10-Q 1 snax-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(MARK ONE)

 

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

 

For the quarter ended March 31, 2024

 

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

 

For the transition period from to

 

Commission file number: 001-38785

 

STRYVE FOODS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

87-1760117

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

Post Office Box 864

Frisco, TX 75034

(Address of principal executive offices)

 

(972) 987-5130

(Issuer’s telephone number)

 

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock

SNAX

The NASDAQ Stock Market LLC

Warrants, each exercisable for 1/15th of one share of Class A common stock at an exercise price of $172.50 per whole share

SNAXW

The NASDAQ Stock Market LLC

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

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

 

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

 

As of May 8, 2024, 2,904,117 shares of the registrant’s Class A common stock, $0.0001 par value, and 382,892 shares of the registrant’s Class V common stock, $0.0001 par value, were issued and outstanding.

 


 

STRYVE FOODS, INC.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2024

TABLE OF CONTENTS

Page

Part I. Financial Information

1

Item 1. Unaudited Condensed Consolidated Financial Statements

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity

3

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures About Market Risk

32

Item 4. Controls and Procedures

33

Part II. Other Information

35

Item 1. Legal Proceedings

35

Item 1A. Risk Factors

35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3. Defaults Upon Senior Securities

35

Item 4. Mine Safety Disclosures

35

Item 5. Other Information

36

Item 6. Exhibits

37

Part III. Signatures

38

i


 

PART I - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

STRYVE FOODS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

280,101

 

 

$

369,114

 

Accounts receivable, net

 

 

2,319,579

 

 

 

2,091,926

 

Inventory

 

 

5,020,749

 

 

 

5,199,979

 

Prepaid expenses and other current assets

 

 

537,466

 

 

 

720,682

 

Total current assets

 

 

8,157,895

 

 

 

8,381,701

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

6,765,185

 

 

 

7,150,775

 

Right of use assets, net

 

 

4,505,530

 

 

 

4,609,666

 

Goodwill

 

 

8,450,000

 

 

 

8,450,000

 

Intangible assets, net

 

 

4,059,106

 

 

 

4,119,690

 

TOTAL ASSETS

 

$

31,937,716

 

 

$

32,711,832

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

6,334,487

 

 

$

4,459,787

 

Accrued expenses

 

 

2,446,692

 

 

 

2,687,508

 

Current portion of lease liability

 

 

376,347

 

 

 

362,165

 

Line of credit, net of debt issuance costs

 

 

3,795,669

 

 

 

3,568,295

 

Promissory notes payable, net of debt discount and debt issuance costs

 

 

2,914,000

 

 

 

2,914,000

 

Promissory notes payable due to related parties, net of debt discount and debt issuance costs

 

 

1,175,000

 

 

 

1,175,000

 

Current portion of long-term debt and other short-term borrowings

 

 

478,577

 

 

 

605,530

 

Total current liabilities

 

 

17,520,772

 

 

 

15,772,285

 

 

 

 

 

 

 

 

Long-term debt, net of current portion, net of debt issuance costs

 

 

3,420,818

 

 

 

3,476,089

 

Lease liability, net of current portion

 

 

4,269,941

 

 

 

4,371,963

 

Financing obligation - related party operating lease

 

 

7,500,000

 

 

 

7,500,000

 

Deferred tax liability, net

 

 

35

 

 

 

35

 

TOTAL LIABILITIES

 

 

32,711,566

 

 

 

31,120,372

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 12)

 

 

 

 

 

 

STOCKHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

Preferred stock - $0.0001 par value, 10,000,000 shares authorized, 0 shares issued and outstanding

 

 

 

 

 

 

Class A common stock - $0.0001 par value, 400,000,000 shares authorized, 2,898,194 and 2,249,189 shares issued and outstanding (net of 53,333 and 53,333 treasury shares), respectively

 

 

289

 

 

 

224

 

Class V common stock - $0.0001 par value, 15,000,000 shares authorized, 382,892 and 382,892 shares issued and outstanding

 

 

38

 

 

 

38

 

Additional paid-in-capital

 

 

139,446,938

 

 

 

137,883,798

 

Accumulated deficit

 

 

(140,221,115

)

 

 

(136,292,600

)

TOTAL STOCKHOLDERS' (DEFICIT) EQUITY

 

 

(773,850

)

 

 

1,591,460

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

$

31,937,716

 

 

$

32,711,832

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

STRYVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

SALES, net

 

$

4,598,159

 

 

$

4,646,253

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD (exclusive of depreciation shown separately below)

 

 

3,581,775

 

 

 

3,683,002

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

1,016,384

 

 

 

963,251

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

Selling expenses

 

 

1,596,537

 

 

 

1,969,010

 

 

Operations expense

 

 

352,749

 

 

 

513,589

 

 

Salaries and wages

 

 

1,607,013

 

 

 

2,163,152

 

 

Depreciation and amortization expense

 

 

462,531

 

 

 

551,656

 

 

Total operating expenses

 

 

4,018,830

 

 

 

5,197,407

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(3,002,446

)

 

 

(4,234,156

)

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

Interest expense

 

 

(582,567

)

 

 

(398,945

)

 

Loss on extinguishment of debt

 

 

(334,511

)

 

 

 

 

Change in fair value of Private Warrants

 

 

 

 

 

8,250

 

 

Other income (expense)

 

 

7

 

 

 

(14,373

)

 

Total other (expense) income

 

 

(917,071

)

 

 

(405,069

)

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE INCOME TAXES

 

 

(3,919,517

)

 

 

(4,639,225

)

 

Income tax expense

 

 

8,998

 

 

 

3,331

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$

(3,928,515

)

 

$

(4,642,556

)

 

Loss per common share:

 

 

 

 

 

 

 

Basic and diluted

 

$

(1.42

)

 

$

(2.23

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic and diluted

 

 

2,775,259

 

 

 

2,085,514

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


 

STRYVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY

THREE MONTHS ENDED MARCH 31, 2024

(Unaudited)

 

 

 

Class A Common Stock

 

 

Class V Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in-Capital

 

 

Deficit

 

 

Total

 

BALANCE, JANUARY 1, 2024

 

 

2,249,189

 

 

$

224

 

 

 

382,892

 

 

$

38

 

 

$

137,883,798

 

 

$

(136,292,600

)

 

$

1,591,460

 

Cancellation of Restricted Stock Awards

 

 

(350

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Restricted Stock Units

 

 

691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

270,376

 

 

 

 

 

 

270,376

 

Issuance of Class A Shares in connection with At-The-Market Offerings, net

 

 

558,873

 

 

 

56

 

 

 

 

 

 

 

 

 

710,975

 

 

 

 

 

 

711,031

 

Change in Fair Value of Warrants on Extinguishment of Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

334,511

 

 

 

 

 

 

334,511

 

Common Stock Issued for Accrued Expenses

 

 

53,559

 

 

 

5

 

 

 

 

 

 

 

 

 

147,282

 

 

 

 

 

 

147,287

 

Common Stock Issued for Accrued Expenses - Related Party

 

 

36,232

 

 

 

4

 

 

 

 

 

 

 

 

 

99,996

 

 

 

 

 

 

100,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,928,515

)

 

 

(3,928,515

)

BALANCE, MARCH 31, 2024

 

 

2,898,194

 

 

$

289

 

 

 

382,892

 

 

$

38

 

 

$

139,446,938

 

 

$

(140,221,115

)

 

$

(773,850

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

STRYVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY

THREE MONTHS ENDED MARCH 31, 2023

(Unaudited)

 

 

 

 

 

 

Class A Common Stock

 

 

Class V Common Stock

 

 

Additional

 

 

Accumulated

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Paid-in-Capital

 

 

Deficit

 

 

Total

 

BALANCE, JANUARY 1, 2023

 

 

 

 

1,714,973

 

 

$

172

 

 

 

419,941

 

 

$

42

 

 

$

133,687,587

 

 

$

(117,251,616

)

 

$

16,436,185

 

Exchanged BV for Class A shares

 

 

 

 

10,241

 

 

 

1

 

 

 

(10,241

)

 

 

(1

)

 

 

 

 

 

 

 

 

-

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,642,556

)

 

 

(4,642,556

)

BALANCE, MARCH 31, 2023

 

 

 

 

1,725,214

 

 

$

173

 

 

 

409,700

 

 

$

41

 

 

$

133,687,587

 

 

$

(121,894,172

)

 

$

11,793,629

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

STRYVE FOODS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

Net loss

 

$

(3,928,515

)

 

$

(4,642,556

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

401,947

 

 

 

491,072

 

Amortization of intangible assets

 

 

60,584

 

 

 

60,584

 

Amortization of debt issuance costs

 

 

54,793

 

 

 

40,145

 

Amortization of right-of-use asset

 

 

104,137

 

 

 

98,826

 

Loss on extinguishment of debt

 

 

334,511

 

 

 

 

Reserve for credit losses

 

 

153,609

 

 

 

73,219

 

Stock based compensation expense

 

 

270,376

 

 

 

185,524

 

Change in fair value of Private Warrants

 

 

 

 

 

(8,250

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(381,263

)

 

 

(562,872

)

Inventory

 

 

179,230

 

 

 

7,664

 

Income tax receivables and payables, net

 

 

2,029

 

 

 

 

Prepaid expenses and other current assets

 

 

183,216

 

 

 

74,068

 

Accounts payable

 

 

1,858,343

 

 

 

1,344,535

 

Accrued liabilities

 

 

4,443

 

 

 

300,881

 

Operating lease obligations

 

 

(87,841

)

 

 

(89,610

)

Net cash used in operating activities

 

 

(790,401

)

 

 

(2,626,771

)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Cash paid for purchase of equipment

 

 

 

 

 

(48,635

)

Net cash used in investing activities

 

 

 

 

 

(48,635

)

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from the issuance of common stock, net

 

 

711,031

 

 

 

 

Borrowings on long-term debt

 

 

 

 

 

2,000,000

 

Repayments on long-term debt

 

 

(21,665

)

 

 

(30,125

)

Borrowings on short-term debt

 

 

3,923,333

 

 

 

3,360,187

 

Repayments on short-term debt

 

 

(3,911,311

)

 

 

(2,900,947

)

Net cash provided by financing activities

 

 

701,388

 

 

 

2,429,115

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

 

(89,013

)

 

 

(246,291

)

Cash and cash equivalents at beginning of period

 

 

369,114

 

 

 

623,163

 

Cash and cash equivalents at end of period

 

$

280,101

 

 

$

376,872

 

 

 

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

 

 

 

 

 

 

Cash paid for interest

 

$

405,439

 

 

$

398,945

 

NON-CASH INVESTING AND FINANCING ACTIVITY:

 

 

 

 

 

 

Non-cash commercial premium finance borrowing

 

$

 

 

$

291,339

 

Common stock issued for accrued expenses

 

$

147,287

 

 

$

 

Common stock issued for accrued expenses - related party

 

$

100,000

 

 

$

 

Accrued fixed assets

 

$

16,357

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

STRYVE FOODS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(Unaudited)

Note 1 - Organization and Description of Business

 

Stryve Foods, Inc. (“Stryve” or the “Company”) is an emerging healthy snacking company which manufactures, markets and sells highly differentiated healthy snacking products. The Company offers convenient snacks that are lower in sugar and carbohydrates and higher in protein than other snacks. The Company is headquartered in Plano, TX. The Company has manufacturing operations in Madill, Oklahoma and fulfillment operations in Frisco, Texas.

Reverse Stock Split

 

On July 13, 2023, the Company filed with the Secretary of State of the State of Delaware a First Certificate of Amendment to its First Amended and Restated Certificate of Incorporation (the “Certificate”) to effect a 1-for-15 reverse stock split (the “Reverse Stock Split”) of the Company’s issued and outstanding shares of common stock, par value $0.0001 per share, effective as of 12:01 p.m. Eastern Time on July 14, 2023.

 

As a result of the Reverse Stock Split, every fifteen shares of common stock issued and outstanding were automatically reclassified into one share of common stock. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would have been entitled to receive fractional shares because they held a number of shares of common stock not evenly divisible by the Reverse Stock Split ratio were automatically entitled to receive a cash payment equal to the value of such fractional share based on the closing price of the common stock as of the effective time of the Reverse Stock Split adjusted for the Reverse Stock Split.

 

The Reverse Stock Split reduced the number of authorized shares of Class V common stock from 200,000,000 to 15,000,000 while the number of authorized shares of Class A common stock and the par value for both Class A and Class V common stock remained unchanged.

 

All outstanding options, warrants, restricted stock units and similar securities entitling their holders to receive or purchase shares of common stock were adjusted as a result of the Reverse Stock Split, as required by the terms of each security.

 

All share and per share amounts were retroactively adjusted in the Company's financial statements for all periods presented to give effect to this reverse stock split, including reclassifying an amount equal to the reduction in par value of the Company’s common stock to additional paid-in capital.

 

Note 2 - Liquidity and Going Concern

 

The accompanying condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.

 

The Company has historically funded its operations with cash flow from operations, equity capital raises, and note payable agreements from shareholders and private investors, in addition to institutional loans. The Company's principal uses of cash have been debt service, capital expenditures, working capital, and funding operations. The Company incurred net losses of approximately $3.9 million during the three months ended March 31, 2024. Cash used in operating activities was approximately $0.8 million for the three months ended March 31, 2024. As of March 31, 2024, the Company has a working capital deficit of $9.4 million which compares to $7.4 million as of March 31, 2023.

 

Late in the third quarter of 2022, the Company secured a term loan in the amount of $4.0 million. Additionally, the Company secured an asset based line of credit with a $8.0 million credit limit subject to accounts receivable and inventory balances. The term loan and asset based line of credit were secured in order to augment the Company's liquidity, as needed, through the execution of management's plan. The Company has drawn $4.0 million of the term loan and $3.9 million (net of repayments) of the asset based line of credit as of March 31, 2024. The amount remaining available under the asset based line of credit is $2.0 million. No amount remained available under the term loan. See Note 5 for a description of the asset based line of credit and Note 6 for a description of the term loan.

 

6


 

On April 3, 2024, we issued an aggregate of $1.6 million in principal amount of unsecured promissory notes (the “April 2024 Convertible Notes”) to select accredited investors to fund operations. The aggregate principal amount of the April 2024 Convertible Notes is inclusive of $1.1 million from related parties. See Note 13 for further discussion.

 

We are currently evaluating several different strategies to enhance our liquidity position. These strategies may include, but are not limited to, pursuing additional actions under our business transformation plan, and seeking additional financing from both the public and private markets through the issuance of equity or debt securities. The outcome of these matters cannot be predicted with any certainty at this time. We need additional funding to execute our business plan and continue operations. If capital is not available to us when, and in the amounts needed, we could be required to liquidate our inventory and assets, cease or curtail operations, which could materially harm our business, financial condition and results of operations, or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that we will be able to raise the capital we need to continue our operations.

 

We have prepared cash flow forecasts which indicate that based on our expected operating losses and cash consumption in order to fund inventory growth, we believe that absent an infusion of sufficient capital there is substantial doubt about our ability to continue as a going concern for twelve months after the date the condensed consolidated financial statements for the quarter ended March 31, 2024 are issued. The Company's plan includes the items noted above as well as securing external financing which may include raising debt or equity capital. These plans are not entirely within the Company's control including our ability to raise sufficient capital on favorable terms, if at all.

Note 3 - Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, these interim financial statements do not include all information and footnotes required under GAAP for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of results of operations, balance sheet, cash flows, and shareholders' equity for the periods presented. The unaudited condensed consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2023. The Company’s condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted.

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Accounting estimates and assumptions discussed herein are those that management considers to be the most critical to an understanding of the condensed consolidated financial statements because they inherently involve significant judgments and uncertainties. Estimates are used for, but not limited to revenue recognition, allowance for credit losses and customer allowances, inventory valuation, impairments of goodwill and long-lived assets, incremental borrowing rate for leases, and valuation allowances for deferred tax assets. All of these estimates reflect management’s judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of assets among other effects.

 

Going Concern

In accordance with ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.

Determining the extent to which conditions or events raise substantial doubt about the Company's ability to continue as a going concern and the extent to which mitigating plans sufficiently alleviate any such substantial doubt requires significant judgment and estimation by us. The Company's significant estimates related to this analysis may include identifying business factors such as size, growth and profitability used in the forecasted financial results and liquidity. Further, the Company makes assumptions about the probability that management's plans will be effectively implemented and alleviate substantial doubt and its ability to continue as a going concern. The Company believes that the estimated values used in its going concern analysis are based on reasonable assumptions. However, such

7


 

assumptions are inherently uncertain and actual results could differ materially from those estimates. See Note 2, Liquidity and Going Concern, for more information about the Company's going concern assessment.

Accounts Receivable and Allowance for Credit Losses, Returns, and Deductions

Accounts receivable are customer obligations due under normal trade terms. Accounts receivables, less credit losses, reflects the net realizable value of receivables and approximates fair value. We account for accounts receivable, less credit losses, under ASU 2016-13, Financial Instruments – Credit Losses. We evaluate our accounts receivable and establish an allowance for credit loss based on a combination of factors. When aware that a specific customer has been impacted by circumstances such as bankruptcy filings or deterioration in the customer’s operating results or financial position, potentially making it unable to meet its financial obligations, we record a specific allowance for doubtful accounts to reduce the related receivable to the amount we reasonably believe is collectible. We also record allowances for credit loss for all other customers based on a variety of factors, including the length of time the receivables are past due, historical collection experience, and an evaluation of current and projected economic conditions at the balance sheet date. Accounts receivables are charged off against the allowance for credit losses after we determine that the potential for recovery is remote. As of March 31, 2024, and December 31, 2023, the allowance for credit losses, returns and deductions totaled $1,528,148 and $1,638,039, respectively. Provisions related to credit losses for the three months ended March 31, 2024 and 2023 was $153,609 and $73,219, respectively. Provisions related to returns and deductions for the three months ended March 31, 2024 and 2023 was $(263,500) and $364,193, respectively.

Concentration of Credit Risk

The balance sheet items that potentially subject the Company to concentrations of credit risk are primarily cash and accounts receivable. The Company continuously evaluates the credit worthiness of its customers’ financial condition and generally does not require collateral. The Company maintains cash balances in bank accounts that may, at times, exceed Federal Deposit Insurance Corporation (“FDIC”) limits of $250,000 per institution. The Company incurred no losses from such accounts and management considers the risk of loss to be minimal.

For the three months ended March 31, 2024 and 2023, the following customers represented more than 10% of consolidated sales. No vendors represented more than 10% of purchases.

 

 

 

 

 

 

 

2024

 

2023

Customer A

 

24%

 

14%

Customer B

 

 

23%

Customer C

 

11%

 

Customer D

 

19%

 

11%

As of March 31, 2024 and 2023, the following customers represented more than 10% of accounts receivable. No vendors represented more than 10% of the accounts payable balance.

 

 

 

 

 

 

 

2024

 

2023

Customer A

 

27%

 

11%

Customer B

 

 

37%

Customer D

 

10%

 

11%

Customer E

 

 

10%

Revenue Recognition Policy

The Company manufactures and markets a broad range of protein snack products through multiple distribution channels. The products are offered through branded and private label items. Generally, the Company considers all revenues as arising from contracts with customers. Revenue is recognized based on the five-step process outlined in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers:

(1)
Identification of the contract with a customer
(2)
Identification of the performance obligations in the contract
(3)
Determination of the transaction price
(4)
Allocation of the transaction price to the performance obligations in the contract
(5)
Recognition of revenue when, or as, the Company satisfies a performance obligation

 

The Company’s revenue derived from the sale of branded and private label products is considered variable consideration as the contract includes discounts, rebates, incentives and other similar items. Generally, revenue is recognized at the point in time when the customer

8


 

obtains control of the product, which may occur upon either shipment or delivery of the product. The payment terms of the Company’s contracts are generally net 30 to 60 days, although early pay discounts are offered to customers.

The Company regularly experiences customer deductions from amounts invoiced due to product returns, product shortages, and delivery nonperformance penalty fees. This variable consideration is estimated using the expected value approach based on the Company’s historical experience, and it is recognized as a reduction to the transaction price in the same period that the related product sale is recognized.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to customers. Revenue is recognized when the Company satisfies its performance obligations under the contract by transferring the promised product to its customer.

The Company’s contracts generally do not include any material significant financing components.

Performance Obligations

The Company has elected the following practical expedients provided for in ASC 606:

(1)
The Company has excluded from its transaction price all sales and similar taxes collected from its customers.
(2)
The Company has elected to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
(3)
The Company has elected to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.
(4)
The portfolio approach has been elected by the Company as it expects any effects would not be materially different in application at the portfolio level compared with the application at an individual contract level.
(5)
The Company has elected not to disclose information about its remaining performance obligations for any contract that has an original expected duration of one year or less.

Neither the type of good sold nor the location of sale significantly impacts the nature, amount, timing, or uncertainty of revenue and cash flows.

Inventory

Inventories consist of raw materials, work in process, and finished goods, are stated at lower of cost or net realizable value determined using the average cost method. The Company reviews the value of items in inventory and provides write-downs and write-offs of inventory for obsolete, damaged, or expired inventory. Write-downs and write-offs are included in cost of goods sold.

Leases

In accordance with FASB ASC Topic 842, Leases, the Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities, and noncurrent operating lease liabilities in the consolidated balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt, net of debt issuance costs and current maturities in the condensed consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. Variable payments are not included in ROU assets or lease liabilities and can vary from period to period based on asset usage or the Company's proportionate share of common costs. The implicit rate within the Company's leases is generally not determinable and, therefore, the incremental borrowing rate at lease commencement is utilized to determine the present value of lease payments. The Company estimates its incremental borrowing rate based on third-party lender quotes to obtain secured debt in a like currency for a similar asset over a timeframe similar to the term of the lease. The ROU asset also includes any lease prepayments made and any initial direct costs incurred and excludes lease incentives. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has elected not to recognize ROU assets or lease liabilities for leases with a term of 12 months or less.

 

The Company accounts for each lease and any non-lease components associated with that lease as a single lease component for all asset classes.

 

Recognition, measurement and presentation of expenses and cash flows arising from a lease will depend on classification as a finance or operating lease. Operating lease expense is recognized on a straight-line basis over the lease term, whereas the amortization of finance lease assets is recognized on a straight-line basis over the shorter of the estimated useful life of the underlying asset or the lease term.

9


 

Operating lease expense and finance lease amortization are presented in cost of goods sold or operations expense in the consolidated statements of operations depending on the nature of the leased item. Interest expense on finance lease obligations is recorded over the lease term and is presented in interest expense, based on the effective interest method. All operating lease cash payments and interest on finance leases are presented within cash flows from operating activities and all finance lease principal payments are presented within cash flows from financing activities in the consolidated statements of cash flows.

Stock Based Compensation

Stock-based compensation awards including restricted stock awards, restricted stock units and restricted stock units with a market condition are accounted for in accordance with ASC 718, Compensation –Stock Compensation. The Company expenses the fair value of stock awards granted to employees and members of the board of directors over the requisite service period, which is typically the vesting period. Compensation cost for stock-based awards issued to employees is measured using the estimated fair value at the grant date. The Company accounts for forfeitures when they occur.

 

Stock-based awards issued to non-employees, including directors for non-board-related services, are accounted for based on the fair value of such services received or the fair value of the awards granted on the grant date, whichever is more reliably measured. Stock-based awards subject to service-based vesting conditions are expensed on a straight-line basis over the vesting period. Stock-based awards subject to a market-based condition are expensed over the derived service period.

Warrant Liability

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter.

Accordingly, the Company classifies the private warrants issued to Andina's original stockholders (the "Private Warrants") as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed consolidated statements of operations.

Net Income (Loss) per Share

The Company reports both basic and diluted earnings per share. Basic earnings per share is calculated based on the weighted average number of shares of common stock outstanding and excludes the dilutive effect of warrants, stock options, and other types of convertible securities. Diluted earnings per share is calculated based on the weighted average number of shares of common stock outstanding and the dilutive effect of stock options, warrants and other types of convertible securities are included in the calculation. Dilutive securities are excluded from the diluted earnings per share calculation if their effect is anti-dilutive, such as in periods where the Company would report a net loss.

 

As of March 31, 2024 and 2023, the Company excluded the common stock equivalents summarized below, which entitle the holders thereof to ultimately acquire shares of common stock, from its calculation of earnings per share, as their effect would have been anti-dilutive.

 

10


 

 

 

March 31,

 

 

 

2024

 

 

2023

 

 

 

 

 

 

 

 

Private Warrants

 

 

197,500

 

 

 

197,500

 

Public Warrants

 

 

10,800,000

 

 

 

10,800,000

 

Warrants - January 2022 Offering

 

 

10,294,118

 

 

 

10,294,118

 

Warrants - April 2023 Financing

 

 

7,964,550

 

 

 

7,964,550

 

Restricted Stock Awards - unvested

 

 

56,599

 

 

 

57,780

 

 

 

29,312,767

 

 

 

29,313,948

 

 

The weighted average number of shares outstanding for purposes of per share calculations includes the Class V shares on as-exchanged basis.

Income Taxes

The Company accounts for income taxes pursuant to the asset and liability method of ASC 740, Income Taxes, which requires the Company to recognize current tax liabilities or receivables for the amount of taxes as estimated are payable or refundable for the current year, and deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts and their respective tax bases of assets and liabilities and the expected benefits of net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. On July 20, 2021 (the “Closing Date”), the Company completed a business combination (the "Business Combination") pursuant to that certain Business Combination Agreement (the "Business Combination Agreement").

Under the terms of a Tax Receivable Agreement (the “TRA”) as part of the Business Combination Agreement, the Company generally will be required to pay to the Seller 85% of the applicable cash savings, if any, in U.S. federal and state income tax based on its ownership in Andina Holdings, LLC that the Company is deemed to realize in certain circumstances as a result of the increases in tax basis and certain tax attributes resulting from the Business Combination as described below. This is accounted for in conjunction with the methods used to record income tax described above.

The Company follows the provisions of ASC 740-10 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns.

The benefit of tax positions taken or expected to be taken in the Company income tax returns is recognized in the financial statements if such positions are more likely than not of being sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits”. A liability is recognized (or amount of net operating loss carryover or amount of tax refundable is reduced) for an unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740-10. Interest costs and related penalties related to unrecognized tax benefits are required to be calculated, if applicable. The Company's policy is to classify assessments, if any, for tax related interest and penalties as a component of income tax expense. As of March 31, 2024, no liability for unrecognized tax benefits was required to be reported. The Company does not expect any significant changes in its unrecognized tax benefits in the next year.

11


 

Tax Receivable Agreement

In conjunction with the Business Combination, the Company entered into the TRA with Seller and Holdings. Pursuant to the TRA, the Company is required to pay Seller 85% of the amount of savings, if any, in U.S. federal, state, local and foreign income tax that the Company actually realizes as a result of (a) tax basis adjustments resulting from taxable exchanges of Class B common units of Holdings and Class V common stock of the Company acquired by the Company in exchange for Class A common stock of the Company and (b) tax deductions in respect of portions of certain payments made under the TRA. All such payments to the Seller are the obligations of the Company. As of March 31, 2024, there have been 383,898 shares of Class B common units of Holdings and Class V common stock of the Company exchanged for an equal number of shares of Class A common stock of the Company. The Company has not recognized any change to the deferred tax asset for changes in tax basis, as the asset is not more-likely-than-not to be realized. Additionally, the Company has not recognized the TRA liability as it is not probable that the TRA payments would be paid based on the Company's historical loss position and would not be payable until the company realizes tax benefit.

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash, accounts receivable, accounts payable, a line of credit, promissory notes payable and long-term debt. The carrying amounts of cash, accounts receivable, accounts payable, and promissory notes payable approximate their respective fair values because of the short-term maturities or expected settlement date of these instruments. The line of credit has variable interest rates the Company believes reflect current market rates for notes of this nature. The Company believes the current carrying value of long-term debt approximates its fair value because the terms are comparable to similar lending arrangements in the marketplace.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Recent Accounting Standards

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company is determining the impact on our business.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which enhances the transparency and decision usefulness of income tax disclosures by requiring; (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. For public business entities, the standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is determining the impact of the ASU 2023-09 on its financial statements.

Note 4 - Inventory

As of March 31, 2024, and December 31, 2023, inventory consisted of the following:

 

 

March 31,
2024

 

 

December 31,
2023

 

Raw materials

 

$

1,427,258

 

 

$

1,475,657

 

Work in process

 

 

1,176,811

 

 

 

703,117

 

Finished goods

 

 

2,416,680

 

 

 

3,021,206

 

Total Inventory

 

$

5,020,749

 

 

$

5,199,979

 

Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically reserve for obsolete inventory. Sales of previously reserved inventory net of write-downs and write-offs for the three months ended March 31, 2024 was $11,789 and $60,926, respectively.

Note 5 - Line of Credit

12


 

On September 28, 2022, certain subsidiaries of the Company entered into an Invoice Purchase and Security Agreement (together with an Inventory Finance Rider thereto, the “PSA”) with Alterna Capital Solutions LLC (the “Lender”) providing for (a) the purchase by the Lender of certain of the subsidiaries’ accounts receivable, and (b) financing based upon a percentage of the value of the subsidiaries’ inventory. Pursuant to the PSA, the subsidiaries agree to sell eligible accounts receivable to the Lender for an amount equal to the face amount of each account receivable less a reserve percentage. The maximum amount potentially available to be deployed by the Lender at any given time is $8,000,000, which may be increased to an amount up to $20,000,000. Pursuant to the Inventory Finance Rider to the RSA, the subsidiaries may request advances from time to time based upon the value of the subsidiaries’ inventory. Such advances bear interest at the current prime rate plus 2.25% and are required to be repaid at any time the aggregate outstanding amount of such advances exceed a designated percentage of the value of such inventory. The interest rate as of March 31, 2024 and December 31, 2023 was 10.75%.

The PSA provides for the payment of fees by the subsidiaries and includes customary representations and warranties, indemnification provisions, covenants and events of default. Subject in some cases to cure periods, amounts outstanding under the PSA may be accelerated for typical defaults including, but not limited to, the failure to make when due payments, the failure to perform any covenant, the inaccuracy of representations and warranties, the occurrence of debtor-relief proceedings and the occurrence of liens against the purchased accounts receivable and collateral. The subsidiaries have granted the Lender a security interest in all of their respective personal property to secure their obligations under the PSA; provided that the Lender has a first priority security interest in the Subsidiaries’ accounts receivable, payment intangibles and inventory. A named executive officer of the Company granted the Lender a security interest in certain personal property owned by the named executive officer to further secure the Company's obligations under the PSA.

The PSA provides for an initial twenty four (24) month term, followed by automatic annual renewal terms unless the subsidiaries provide written notice pursuant to the PSA prior to the end of any term. During March 2024, the PSA was amended to extend the initial term twenty four (24) months after the date of the amendment, followed by automatic annual renewal terms unless the Company or the Lender provide written notice pursuant to the PSA prior to the end of any term.

As of March 31, 2024 and December 31, 2023, $3,894,656 and $3,716,914, respectively, was borrowed under the financing agreement. The Company recognized approximately $184,579 and $87,600 in interest expense for the three months ended March 31, 2024 and 2023, respectively. The amount remaining available under the PSA is $4.1 million.

13


 

Note 6 - Debt

As of March 31, 2024 and December 31, 2023, long-term debt consisted of the following:

 

 

2024

 

 

2023

 

Revenue Loan and Security Agreement, net of debt issuance costs

 

$

3,775,447

 

 

$

3,791,950

 

Broken Stone Agreement

 

 

19,775

 

 

 

19,775

 

Less: current portion

 

 

(374,403

)

 

 

(335,636

)

Total long-term debt, net of current portion

 

$

3,420,818

 

 

$

3,476,089

 

 

As of March 31, 2024 and December 31, 2023, short-term borrowings and current portion of long-term debt consisted of the following:

 

 

2024

 

 

2023

 

Invoice Purchase and Security Agreement, net of debt issuance costs

 

$

3,795,669

 

 

$

3,568,295

 

Promissory Notes, net of debt discount and debt issuance costs

 

 

4,089,000

 

 

 

4,089,000

 

Commercial Premium Finance Agreement

 

 

104,174

 

 

 

269,894

 

Current portion of long-term obligations

 

 

374,403

 

 

 

335,636

 

Total short-term borrowings and current portion of long-term debt

 

$

8,363,246

 

 

$

8,262,825

 

 

Outstanding as of March 31, 2024

 

Revenue Loan and Security Agreement

On September 28, 2022, the Company entered into a Revenue Loan and Security Agreement (the “Loan Agreement”) with Decathlon Alpha V, L.P. The Company was advanced $4,000,000 upon execution of the Loan Agreement. The Loan Agreement requires monthly payments, calculated as a percentage of the Company’s revenue from the previous month (subject to an annual payment cap) with all outstanding advances and the interest (as defined in the Loan Agreement) being due at maturity on June 13, 2027 (unless accelerated upon a change of control or the occurrence of other events of default). Interest does not accrue on advance(s) pursuant to the Loan Agreement, rather a minimum amount of interest (as defined in the Loan Agreement) is due pursuant to the terms of the Loan Agreement. The Loan Agreement further provides for the payment of fees by the Company and includes customary representations and warranties, indemnification provisions, covenants and events of default. Subject in some cases to cure periods, amounts outstanding and otherwise due under the Loan Agreement may be accelerated for typical defaults including, but not limited to, the failure to make when due payments, the failure to perform any covenant, the inaccuracy of representations and warranties, and the occurrence of debtor-relief proceedings. The advances are secured by all property of the Company and is guaranteed by the Company and certain of the Company’s Subsidiaries.

The Company has accounted for the loan facility as debt in accordance with ASC 470-10-25-2 and use the effective interest rate method to estimate the timing and amount of future cash flows in accordance with ASC 835-30. The current effective interest rate is 10.9%. As of March 31, 2024 and December 31, 2023, the balance on this loan was $3,842,510 and $3,864,175, respectively. The Company recognized approximately $77,231 and $118,073 in interest expense for the three months ended March 31, 2024 and 2023, respectively. No amount remained available under the Loan Agreement.

 

Promissory Notes

On April 19, 2023, the Company issued an aggregate of $4,089,000 in principal amount of secured promissory notes (the “Notes”) to select accredited investors (the “Lenders”). The aggregate principal amount of the Notes is inclusive of $1,175,000 from related parties (the "Related Party Notes"). The Notes accrue interest annually at a rate of 12% and are secured by a security interest on substantially all the assets of the Company that is subordinate to the security interests of the Company’s existing first and second lien lenders. Each Lender that purchased Notes received a warrant (the “Warrants”) to purchase 1/15th of one share of the Company’s Class A common stock for each $0.5134 of principal amount of the Notes, for an aggregate of 7,964,550 warrants convertible to 530,970 shares of Class A common stock. The aggregate amount of the Warrants is inclusive of 2,288,664 warrants convertible to 152,577 shares of Class A common stock associated with the Related Party Notes.

The Company has accounted for the Notes as debt in accordance with ASC 470-10-25 and uses the effective interest rate method to estimate the timing and amount of future cash flows in accordance with ASC 835-30. The current effective interest rate is 12.0%. As of March 31, 2024 and December 31, 2023, the outstanding balance on the Notes was $4,089,000 of which $1,175,000 was due to related parties. In accordance with ASC 470-20-25-2, the Company allocated the proceeds between the Notes and Warrants based on their relative fair values. The allocation resulted in a discount to the Notes of $1,374,631 that was amortized over the initial term of the Notes.

14


 

During January 2024, the Notes were amended to extend the maturity date of the Notes from December 31, 2023 to the earlier of (i) December 31, 2024, or (ii) the closing of the next sale or series of related sales by the Company of its equity securities from which the Company receives gross proceeds of not less than $3.0 million, excluding proceeds from the warrants held by the Lenders and the Company’s at the market equity facility with Craig-Hallum Capital Group LLC. As consideration for the Final Lender’s entry into the Amendment, the Company (i) reduced the exercise price on the outstanding warrants issued to the lenders in April 2023 from $0.5134 per 1/15th of one share to $0.1833 per 1/15th of one share and (ii) agreed to issue shares of Class A common stock as payment in full for interest accrued on the Notes held through December 31, 2023 (at a value of $2.75 per share). The Company issued an aggregate of 53,559 shares of Class A common stock (at a value of $2.75 per share) to certain electing lenders as payment in full for interest accrued through December 31, 2023 on the Notes held by the electing lenders. The value of the accrued interest satisfied by the payment of 53,559 shares of Class A common stock to the electing lenders was $147,287.

The Company evaluated the amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension of the maturity date and modification of the exercise price of the Warrants resulted in significant and consequential changes to the economic substance of the debt and thus resulted in accounting for these modifications as an extinguishment of the debt. There were no unamortized deferred debt costs or debt discount at the time of the amendment. This Company recorded a loss on the extinguishment of the debt in the amount of $334,511 during the three months ended March 31, 2024.

 

The Company recognized approximately $122,334 in interest expense for the three months ended March 31, 2024.

 

Future minimum principal payments, exclusive of debt discounts, on debt as of March 31, 2024 are as follows:

 

2024

 

$

8,353,548

 

2025

 

 

552,365

 

2026

 

 

1,083,815

 

2027

 

 

1,960,387

 

 

 

$

11,950,116

 

 

15


 

Note 7 - Income Taxes

 

The Company’s sole material asset is Andina Holdings, LLC, which is treated as a partnership for U.S. federal income tax purposes and for purposes of certain state and local income taxes. Andina Holdings, LLC owns 100% of Stryve Foods, LLC which is treated as a disregarded entity for the U.S. federal income tax purposes. Stryve Foods Holdings, LLC's net taxable income and any related tax credits are passed through to its members and are included in the members’ tax returns, even though such net taxable income or tax credits may not have actually been distributed. The income tax burden on the earnings taxed to the non-controlling interests is not reported by the Company in its condensed consolidated financial statements under GAAP. As a result, the Company’s effective tax rate is expected to differ materially from the statutory rate.

ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. As of March 31, 2024 and December 31, 2023, no liability for unrecognized tax benefits was required to be reported and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position over the next twelve months.

The Company currently estimates its annual effective income tax rate to be (0.0432)%, which differs from the federal rate of 21% primarily due to tax benefit related to income passed through to non-controlling interest, increase in valuation allowances, and state and local income taxes. The Company has reported income tax expense of $8,998 and $3,331 for the three months ended March 31, 2024 and 2023.

 

Tax Receivable Agreement Liability

In conjunction with the Business Combination, the Company also entered into a TRA with the Seller and Holdings. Pursuant to the TRA, the Company is required to pay the Seller 85% of the amount of savings, if any, in United States federal, state, local and foreign income tax that the Company actually realizes as a result of (a) tax basis adjustments resulting from taxable exchanges of Class B common units of Holdings and Class V common stock of the Company acquired by the Company in exchange for Class A common stock of the Company and (b) tax deductions in respect of portions of certain payments made under the TRA. All such payments to the Seller are the obligations of the Company.

 

As of March 31, 2024, there have been 383,898 shares of Class B common units of Holdings and Class V common stock of the Company exchanged for an equal number of shares of Class A common stock of the Company. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount and timing of future taxable income.

 

As of March 31, 2024, the Company has recorded a full valuation allowance against its net deferred tax assets as the realizability of the tax benefit is not at the more likely than not threshold. Since the benefit has not been recorded, the Company has determined that the TRA liability is not probable and therefore no TRA liability existed as of March 31, 2024.

 

16


 

Note 8 - Shareholders’ Equity

The Company’s Amended and Restated Certificate of Incorporation (“Charter”) authorizes the issuance of 425,000,000 shares, of which 400,000,000 shares are Class A common stock, par value $0.0001 per share, 15,000,000 shares of Class V common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001 per share. The Reverse Stock Split reduced the number of authorized shares of Class V common stock from 200,000,000 to 15,000,000 while the number of authorized shares of Class A common stock and the par value for both Class A and Class V common stock remained unchanged.

 

Warrants

Public Warrants

The Company has outstanding 10,997,500 warrants convertible into 733,166 shares of Class A common stock that were issued prior to the Business Combination, of which 10,800,000 convertible into 720,000 shares of Class A common stock are referred to as public warrants and 197,500 convertible into 13,166 shares of Class A common stock are Private Warrants. Each warrant represents the right to purchase 1/15th of a share of the Company’s Class A common stock at a price of $172.50 per whole share. The warrants expire on July 20, 2026.

The Company may call the public warrants for redemption (but not the Private Warrants), in whole and not in part, at a price of $.01 per Public Warrant:

at any time while the public warrants are exercisable,

upon not less than 30 days’ prior written notice of redemption to each public warrant holder,

if, and only if, the reported last sale price of shares of Class A common stock equals or exceeds $270.00 per share, for any 20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to public warrant holders, and

if, and only if, there is a current registration statement in effect with respect to shares of Class A common stock underlying such public warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption.

The right to exercise will be forfeited unless the warrants are exercised prior to the date specified in the notice of redemption.

Private Warrants

The Company has agreed that so long as the Private Warrants are still held by its initial shareholders or their affiliates, it will not redeem such Private Warrants and will allow the holders to exercise such Private Warrants on a cashless basis (even if a registration statement covering shares of Class A common stock issuable upon exercise of such warrants is not effective). As of March 31, 2024, there were 197,500 Private Warrants outstanding.

 

April 2023 Warrants

On April 19, 2023, the Company issued certain lenders warrants (the “April 2023 Warrants”) to purchase 1/15th of a share of the Company’s Class A common stock for each $0.5134 of principal amount of the Notes, for an aggregate of 7,964,550 warrants convertible to 530,970 shares of Class A common stock. The aggregate amount of the April 2023 Warrants is inclusive of 2,288,664 warrants convertible to 152,577 shares of Class A common stock associated with related parties. Each warrant is exercisable immediately, has an exercise price per share of Class A common stock equal to $7.701 per whole share and will expire three years and three months from the date of issuance and may be exercised on a cashless basis if a registration statement registering the resale of the shares issuable upon exercise is not effective. The exercise price was subsequently reduced to $2.75 per whole share. See Note 6 for further discussion. The warrant holder will be prohibited, subject to certain exceptions, from exercising the Warrants for shares of the Company’s Class A common stock to the extent that immediately prior to or after giving effect to such exercise, the warrant holder, together with its affiliates and other attribution parties, would own more than 4.99% or 9.99%, as applicable, of the total number of shares of the Company’s Class A common stock then issued and outstanding, which percentage may be changed at the warrant holders’ election to a higher or lower percentage not in excess of 9.99% upon 61 days’ notice to the Company. The Company agreed to use commercially reasonable efforts to register the shares of Class A common stock underlying the Warrants within 60 days and to have the registration statement declared effective within 30 days thereafter. As of March 31, 2024, there were 7,964,550 April 2023 Warrants outstanding exercisable for up to 530,970 shares of Class A common stock.

17


 

 

Stryve Foods, Inc. 2021 Omnibus Incentive Plan (the “Incentive Plan”)

The Incentive Plan allows the Company to grant stock options, restricted stock unit awards and other awards at levels determined appropriate by its board of directors and/or compensation committee. The Incentive Plan also allows the Company to use a broad array of equity incentives and performance cash incentives in order to secure and retain the services of its employees, directors and consultants, and to provide long-term incentives that align the interests of its employees, directors and consultants with the interests of its stockholders. The Incentive Plan is administered by the Company’s board of directors or its compensation committee, or any other committee or subcommittee or one or more of its officers to whom authority has been delegated (collectively, the “Administrator”). The Administrator has the authority to interpret the Incentive Plan and award agreements entered into with respect to the Incentive Plan; to make, change and rescind rules and regulations relating to the Incentive Plan; to make changes to, or reconcile any inconsistency in, the Incentive Plan or any award agreement covering an award; and to take any other actions needed to administer the Incentive Plan.

 

The Incentive Plan permits the Administrator to grant stock options, stock appreciation rights (“SARs”), performance shares, performance units, shares of Class A common stock, restricted stock, restricted stock units (“RSUs”), cash incentive awards, dividend equivalent units, or any other type of award permitted under the Incentive Plan. The Administrator may grant any type of award to any participant it selects, but only employees of the Company or its subsidiaries may receive grants of incentive stock options within the meaning of Section 422 of the Internal Revenue Code. Awards may be granted alone or in addition to, in tandem with, or (subject to the repricing prohibition described below) in substitution for any other award (or any other award granted under another plan of the Company or any affiliate, including the plan of an acquired entity).

 

The Company has reserved a total of 457,664 shares of Class A common stock for issuance pursuant to the Incentive Plan. The number of shares reserved for issuance under the Incentive Plan will be reduced on the date of the grant of any award by the maximum number of shares, if any, with respect to which such award is granted. However, an award that may be settled solely in cash will not deplete the Incentive Plan’s share reserve at the time the award is granted. If (a) an award expires, is canceled, or terminates without issuance of shares or is settled in cash, (b) the Administrator determines that the shares granted under an award will not be issuable because the conditions for issuance will not be satisfied, (c) shares are forfeited under an award, (d) shares are issued under any award and the Company reacquires them pursuant to its reserved rights upon the issuance of the shares, (e) shares are tendered or withheld in payment of the exercise price of an option or as a result of the net settlement of outstanding stock appreciation rights or (f) shares are tendered or withheld to satisfy federal, state or local tax withholding obligations, then those shares are added back to the reserve and may again be used for new awards under the Incentive Plan. However, shares added back to the reserve pursuant to clauses (d), (e) or (f) in the preceding sentence may not be issued pursuant to incentive stock options.

 

As of March 31, 2024, the Company had 115,815 shares of Class A common stock available for future issuance under the Incentive Plan.

Note 9 - Stock Based Compensation

The Company's stock-based awards that result in compensation expense consist of restricted stock units (RSUs) and restricted stock awards (RSAs). As of March 31, 2024, the Company had 115,815 shares available for grant under its stock plans. As of March 31, 2024, the total unrecognized compensation cost related to all unvested stock-based compensation awards was $1,836,464 and is expected to be recognized over the next four years. RSUs generally vest over three years and RSAs generally vest from one to four years.

Restricted Stock Units (RSUs)

The following table summarizes the Company's RSU activity:

 

Nonvested Restricted Stock Units

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Restricted Stock

 

 

Award Date Fair Value

 

 

 

Units

 

 

Per Share

 

Restricted Stock at January 1, 2024

 

 

193,205

 

 

$

5.18

 

Granted

 

 

 

 

 

 

Forfeited

 

 

(250

)

 

 

2.58

 

Vested

 

 

(833

)

 

 

10.03

 

Restricted Stock at March 31, 2024

 

 

192,122

 

 

$

5.16

 

 

The fair value of RSUs is determined based on the closing market price of the Company's stock on the grant date. The fair value of RSUs with a market condition is determined based on a Monte Carlo valuation simulation using.

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Restricted Stock Awards (RSAs)

The following table summarizes the Company's RSA activity:

 

Nonvested Restricted Stock Awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Weighted Average

 

 

 

Restricted Stock

 

 

Award Date Fair Value

 

 

Director

 

 

Award Date Fair Value

 

 

 

Awards

 

 

Per Share

 

 

Stock Awards

 

 

Per Share

 

Restricted Stock at January 1, 2024

 

 

52,778

 

 

$

16.09

 

 

 

5,000

 

 

$

12.45

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Vested

 

 

(1,181

)

 

 

56.33

 

 

 

 

 

 

 

Restricted Stock at March 31, 2024

 

 

51,597

 

 

$

15.17

 

 

 

5,000

 

 

$

12.45

 

 

The fair value of RSAs is determined based on the closing market price of the Company's stock on the grant date.

Stock Based Compensation Expense

The Company has a long-term incentive plan under which the Compensation Committee of the Board of Directors has the authority to grant share-based awards to Company employees and non-employees. Stock based compensation costs associated with employee RSU and RSA grants are recorded as a separate component of salaries and wages on the condensed consolidated statements of operations. For the three months ended March 31, 2024 and 2023, $246,440 and $151,689, respectively, were recorded in salaries and wages. Stock based compensation costs associated with non-employee RSU and RSA grants are recorded as a separate component of selling expenses on the condensed consolidated statements of operations. For the three months ended March 31, 2024 and 2023, $23,936 and $33,834, respectively, were recorded in selling expenses. Stock based compensation expense for service-based awards that contain a graded vesting schedule is recognized on a straight-line basis. The Company accounts for forfeitures when they occur.

Note 10 - Fair Value Measurements

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are remeasured and reported at fair value at least annually.

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

Level 1:

Observable inputs such as quoted prices (unadjusted), for identical instruments in active markets.

Level 2:

Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3:

Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

 

Note 11 - Related Party Transactions

 

Sale and Leaseback. On May 26, 2021, the Company entered into a Purchase and Sale Agreement with OK Biltong Facility, LLC (“Buyer”), an entity controlled by a member of the Company’s board of directors, pursuant to which the parties consummated a sale and leaseback transaction (the “Sale and Leaseback Transaction”) of the Company’s manufacturing facility and the surrounding property in Madill, Oklahoma (the “Real Property”) for a total purchase price of $7,500,000.

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In connection with the consummation of the Sale and Leaseback Transaction, the Company entered into a lease agreement (the “Lease Agreement”) with Buyer pursuant to which the Company leased back the Real Property from Buyer for an initial term of twelve (12) years unless earlier terminated or extended in accordance with the terms of the Lease Agreement. Under the Lease Agreement, the Company’s financial obligations include base rent of approximately $60,000 per month, which rent will increase on an annual basis at two percent (2