Level 1 – uses unadjusted quoted prices that are available in active markets for identical assets or liabilities. |
|
|
|
• |
Level 2 – uses inputs other than quoted prices included in Level 1 that are either directly or indirectly observable through correlation with market data. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs to valuation models or other pricing methodologies that do not require significant judgement because the inputs used in the model, such as interest rates and volatility, can be corroborated by readily observable market data. |
|
|
|
• |
Level 3 – used one or more significant inputs that are unobservable and supported by little or no market activity, and that reflect the use of significant management judgement. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, and significant management judgement or estimation. |
|
The carrying amount of cash, accounts receivable, accounts payable, and accrued expenses approximates their fair value due to their short maturity. The carrying amount of notes payable approximates fair value because stated or implied interest rates approximate current interest rates that are available for debt with similar terms.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. As of June 30, 2021, the Company did not hold any cash equivalents.
Restricted Cash
The Company has restricted cash with contracted credit card processors where the current arrangement provides those credit card processors the right to withhold a cash reserve balance from the Company’s credit card receipt transactions that is generally based off a percentage of sales. The Company had restricted cash of $250 as of June 30, 2021. The amount is classified as current as they are reasonably expected to be realized as an unrestricted asset within the next 12 months.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows.
|
|
As of June 30, 2021 |
|
|
Cash and cash equivalents |
$ 5,224 |
|
|
Restricted cash |
250 |
|
|
Total cash, cash equivalents, and restricted cash shown in the Statement of Cash Flows |
$ 5,474 |
|
Accounts Receivable and Allowance for Doubtful Accounts
Generally, the Company requires payment prior to shipment of its products to customers. However, in certain circumstances, the Company extends credit to various wholesalers and retailers. Accounts receivable consists of receivables from credit card processors that are related to payments from customers and trade accounts arising in the normal course of business. The Company considers any receivables outstanding greater than 90 days to be delinquent. Accounts receivable are carried at original invoice amount less a reserve made for doubtful receivables based on a review of all outstanding amounts.
Management has determined the allowance for doubtful accounts by evaluating individual customer receivables and considering a customer’s financial condition and credit history, and current economic conditions. As of June 30, 2021, the Company’s allowance for doubtful accounts related to accounts receivable was $79. Bad debt expense for the six months ending June 30, 2021 was $9.
8
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
Inventory
Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Cost includes all expenses directly attributable to procurement of raw materials and finished goods, manufacturing of finished goods and suitable portions of related production overheads, based on normal operating capacity. Cost is determined by use of the first-in, first-out method.
The Company performs an assessment of inventory obsolescence to measure inventory at the lower of cost or net realizable value. Factors considered in the determination of obsolescence include slow-moving or non-marketable items.
Property and Equipment, net
Property and equipment are stated at cost less accumulated depreciation. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance or repairs are charged to expense as incurred. Depreciation is provided on a straight-line basis over the assets estimated useful lives, and leasehold improvements are amortized on a straight-line basis over the shorter of the useful life or the remaining life of the related lease. Estimated useful lives for property and equipment are as follows:
Machinery and Equipment5-10 years
Furnitures and Fixtures5-7 years
Leasehold ImprovementsShorter of lease life or estimated useful life
Upon sale or disposition, the historical asset cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.
Impairment of Long-lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Circumstances that may lead to impairment of property and equipment include a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition and a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset including an adverse action or assessment by a regulator. As of June 30, 2021, the Company determined there were no impairments of long-lived assets.
Intangible Assets, net
The Company’s intangible assets consists of software and a trademark. Software is stated at cost less accumulated amortization. The Company’s trademark is determined to have an indefinite life and therefore not subject to amortization. The Company evaluates the carrying value of intangible assets annually during the fourth quarter and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the asset below its carrying amount. Such circumstances could include but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. If the fair value of the intangible asset is less than its carrying amount, an impairment loss is recognized in an amount equal to the difference. Estimated useful lives for intangible assets are as follows:
Software3-5 years
TrademarksIndefinite
No impairments were identified during the six months ending June 30, 2021.
Revenue Recognition
The Company records revenue from the sales of its products when control passes to the customer, which is when the performance obligation has been satisfied. Net sales are comprised of gross revenues less estimated product returns, trade promotional programs, consumer incentives, and allowances and discounts used to incentivize sales growth and build brand awareness. These incentive costs are recognized at the date on which the Company recognizes the related revenue. The Company accepts returns for goods that do not meet the customer’s expectations, are unopened and within seven days of receipt, and accrues for an estimated level of returns. Shipping fees charged to customers are included in sales and totaled $513 for the six months ending June 30, 2021. Taxes collected from customers that are remitted to governmental agencies are accounted for on a net basis and not included as revenue.
Additionally, the Company offers a loyalty program in which direct-to-consumer customers who elect to enroll in the program can earn loyalty points which are primarily earned through spend-based activities. Loyalty members earn one point for every dollar spent, with a stated value of
9
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
$0.10 per point. Points cannot be redeemed for cash. The Company recognizes revenue for the redeemed points upon delivery of the free or discounted product purchased. The Company also estimates points expected to never be redeemed (“estimated breakage”) based on historical experience and expectations of future loyalty member’s behavior.
Disaggregated Revenue
The majority of the Company’s revenue is derived from sales of branded products to consumers via our direct-to-consumer ecommerce website, and wholesale and retail business-to-business customers. We believe that these categories appropriately reflect how the nature, amount, timing and uncertainty of revenue and cash flows are impacted by economic factors.
A description of our principal revenue generating activities are as follows:
|
|
- |
Direct-to-consumer product sales – products sold through our online channel. Revenue is recognized when control of the purchased goods is transferred to the customer, which occurs upon delivery, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods. Payment is due prior to the date of shipment. |
|
|
|
- |
Business-to-business product sales – products sold to our wholesale and retail customers for subsequent resale. Revenue is recognized when control of the goods is transferred to the customer, in accordance with the terms of the applicable agreement. Payment terms vary and can typically be 30 days from the date control over the product is transferred to the customer. |
|
The following table represents a disaggregation of revenue by sales channel:
|
|
Six months ending June 30, 2021 |
|
|
Direct-to-consumer |
$ 13,652 |
|
|
Business-to-business |
1,766 |
|
|
Net sales |
$ 15,418 |
|
The Company recognizes revenues following the five-step model prescribed under ASC 606: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. The Company has reviewed its various revenue streams for its existing contracts under the five-step approach. Direct-to-consumer product sales for non-loyalty members and business-to-business product sales contain a single performance obligation of the Company, the delivery of the underlying purchased goods. Direct-to-consumer product sales for loyalty members include multiple performance obligations: (i) the delivery of the underlying purchased goods, and (ii) the promise to provide a free or discounted product upon future redemption.
Allocation of Transaction Price
Direct-to-consumer product sales for loyalty members contain two distinct performance obligations for which the Company allocates the transaction price based on the relative stand-alone value of each performance obligation, such that both revenue related to the delivery of the underlying purchased goods and deferred revenue for loyalty points issued to the customer are recognized based on the allocated consideration of value, after giving consideration to loyalty point breakage. The loyalty liability represents a performance obligation to provide goods for free or at a discount to loyalty members in exchange for the redemption of points earned from past activities.
Contract Balances
Contract balances as a result of transactions with customers primarily consist of receivables included in accounts receivable, net, and deferred revenue in the Company's consolidated balance sheets. Deferred revenue consists of cash received prior to transfer of control of goods to a customer, as well as the liability for loyalty points. The beginning and ending balances for accounts receivable and deferred revenues were as follows for the six months ending June 30, 2021:
|
|
|
Six months ending June 30, 2021 |
|
|
Accounts receivable, net |
|
$ 370 |
|
|
Deferred revenues |
|
$ 235 |
|
10
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
Cost of Sales
The Company’s cost of sales includes costs associated with procurement, distribution, fulfillment and labor expense, manufacturing overhead, third-party providers, inbound and outbound freight and inventory cost adjustments to recognize inventory at their net realizable value. These expenses are reflected in the Company’s consolidated statements of operations when the product is sold and revenues are recognized or, in the case of inventory write-downs, when circumstances indicate that the carrying value of inventories is in excess of their net realizable value.
Compensation and Benefits
Compensation and benefits are presented within cost of goods sold, sales and marketing, and general and administrative in the consolidated statements of operations, based on the function of the employee or contractor. The Company records compensation and benefits expense for all cash compensation, benefits, and related taxes as earned by its employees. Compensation and benefits expense also includes compensation earned by temporary employees and contractors who perform similar services to those performed by the Company’s employees, primarily information technology, human resources, and project management activities. The Company maintains a defined contribution 401(k) plan available to eligible employees. Employee contributions are voluntary, are determined on an individual basis and are limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain matching contributions to the 401(k) plan. The Company did not make any matching contributions during the six months ending June 30, 2021.
Advertising
Advertising costs are presented within sales and marketing in the consolidated statement of operations. The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing team. The Company believes the continual investment in advertising is critical to the development and sale of its CBDistillery™ and BOTA™ branded products. Advertising costs of $1,306 were expensed as incurred during the nine months ending June 30, 2021.
Sales Taxes
Various states impose a sales tax on the Company’s sales to non-exempt customers. The Company collects the sales tax from customers and remits the entire amount to each respective state. The Company’s accounting policy is to exclude the tax collected and remitted to the states from revenues and cost of sales.
Income Taxes
As a limited liability corporation, the Company’s taxable income or loss is allocated to the members in proportion to their respective ownership percentages. Accordingly, there is no provision for federal income taxes in the accompanying consolidated financial statements.
Cumulative Translation Adjustment
The reporting currency of the Company is the U.S. dollar. The functional currency of our foreign operation is the applicable local currency for the foreign subsidiary. Assets and liabilities of the foreign subsidiary (including intercompany balance for which settlement is not anticipated in the foreseeable future) are translated at the spot rate in effect at the applicable reporting date. The amounts reported in our consolidated statements of operations are translated at the average exchange rates in effect during the applicable period. The resulting foreign currency translation adjustment is recorded as a component of other comprehensive earnings in our consolidated statements of comprehensive income.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Indirect tax contingencies related to historical sales tax collection that are both probable and reasonably estimable total $1,586 as of June 30, 2021, and are recorded in accrued expenses and other on the consolidated balance sheet.
Legal fees and related litigation costs are expensed as incurred.
Recent Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40). This Update addresses users’ accounting for implementation costs incurred in a cloud computing arrangement that is a service contract and adds certain disclosure requirements related to implementation costs incurred for internal-use software and cloud computing arrangements. The amendment
11
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This Update is effective for fiscal years beginning after December 15, 2020, and interim periods in annual periods beginning after December 15, 2021. The amendments in this Update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently in the process of evaluating the impact of this new standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 was effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), to delay the adoption date for ASU 2016-02. ASU 2016-02 is now effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early adoption is still permitted. The Company is currently in the process of evaluating the impact of this new standard.
|
|
3. |
INVENTORY |
|
Inventory as of June 30, 2021 was comprised of the following:
|
|
June 30, 2021 |
|
Raw materials |
$ 683 |
|
Finished goods |
1,331 |
|
Work in process |
404 |
|
Inventory reserve |
(500) |
|
Inventory, net |
$ 1,918 |
|
|
4. |
PROPERTY & EQUIPMENT, NET |
|
Property and equipment, net, as of June 30, 2021 were as follows:
|
|
|
|
June 30, 2021 |
|
|
Leasehold improvements |
|
|
$ 963 |
|
|
Machinery and equipment |
|
|
785 |
|
|
Furniture and fixtures |
|
|
728 |
|
|
|
|
|
2,476 |
|
|
Less: accumulated depreciation |
|
|
(1,120) |
|
|
Property and equipment, net |
|
|
$ 1,356 |
|
Depreciation expense for the nine months ending June 30, 2021 was $325.
|
|
5. |
INTANGIBLES ASSETS, NET |
|
Intangible assets, net, as of June 30, 2021 were as follows:
|
|
|
|
June 30, 2021 |
|
|
Software |
|
|
$ 1,066 |
|
|
Trademarks |
|
|
144 |
|
|
|
|
|
1,210 |
|
|
Less: accumulated amortization |
|
|
(397) |
|
|
Intangible assets, net |
|
|
$ 813 |
|
12
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
Amortization expense for the six months ending June 30, 2021 was $177. Amortization expense on intangibles assets after June 30, 2021 is as follows:
|
Remainder of 2021 |
|
$ 178 |
|
2022 |
|
357 |
|
2023 |
|
134 |
|
2024 |
|
- |
|
2025 and thereafter |
|
- |
|
|
|
$ 669 |
|
|
6. |
ACCRUED EXPENSES AND OTHER |
|
Accrued expenses and other as of June 30, 2021 were as follows:
|
|
|
June 30, 2021 |
|
|
Sales tax reserve |
|
1,586 |
|
|
Interest payable |
|
1,463 |
|
|
Compensation related |
|
370 |
|
|
Other accrued liabilities |
|
696 |
|
|
Accrued expenses and other |
|
$ 4,115 |
|
|
|
7. |
DEFERRED REVENUE |
|
Deferred revenue as of June 30, 2021 was as follows:
|
|
|
June 30, 2021 |
|
|
Loyalty deferred revenue |
|
$ 2,304 |
|
|
Deferred revenue |
|
235 |
|
|
Deferred revenue |
|
$ 2,539 |
|
|
|
8. |
NOTES PAYABLE |
|
The Company’s notes payable, net as of June 30, 2021 were as follows:
|
|
|
|
June 30, 2021 |
|
|
Convertible note payable |
|
|
$ 5,000 |
|
|
Secured notes payable, net |
|
|
4,678 |
|
|
|
|
|
9,678 |
|
|
Current portion of notes payable, net |
|
|
7,616 |
|
|
Notes payable, net |
|
|
$ 2,062 |
|
Convertible Note Payable
In January 2019, the Company issued the Convertible Note Payable for a notional amount of $5,000 to TTCP Executive Fund. The Convertible Note Payable bears interest at a rate of 10.0% per annum with an original maturity date of January 2020 and an option to extend the maturity for 90 days. The Convertible Note Payable represents an unsecured obligation of the Company and shall be paid prior to any payments in full of any senior indebtedness incurred by the Company. Pursuant to the terms of the agreement, the outstanding principal and accrued interest are mandatorily redeemable in the event any qualified financing event occurs, in which the Company issues preferred equity securities, on or before the maturity date with total proceeds to the Company of at least $20,000, at a conversion price equal to 80% of the lowest price per preferred equity security issued. Additionally, the outstanding principal and accrued interest was mandatorily redeemable in the event an acquisition transaction occurred on or before the maturity date, at a conversion price equal to 80% of the lower of $350,000 or the enterprise value of the Company ascribed to such acquisition transaction. In the event that the Company closed a transaction or series of transactions in which the Company sold any equity securities, including, but not limited to, preferred equity securities, on or before the maturity date, and such financing did not constitute a qualified financing event, TTCP Executive Fund had the option to convert all of the outstanding principal and accrued interest at a conversion price equal to 80% of the lowest price per equity security issued. If neither a qualified financing event nor an acquisition transaction has been consummated by the maturity date, TTCP Executive Fund has the option to convert all or a portion of the outstanding
13
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
principal and accrued interest into equity securities at a conversion price equal to a) the price per common unit of the Company based on the Company’s first completed valuation determination under Section 409A of the Internal Revenue Code of 1986, as amended, or b) if no such 409A valuation has been completed by the Company at or near the date of the note, the price per equity security shall be based on a valuation of the Company equal to $200,000,000, and the outstanding balance of the note shall be the greater of a) the then outstanding principal amount plus a premium amount, as provided for in the agreement, or b) the then outstanding principal amount plus all accrued interest thereon.
In November 2019, the Company entered a loan arrangement for $2,000. The note bears interest at a rate of 19.0% per annum, matures March 2024 and is secured by inventory. Principal and interest payments of $60 are due monthly. In connection with the loan arrangement, the Company incurred $60,000 in debt issuance costs.
In December 2019, the Company entered a loan arrangement for $500. The note bears interest at a rate of 19.0% per annum, matures April 2024, and is secured by inventory. Principal and interest payments of $15 are due monthly. In connection with the loan arrangement, the Company incurred $15 in debt issuance costs.
In January 2020, the Company entered a loan arrangement for $1,500. The note bears interest at a rate of 19.0% per annum, matures April 2024 and is secured by inventory. Principal and interest payments of $45 are due monthly. In connection with the loan arrangement, the Company incurred $45 in debt issuance costs.
Paycheck Protection Program
On May 6, 2020, the Company signed a Paycheck Protection Program Promissory Note and Agreement (“PPP Note”) for $1,375. The loan was established under the terms and conditions of the SBA program of the United States Small Business Administration and the USA CARES Act (2020)(H.R. 748)(15 U.S.C 636 et seq.) (“US SBA Program”), and expires on May 6, 2022, with monthly repayments of $77 commencing on December, 2020. In June 2021, the loan was forgiven, and the Company recognized a gain on forgiveness of debt of $1,375 which is included in the consolidated statement of operations as other income.
On January 26, 2021, the Company signed a second PPP Note established under the terms and conditions of the US SBA Program for $1,709 with an expiration date of January 26, 2026, and monthly repayments of $32 commencing on August 26, 2021.
Minimum principal payments on notes payable after June 30, 2021 are as follows:
|
Remainder of 2021 |
|
$ 7,141 |
|
2022 |
|
1,000 |
|
2023 |
|
1,214 |
|
2024 |
|
323 |
|
2025 and thereafter |
|
- |
|
|
|
$ 9,678 |
|
|
9. |
MEMBERS’ EQUITY |
|
The Company has authorized one class of units, Common Units. As of June 30, 2021 the Company had 13,754,940 units outstanding.
|
|
10. |
RELATED PARTY TRANSACTIONS |
|
For the nine months ended June 30, 2021, the Company recognized expenses related to marketing services provided by Parcon Media of $176, which are included in sales and marketing on the consolidate statement of operation. Parcon Media is an affiliate of a member of the Company. As of June 30, 2021, accounts payable outstanding are $47 and are included in accounts payable on the consolidated balance sheet.
The Company has entered operating leases primarily for real estate. These leases are for the Company's operations, production, warehouse, sales, marketing and back office functions and have terms which range from 2 to 10 years. Certain leases are subject to renewal at the option of the Company.
14
BALANCED HEALTH BOTANICALS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars unless otherwise noted)
The future minimum payments under non-cancelable operating leases with initial remaining terms in excess of one year as of June 30, 2021, are as follows:
|
Operating Lease Commitment |
||
|
2021 |
|
$ 516 |
|
2022 |
|
1,046 |
|
2023 |
|
1,030 |
|
2024 |
|
874 |
|
2025 and thereafter |
|
4,802 |
|
|
|
$ 8,279 |
The Company incurred rent expense of $527 for the six months ending June 30, 2021.
15
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information presents the unaudited pro forma condensed combined statements of income (loss) for the year ended December 31, 2020, and the six months ended June 30, 2021, and the unaudited pro forma condensed combined statement of financial position as of June 30, 2021. The unaudited pro forma condensed combined financial information includes the previously reported results of Village Farms International, Inc. (“Village Farms”, the “Company”, “we”, “us” or “our”), incorporated under the Canada Business Corporations Act, and Balanced Health Botanicals LLC (“Balanced Health”), a Colorado limited liability company, after giving pro forma effect to Village Farms’ acquisition of Balanced Health (the “Balanced Health Acquisition”) described in the following paragraphs and accompanying notes.
The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X and applicable Canadian securities laws. The unaudited pro forma adjustments reflecting the Balanced Health Acquisition have been prepared in accordance with the acquisition method of accounting in accordance with Financial Accounting Standard Board Accounting Standards Codification (“ASC”) Topic 805, Business Combinations.
The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or consolidated financial condition would have been had the Balanced Health Acquisition actually occurred on January 1, 2021 for the statements of income (loss) and comprehensive income (loss), and on June 30, 2021 for the statement of financial position, nor does it purport to project the future consolidated results of operations or consolidated financial condition for any future period or as of any future date. The assumed accounting for the Balanced Health Acquisition, including estimated purchase consideration, is based on provisional amounts and the associated purchase accounting is not final. The preliminary allocation of the purchase price to the acquired tangible and intangible assets and assumed liabilities is based upon the preliminary estimate of fair values. The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information. All pro forma adjustments and their underlying assumptions are described more fully in the notes to the unaudited pro forma condensed combined financial information.
The Balanced Health Acquisition
On August 16, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”), by and among Village Farms, Balanced Health and the other parties thereto, including the members of Balanced Health (collectively, the “Sellers”), which provided for the acquisition of a 100% interest in Balanced Health, for a total purchase price comprised of a cash purchase price of $30 million, and an aggregate of 4,707,113 of our common shares that were issued to the Sellers on a private placement basis valued at an aggregate of $45 million, based on the volume weighted average trading price on The Nasdaq Stock Market LLC (“Nasdaq”) for the ten (10) trading days ending the day prior to the closing date of the Balanced Health Acquisition (the “Closing Date”).
In connection with the Balanced Health Acquisition, each of the Sellers entered into a lock-up agreement with us, pursuant to which each such Seller has agreed not to resell the Village Farms common shares received as consideration in the Balanced Health Acquisition until such common shares cease to be “Restricted Shares” (as defined in the Purchase Agreement) (“Restricted Shares”). Under the terms of the Purchase Agreement and the lock-up agreements, such common shares cease to be Restricted Shares, as follows: (i) with respect to one-fourth (1/4) of such common shares, on the Closing Date; (ii) with respect to an additional one-fourth (1/4) of such common shares, on the last day of the four (4) month period following the Closing Date; (iii) with respect to an additional one-fourth (1/4) of such common shares, on the last day of the eight (8) month period following the Closing Date; and (iv) with respect to an additional one-fourth (1/4) of such common shares, on the last day of the twelve (12) month period following the Closing Date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||
|
Village Farms International, Inc. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Unaudited Pro Forma Combined Statement of Financial Position |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
As of June 30, 2021 |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
(In thousands of United States dollars) |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
|
|
|
Historical Village Farms |
|
|
Historical Balanced Health (Note 1) |
|
|
Transaction Accounting Adjustments (Note 2) |
|
|
(Note) |
|
Pro Forma Combined |
|
|
|||||||||||||||||||||||||||||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Cash and cash equivalents |
|
114,029 |
|
|
|
5,224 |
|
|
|
(30,000 |
) |
|
2(a)(d) |
|
|
89,253 |
|
|
|||||||||||||||||||||||||||||||||||
|
Restricted cash |
|
9,157 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
9,407 |
|
|
|||||||||||||||||||||||||||||||||||
|
Trade receivables, net |
|
41,303 |
|
|
|
748 |
|
|
|
|
|
|
|
|
|
42,051 |
|
|
|||||||||||||||||||||||||||||||||||
|
Inventories |
|
48,607 |
|
|
|
1,917 |
|
|
|
|
|
|
|
|
|
50,524 |
|
|
|||||||||||||||||||||||||||||||||||
|
Other receivables |
|
756 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
756 |
|
|
|||||||||||||||||||||||||||||||||||
|
Income taxes receivable |
|
21 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
21 |
|
|
|||||||||||||||||||||||||||||||||||
|
Prepaid expenses, deposits and other current assets |
|
8,127 |
|
|
|
760 |
|
|
|
|
|
|
|
|
|
8,887 |
|
|
|||||||||||||||||||||||||||||||||||
|
Total current assets |
|
222,000 |
|
|
|
8,899 |
|
|
|
(30,000 |
) |
|
|
|
|
200,899 |
|
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Property, plant and equipment |
|
196,236 |
|
|
|
2,025 |
|
|
|
|
|
|
|
|
|
198,261 |
|
|
|||||||||||||||||||||||||||||||||||
|
Right-of-use assets |
|
3,267 |
|
|
|
- |
|
|
|
5,158 |
|
|
2(b) |
|
|
8,425 |
|
|
|||||||||||||||||||||||||||||||||||
|
Note receivable from joint ventures |
|
3,344 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
3,344 |
|
|
|||||||||||||||||||||||||||||||||||
|
Investment in minority interests |
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,227 |
|
|
|||||||||||||||||||||||||||||||||||
|
Deferred tax asset |
|
15,869 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
15,869 |
|
|
|||||||||||||||||||||||||||||||||||
|
Goodwill |
|
24,698 |
|
|
|
- |
|
|
|
66,820 |
|
|
2(c) |
|
|
91,518 |
|
|
|||||||||||||||||||||||||||||||||||
|
Intangibles |
|
17,311 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
17,455 |
|
|
|||||||||||||||||||||||||||||||||||
|
Other assets |
|
2,432 |
|
|
|
352 |
|
|
|
|
|
|
|
|
|
2,784 |
|
|
|||||||||||||||||||||||||||||||||||
|
Total assets |
|
487,384 |
|
|
|
11,420 |
|
|
|
41,978 |
|
|
|
|
|
540,782 |
|
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Trade payables |
|
19,425 |
|
|
|
591 |
|
|
|
|
|
|
|
|
|
20,016 |
|
|
|||||||||||||||||||||||||||||||||||
|
Current maturities of long-term debt, net of issuance costs |
|
10,889 |
|
|
|
7,616 |
|
|
|
(7,616 |
) |
|
2(d) |
|
|
10,889 |
|
|
|||||||||||||||||||||||||||||||||||
|
Accrued liabilities |
|
28,818 |
|
|
|
592 |
|
|
|
192 |
|
|
2(a) |
|
|
29,602 |
|
|
|||||||||||||||||||||||||||||||||||
|
Lease liabilities - current |
|
1,149 |
|
|
|
- |
|
|
|
509 |
|
|
2(b) |
|
|
1,658 |
|
|
|||||||||||||||||||||||||||||||||||
|
Income taxes payable |
|
1,760 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
1,799 |
|
|
|||||||||||||||||||||||||||||||||||
|
Loyalty program liability |
|
- |
|
|
|
2,304 |
|
|
|
|
|
|
|
|
|
2,304 |
|
|
|||||||||||||||||||||||||||||||||||
|
Accrued interest |
|
- |
|
|
|
1,463 |
|
|
|
(1,463 |
) |
|
2(d) |
|
|
- |
|
|
|||||||||||||||||||||||||||||||||||
|
Sales taxes payable |
|
|
|
|
|
1,769 |
|
|
|
|
|
|
|
|
|
1,769 |
|
|
|||||||||||||||||||||||||||||||||||
|
Other current liabilities |
|
4,752 |
|
|
|
559 |
|
|
|
|
|
|
|
|
|
5,311 |
|
|
|||||||||||||||||||||||||||||||||||
|
Total current liabilities |
|
66,793 |
|
|
|
14,933 |
|
|
|
(8,378 |
) |
|
|
|
|
73,348 |
|
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Long-term debt, net of issuance costs |
|
54,583 |
|
|
|
2,062 |
|
|
|
(2,062 |
) |
|
2(d) |
|
|
54,583 |
|
|
|||||||||||||||||||||||||||||||||||
|
Deferred tax liability |
|
18,292 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
18,292 |
|
|
|||||||||||||||||||||||||||||||||||
|
Deferred rent |
|
- |
|
|
|
441 |
|
|
|
(441 |
) |
|
2(b) |
|
|
- |
|
|
|||||||||||||||||||||||||||||||||||
|
Lease liabilities - non-current |
|
2,285 |
|
|
|
- |
|
|
|
5,091 |
|
|
2(b) |
|
|
7,376 |
|
|
|||||||||||||||||||||||||||||||||||
|
Other liabilities |
|
1,895 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
1,895 |
|
|
|||||||||||||||||||||||||||||||||||
|
Total liabilities |
|
143,848 |
|
|
|
17,436 |
|
|
|
(5,790 |
) |
|
|
|
|
155,494 |
|
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||
|
Common stock |
|
302,497 |
|
|
|
(7,588 |
) |
|
|
41,752 |
|
|
2(e) |
|
|
344,249 |
|
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
7,588 |
|
|
2(f) |
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Additional paid in capital |
|
6,748 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
6,748 |
|
|
|||||||||||||||||||||||||||||||||||
|
Accumulated other comprehensive loss |
|
10,332 |
|
|
|
(44 |
) |
|
|
44 |
|
|
2(f) |
|
|
10,332 |
|
|
|||||||||||||||||||||||||||||||||||
|
Retained earnings |
|
23,959 |
|
|
|
1,616 |
|
|
|
(1,616 |
) |
|
2(f) |
|
|
23,959 |
|
|
|||||||||||||||||||||||||||||||||||
|
Total shareholders' equity |
|
343,536 |
|
|
|
(6,016 |
) |
|
|
47,768 |
|
|
|
|
|
385,288 |
|
|
|||||||||||||||||||||||||||||||||||
|
Total liabilities and shareholders' equity |
|
487,384 |
|
|
|
11,420 |
|
|
|
41,978 |
|
|
|
|
|
540,782 |
|
|
|||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
The accompanying notes are an integral part of the Unaudited Pro Forma Financial Statements. |
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||
|
Village Farms International, Inc. |
|
|
|||||||||||||||||
|
Unaudited Pro Forma Combined Statement of Income (Loss) and Comprehensive Income (Loss) |
|
|
|||||||||||||||||
|
For the Year Ended December 31, 2020 |
|
|
|||||||||||||||||
|
(In thousands (USD), except per share data or where noted otherwise) |
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Village Farms |
|
|
Historical Balanced Health Botanicals (Note 1) |
|
|
Transaction Accounting Adjustments (Note 2) |
|
|
(Note) |
|
Pro Forma Combined |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
170,086 |
|
|
$ |
36,815 |
|
|
|
|
|
|
|
|
$ |
206,901 |
|
|
|
Cost of sales |
|
|
(159,126 |
) |
|
|
(18,929 |
) |
|
|
|
|
|
|
|
|
(178,055 |
) |
|
|
Gross margin |
|
|
10,960 |
|
|
|
17,886 |
|
|
|
|
|
|
|
|
|
28,846 |
|
|
|
Selling, general and administrative expenses |
|
|
(19,086 |
) |
|
|
(24,351 |
) |
|
|
|
|
|
|
|
|
(43,437 |
) |
|
|
Stock compensation |
|
|
(6,142 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
(6,142 |
) |
|
|
Interest expense |
|
|
(2,056 |
) |
|
|
- |
|
|
|
2,056 |
|
|
2(d) |
|
|
- |
|
|
|
Interest income |
|
|
625 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
625 |
|
|
|
Foreign exchange gain (loss) |
|
|
(136 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
(136 |
) |
|
|
Gain on settlement agreement |
|
|
4,681 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
4,681 |
|
|
|
Gain on acquisition |
|
|
23,631 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
23,631 |
|
|
|
Other income (expense) |
|
|
49 |
|
|
|
(1,880 |
) |
|
|
|
|
|
|
|
|
(1,831 |
) |
|
|
Loss on disposal of assets |
|
|
(922 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
(922 |
) |
|
|
Loss on joint venture loans |
|
|
(3,791 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
(3,791 |
) |
|
|
Income (loss) before taxes and earnings of unconsolidated entities |
|
|
7,813 |
|
|
|
(8,345 |
) |
|
|
|
|
|
|
|
|
(532 |
) |
|
|
Recovery of income taxes |
|
|
2,790 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
2,790 |
|
|
|
Income (loss) from consolidated entities after income taxes |
|
|
10,603 |
|
|
|
(8,345 |
) |
|
|
|
|
|
|
|
|
2,258 |
|
|
|
Equity earnings of unconsolidated entities |
|
|
1,005 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
1,005 |
|
|
|
Net income (loss) |
|
$ |
11,608 |
|
|
$ |
(8,345 |
) |
|
|
|
|
|
|
|
$ |
3,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.05 |
|
|
|
Diluted income per share |
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in the computation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
58,526 |
|
|
|
|
|
|
|
4,707 |
|
|
2(g) |
|
|
63,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
61,490 |
|
|
|
|
|
|
|
4,707 |
|
|
2(g) |
|
|
66,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
11,608 |
|
|
$ |
(8,345 |
) |
|
|
|
|
|
|
|
$ |
3,263 |
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
6,730 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
6,730 |
|
|
|
Comprehensive loss |
|
$ |
18,338 |
|
|
$ |
(8,345 |
) |
|
|
|
|
|
|
|
$ |
9,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Unaudited Pro Forma Financial Statements. |
|||||||||||||||||||
|
Village Farms International, Inc. |
|||||||||||||||||||
|
Unaudited Pro Forma Combined Statement of Income (Loss) and Comprehensive Income (Loss) |
|||||||||||||||||||
|
For the Six Months Ended June 30, 2021 |
|||||||||||||||||||
|
(In thousands (USD), except per share data or where noted otherwise) |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Village Farms |
|
|
Historical Balanced Health (Note 1) |
|
|
Transaction Accounting Adjustments (Note 2) |
|
|
(Note) |
|
Pro Forma Combined |
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
122,770 |
|
|
$ |
15,418 |
|
|
|
|
|
|
|
|
$ |
138,188 |
|
|
|
Cost of sales |
|
|
(115,198 |
) |
|
|
(5,332 |
) |
|
|
|
|
|
|
|
|
(120,530 |
) |
|
|
Gross margin |
|
|
7,572 |
|
|
|
10,086 |
|
|
|
|
|
|
|
|
|
17,658 |
|
|
|
Selling, general and administrative expenses |
|
|
(17,117 |
) |
|
|
(8,076 |
) |
|
|
|
|
|
|
|
|
(25,193 |
) |
|
|
Stock compensation |
|
|
(3,885 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
(3,885 |
) |
|
|
Interest expense |
|
|
(1,339 |
) |
|
|
(676 |
) |
|
|
676 |
|
|
2(d) |
|
|
(1,339 |
) |
|
|
Interest income |
|
|
49 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
49 |
|
|
|
Foreign exchange loss |
|
|
(311 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
(312 |
) |
|
|
Other (expense) income |
|
|
(235 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
(233 |
) |
|
|
Gain on extinguishment of debt |
|
|
- |
|
|
|
1,375 |
|
|
|
|
|
|
|
|
|
1,375 |
|
|
|
Loss on disposal |
|
|
(40 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
(42 |
) |
|
|
(Loss) income before taxes and earnings of unconsolidated entities |
|
|
(15,306 |
) |
|
|
2,708 |
|
|
|
|
|
|
|
|
|
(12,598 |
) |
|
|
Recovery of income taxes |
|
|
3,620 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
3,620 |
|
|
|
(Loss) income from consolidated entities after income taxes |
|
|
(11,686 |
) |
|
|
2,708 |
|
|
|
|
|
|
|
|
|
(8,978 |
) |
|
|
Equity losses of unconsolidated entities |
|
|
(213 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
(213 |
) |
|
|
Net (loss) income |
|
$ |
(11,899 |
) |
|
$ |
2,708 |
|
|
|
|
|
|
|
|
$ |
(9,191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.11 |
) |
|
|
Diluted loss per share |
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in the computation of net loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
78,560 |
|
|
|
|
|
|
|
4,707 |
|
|
2(g) |
|
|
83,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
78,560 |
|
|
|
|
|
|
|
4,707 |
|
|
2(g) |
|
|
83,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(11,899 |
) |
|
$ |
2,708 |
|
|
|
|
|
|
|
|
$ |
(9,191 |
) |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
Foreign currency translation adjustment |
|
|
4,077 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
4,077 |
|
|
|
Comprehensive (loss) income |
|
|
(7,822 |
) |
|
|
2,708 |
|
|
|
|
|
|
|
|
|
(5,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Unaudited Pro Forma Financial Statements. |
|||||||||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(In thousands of United States dollars, except share and per share data)
|
1. |
Basis of Pro Forma Presentation |
The accompanying unaudited pro forma condensed financial information presents the unaudited pro forma statement of income (loss) and unaudited pro forma statement of financial position of Village Farms based on the historical consolidated financial statements of Village Farms and Balanced Health after giving effect to the Balanced Health Acquisition, and pro forma adjustments as described in these notes. Pro forma adjustments are included only to the extent they are (i) directly attributable to the Balanced Health Acquisition, (ii) factually supportable, and (iii) with respect to the statement of income (loss) only, expected to have a continuing impact on the consolidated results. The unaudited pro forma statements of income (loss) do not reflect non-recurring expenses directly attributable to the Balanced Health Acquisition, including fees to banks, attorneys, accountants and other professional advisors, and other transaction-related costs. However, the impacts of such expenses incurred prior to the statement of position date are reflected in the unaudited pro forma statement of financial position as accrued liabilities. This amount does not include estimates for fees that are not readily determinable or factually supportable. The unaudited pro forma statement of income (loss) for the year ended December 31, 2020, and for the six months ended June 30, 2021, give effect to the Balanced Health Acquisition as if it had occurred on January 1, 2020. The unaudited pro forma statement of financial position gives effect to the Balanced Health Acquisition as if it had occurred on June 30, 2021.
Village Farms’ historical consolidated financial statements as of and for the year ended December 31, 2020, and unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2021, were prepared in accordance with United States’ generally accepted accounting principles (“U.S. GAAP”) and are shown in United States dollars. In preparing the unaudited pro forma financial statements, a preliminary review was undertaken to identify any accounting policy differences between the accounting policies used by Balanced Health and those of the Company where the impact was potentially material and could be reasonably estimated. The significant accounting policies of Balanced Health conform, in all material respects, to those of the Company except for the accounting for leases. A final review will be completed after closing to ensure all differences have been identified and recognized.
The Balanced Health Acquisition has been accounted for using the acquisition method of accounting, which requires an allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed, based on their fair values as of the date of the Balanced Health Acquisition. As of the date of this Current Report on Form 8-K/A, Village Farms has not completed the detailed valuation study necessary to arrive at the required final estimates of the fair value of Balanced Health’s tangible and intangible assets to be acquired and liabilities to be assumed and the related allocations of the purchase price. Village Farms will record all assets acquired and liabilities assumed at their respective acquisition date fair values at the effective time of the Balanced Health Acquisition. As a result of the foregoing, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma financial information presented herein. Village Farms has estimated the fair value of Balanced Health’s assets and liabilities based on discussions with Balanced Health’s management. The final purchase price allocation may be materially different than that reflected in the pro forma purchase price allocation presented herein.
Preliminary Purchase Consideration
The preliminary estimated purchase consideration of approximately $72.0 million was determined as of August 16, 2021, based on a cash purchase price of $30 million, and an aggregate of 4,707,113 of our common shares that were issued to the owners of Balance Health on a private placement basis with an aggregate fair value of $41.8 million, plus a working capital adjustment of $0.2 million.
The Balanced Health Acquisition constitutes a business combination in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 - Business Combinations (“ASC 805”), with Village Farms as the acquirer. Accordingly, Village Farms has applied the
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
(In thousands of United States dollars, except share and per share data)
principles of ASC 805 to the pro forma accounting for the acquisition of Balanced Health, which requires Village Farms to recognize Balanced Health’s identifiable tangible and intangible assets acquired and liabilities assumed at fair value, recognize consideration transferred in the Balanced Health Acquisition at fair value and recognize goodwill, if any, as the excess of consideration transferred over the net of the acquisition date fair value of identifiable tangible and intangible assets acquired and liabilities assumed.
The table below summarizes the preliminary purchase consideration:
|
|
|
Shares |
|
Share Price |
|
Amount |
|
Consideration paid |
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
$ 30,000 |
|
Village Farms common shares |
|
4,707,113 |
|
$8.87 |
|
41,752 |
|
Working capital adjustment |
|
|
|
|
|
192 |
|
Total fair value of consideration |
|
|
|
|
|
$ 71,944 |
|
|
|
|
|
|
|
|
|
2. |
Purchase Accounting and Other Pro Forma Adjustments |
The following adjustments have been made to the unaudited pro forma information to reflect certain preliminary purchase price accounting and other pro forma adjustments. Further review may identify additional adjustments that could have a material impact on the consolidated company. As of the date of this Current Report on Form 8-K/A, Village Farms is not aware of any additional transaction related adjustments that would have a material impact on the unaudited pro forma financial information that are not reflected or disclosed in the pro forma adjustments.
Adjustments to the Unaudited Pro Forma Combined Statement of Financial Position
|
|
(a) |
The adjustment to cash and cash equivalents reflects the cash consideration of $30.0 million paid by Village Farms. The adjustment to accrued liabilities reflects the accrual for the working capital adjustment included in the total consideration. |
|
|
(b) |
Reflects the adoption of ASC 842 – Leases (“ASC 842”), on June 30, 2021, to align Balanced Health’s accounting policy for leases with the Company’s accounting policy for leases. |
|
|
(c) |
Reflects the difference between the consideration paid and the estimated fair value of assets acquired and liabilities assumed. Village Farms has estimated the fair value of Balance Health’s assets and liabilities based on discussions with Balanced Health’s management. Based on the preliminary purchase price allocation, Village Farms has calculated goodwill to be approximately $66.7 million. This amount may increase or decrease based on the final purchase price allocation. |
|
|
(d) |
Reflects the settlement of all outstanding debt, including accrued interest and interest expense, by the owners of Balanced Health on June 30, 2021. |
|
|
(e) |
Reflects the fair value and issuance of the 4,707,113 common shares that were issued to the owners of Balanced Health as part of the purchase consideration. |
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(f) |
Reflects the elimination of Balanced Health’s historical shareholders’ equity. |
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(g) |
Reflects the effect on weighted average shares outstanding and earnings per share from the issuance of 4,707,113 common shares that were issued to the owners of Balanced Health as part of the consideration. |