UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
On
December 2, 2018, New Age Beverages Corporation (referred to
interchangeably herein as the “Company” and “New
Age”) entered into a Plan of Merger (the “Merger
Agreement”) with Morinda Holdings, Inc., a Utah corporation
(“Morinda”) and New Age Health Sciences Holdings, Inc.,
a newly formed Utah corporation and wholly owned subsidiary of the
Company (“Merger Sub”). On December 21, 2018 (the
“Closing Date”), the transactions contemplated by the
Merger Agreement were completed. Merger Sub was merged with and
into Morinda and Morinda became a wholly-owned subsidiary of the
Company. This transaction is referred to herein as the
“Merger.”
The unaudited pro forma condensed combined
financial information is presented to illustrate the estimated
effects of the Merger and related transactions based on the
historical financial statements and accounting records of the
Company and Morinda after giving effect to the Merger and the
Merger-related pro forma adjustments. Assumptions and estimates
underlying the unaudited pro forma adjustments are described in the
Notes to Unaudited Pro Forma Condensed Combined Financial
Information (the “Notes”). The unaudited pro forma
condensed combined financial information was based on, and should
be read in conjunction with, the following historical consolidated
financial statements and accompanying notes:
●
historical audited consolidated financial
statements of the Company as of and for the year ended December 31,
2017, and the related notes to consolidated financial statements,
as set forth in the Company’s Annual Report on Form
10-K/A for
the year ended December 31, 2017, filed with the
Securities and
Exchange Commission (the “SEC”) on August 17, 2018;
●
historical
unaudited condensed consolidated financial statements of the
Company as of and for the nine months ended September 30, 2018, and
the related notes to unaudited condensed consolidated financial
statements, as set forth in the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2018, filed
with the SEC on November 14, 2018;
●
historical
audited consolidated financial statements of Xxxxxxx as of and
for the year ended December 31, 2017, and the related notes to
consolidated financial statements, as set forth in Exhibit 99.1 to
this Current Report on Form 8-K/A;
●
historical
unaudited consolidated financial statements of Xxxxxxx as of
September 30, 2018, and for the nine months ended September 30,
2018, and the related notes to unaudited consolidated financial
statements, as set forth in Exhibit 99.2 to this Current Report on
Form 8-K/A.
The pro forma condensed combined balance sheet as
of September 30, 2018, combines the historical unaudited
consolidated balance sheets of the Company and Morinda, giving
effect to the Merger, liabilities to Xxxxxxx’s former
stockholders, and the pre-closing Equity Offerings, as if these
events had occurred on September 30, 2018. The unaudited pro forma
condensed combined statements of operations for the year ended
December 31, 2017 and the nine months ended September 30,
2018, combine the historical consolidated statements of operations
of the Company and Morinda,
giving effect to the Merger, imputed interest on the liabilities to
Xxxxxxx’s former stockholders, and the additional shares
issued in the pre-closing Equity Offerings, as if these events had
occurred on January 1, 2017, the first day of the fiscal year
ended December 31, 2017.
For accounting and financial reporting purposes,
the Company is considered the acquirer in the Merger and will
account for the business combination with Xxxxxxx using the
acquisition method, whereby the assets acquired and the liabilities
assumed are adjusted to estimated fair value. All of the
incremental and direct costs to consummate the business combination
are charged to expense in the periods incurred. The Company will
finalize the acquisition accounting (including the necessary
valuation and other studies) as soon as practicable within the
required measurement period, but in no event later than one year
following completion of the Merger. The
assets acquired and liabilities assumed by the Company in the
Merger have been measured at their respective estimated fair values
as of the Closing Date. Differences between these estimates
of fair value and the final acquisition accounting are expected to
occur, and those differences could have a material impact on the
accompanying unaudited pro forma condensed combined financial
information, and the combined company’s future results of
operations and financial position. The pro forma adjustments
are preliminary and have been made solely for the purpose of
providing unaudited pro forma condensed combined financial
information prepared in accordance with the rules and regulations
of the SEC.
The
unaudited pro forma condensed combined financial information has
been presented for informational purposes only and does not purport
to represent the actual results of operations that the Company and
Morinda would have achieved had the companies been combined during
the periods presented herein. The unaudited pro forma condensed
combined financial information is not intended to project the
future results of operations that the combined company may achieve
after the Merger and does not reflect any potential cost savings
that may be realized as a result of the Merger.
-1-
NEW AGE BEVERAGES CORPORATION
Unaudited Pro Forma Condensed Combined Balance Sheet
September 30, 2018
(In Thousands)
|
|
|
|
Pro Forma Adjustments
|
|
|
|||
|
|
Historical
|
Morinda
|
Equity
|
Purchase
|
Acquisition
|
|
||
|
ASSETS
|
New Age(A)
|
Morinda(B)
|
Liabilities(C)
|
Offerings(D)
|
Consideration(E)
|
Accounting
|
|
Combined
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$28,627
|
$44,305
|
$(5,000)
|
$53,295
|
$(75,000)
|
$(1,063)
|
(F)
|
$45,164
|
|
Inventories
|
9,997
|
25,779
|
|
|
|
2,169
|
(G)
|
37,945
|
|
Accounts
receivable, prepaids and other
|
8,755
|
9,109
|
|
|
|
|
|
17,864
|
|
Total current
assets
|
47,379
|
79,193
|
|
|
|
|
|
100,973
|
|
|
|
|
|
|
|
|
|
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
|
Identifiable
intangible assets, net
|
22,458
|
104
|
|
|
|
42,106
|
(G)
|
64,668
|
|
Property and
equipment, net
|
1,541
|
41,209
|
|
|
|
13,715
|
(G)
|
56,465
|
|
Goodwill
|
21,230
|
-
|
|
|
99,104
|
(87,718)
|
(G)
|
32,616
|
|
Deposits and
other
|
4,624
|
6,887
|
-
|
-
|
-
|
14,444
|
(G)
|
25,955
|
|
Total
assets
|
$97,232
|
$127,393
|
$(5,000)
|
$53,295
|
$24,104
|
$(16,347)
|
|
$280,677
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
$-
|
$1,275
|
$-
|
$-
|
$-
|
$-
|
|
$1,275
|
|
Accounts
payable and accrued expenses
|
3,026
|
33,765
|
|
|
|
5,714
|
(F)(G)
|
42,505
|
|
Payable to
former Morinda stockholders
|
-
|
-
|
8,701
|
|
|
|
|
8,701
|
|
Total current
liabilities
|
3,026
|
35,040
|
|
|
|
|
|
52,481
|
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current maturities
|
|
1,594
|
|
|
|
|
|
1,594
|
|
Deferred
income taxes
|
-
|
1,660
|
|
|
|
9,400
|
(G)
|
11,060
|
|
Payable to
former Morinda stockholders
|
-
|
-
|
30,218
|
|
13,134
|
|
|
43,352
|
|
Lease right to
use liability and other
|
4,632
|
6,052
|
|
|
|
10,266
|
(G)
|
20,950
|
|
Total
liabilities
|
7,658
|
44,346
|
|
|
|
|
|
129,437
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock,
issued and outstanding 49,514 shares historical
(67,768
|
|
|
|
|
|
|
|
|
|
shares pro
forma combined)
|
50
|
-
|
|
16
|
2
|
|
|
68
|
|
Common stock,
no par value, issued 43,216 shares
|
-
|
29,292
|
|
|
|
(29,292)
|
(H)
|
-
|
|
Additional
paid-in capital
|
109,547
|
-
|
|
53,279
|
10,968
|
1,166
|
(F)
|
174,960
|
|
Accumulated
other comprehensive income
|
-
|
1,792
|
|
|
|
(1,792)
|
(H)
|
-
|
|
Retained
earnings (deficit)
|
(20,023)
|
51,963
|
(43,919)
|
|
|
(11,809)
|
(F)(H)
|
(23,788)
|
|
Total
stockholders’ equity
|
89,574
|
83,047
|
-
|
-
|
-
|
-
|
|
151,240
|
|
Total
liabilities and stockholders' equity
|
$97,232
|
$127,393
|
$(5,000)
|
$53,295
|
$24,104
|
$(16,347)
|
|
$280,677
|
See accompanying notes to unaudited pro forma condensed combined
financial information.
-2-
NEW AGE BEVERAGES CORPORATION
Unaudited Pro Forma Condensed Combined Statement of
Operations
For the Nine Months Ended September 30, 2018
(In Thousands, Except Per Share Amounts)
|
|
Historical
|
Pro Forma
|
|
||
|
|
New Age(AA)
|
Morinda(BB)
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
Net
revenue
|
$38,164
|
$177,400
|
$-
|
|
$215,564
|
|
Cost
of goods sold
|
32,089
|
34,347
|
-
|
|
66,436
|
|
Gross
profit
|
6,075
|
143,053
|
-
|
|
149,128
|
|
Operating
expenses:
|
|
|
|
|
|
|
Commissions
|
1,029
|
69,657
|
-
|
|
70,686
|
|
Selling,
general and administrative
|
12,736
|
60,051
|
-
|
|
72,787
|
|
Depreciation
and amortization expense:
|
|
|
|
|
|
|
Property
and equipment
|
426
|
1,972
|
737
|
(CC)
|
3,135
|
|
Identifiable
intangible assets
|
1,028
|
-
|
2,381
|
(CC)
|
3,409
|
|
Total
operating expenses
|
15,219
|
131,680
|
3,118
|
|
150,017
|
|
Operating
income (loss)
|
(9,144)
|
11,373
|
(3,118)
|
|
(889)
|
|
Non-operating
income (expenses):
|
|
|
|
|
|
|
Interest
expense
|
(225)
|
(22)
|
(472)
|
(DD)
|
(719)
|
|
Interest
income
|
-
|
205
|
-
|
|
205
|
|
Other,
net
|
(153)
|
39
|
-
|
|
(114)
|
|
Income
(loss) before income taxes
|
(9,522)
|
11,595
|
(3,590)
|
|
(1,517)
|
|
Income
tax expense
|
-
|
(3,930)
|
-
|
(EE)
|
(3,930)
|
|
Net
income (loss)
|
$(9,522)
|
$7,665
|
$(3,590)
|
|
$(5,447)
|
|
Net
loss per share applicable to common
|
|
|
|
|
|
|
stockholders
(Basic and Diluted)
|
$(0.24)
|
|
|
|
$(0.09)
|
|
Weighted
average number of common shares
|
|
|
|
|
|
|
outstanding
(Basic and Diluted)
|
39,492
|
|
18,254
|
(FF)
|
57,746
|
See
accompanying notes to unaudited pro forma condensed combined
financial information.
-3-
NEW AGE BEVERAGES CORPORATION
Unaudited Pro Forma Condensed Combined Statement of
Operations
For the Year Ended December 31, 2017
(In Thousands, Except Per Share Amounts)
|
|
Historical
|
Pro Forma
|
|
||
|
|
New Age(II)
|
Xxxxxxx(JJ)
|
Adjustments
|
|
Combined
|
|
|
|
|
|
|
|
|
Net
revenue
|
$52,188
|
$229,153
|
$-
|
|
$281,341
|
|
Cost
of goods sold
|
39,788
|
44,944
|
-
|
|
84,732
|
|
Gross
profit
|
12,400
|
184,209
|
-
|
|
196,609
|
|
Operating
expenses:
|
|
|
|
|
|
|
Commissions
|
1,456
|
88,823
|
-
|
|
90,279
|
|
Selling,
general and administrative
|
15,387
|
76,438
|
-
|
|
91,825
|
|
Depreciation
and amortization expense:
|
|
|
|
|
|
|
Property
and equipment
|
578
|
2,448
|
984
|
(CC)
|
4,010
|
|
Identifiable
intangible assets
|
1,028
|
-
|
3,172
|
(CC)
|
4,200
|
|
Total
operating expenses
|
18,449
|
167,709
|
4,156
|
|
190,314
|
|
Operating
income (loss)
|
(6,049)
|
16,500
|
(4,156)
|
|
6,295
|
|
Non-operating
income (expenses):
|
|
|
|
|
|
|
Interest
expense
|
(228)
|
(48)
|
(2,107)
|
(DD)
|
(2,383)
|
|
Interest
income
|
|
199
|
-
|
|
199
|
|
Other,
net
|
2,741
|
217
|
-
|
|
2,958
|
|
Income
(loss) before income taxes
|
(3,536)
|
16,868
|
(6,263)
|
|
7,069
|
|
Income
tax expense
|
-
|
(4,882)
|
-
|
(EE)
|
(4,882)
|
|
Net
income (loss)
|
$(3,536)
|
$11,986
|
$(6,263)
|
|
$2,187
|
|
Income
(loss) per share applicable to common
stockholders:
|
|
|
|
|
|
|
Basic
|
$(0.12)
|
|
|
|
$0.04
|
|
Diluted
|
$(0.12)
|
|
|
|
$0.04
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
Basic
|
30,617
|
|
18,254
|
(FF)
|
48,871
|
|
Diluted
|
30,617
|
|
18,701
|
(FF)
|
49,318
|
See
accompanying notes to unaudited pro forma condensed combined
financial information.
-4-
NEW AGE BEVERAGES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
1.
Description of Transaction
Prior to the Merger, Morinda was an S corporation
for U.S. federal and state income tax purposes. Accordingly,
Xxxxxxx’s taxable earnings were reported on the individual
income tax returns of the stockholders who were responsible for
payment of the related income tax liabilities. In contemplation of the Merger Agreement, Xxxxxxx
agreed in December 2018 to distribute to its stockholders
approximately $44.6 million of its previously-taxed S corporation
earnings. This amount was payable for $5.0 million in December
2018, and the remainder is payable between April 2019 and July 2020
as discussed further in Note 3(C).
Pursuant
to the Merger Agreement, the Company paid to Xxxxxxx’s equity
holders (i) $75.0 million in cash; (ii) 2,016,480 shares of the
Company’s Common Stock with an estimated fair value on the
Closing Date of approximately $11.0 million, and (iii) 43,804
shares of Series D Preferred Stock (the “Preferred
Stock”) providing for the potential earn-out payment of up to
$15 million contingent upon Xxxxxxx achieving certain post-closing
milestones, as discussed below.
Pursuant
to the Certificate of Designations for the Series D Preferred Stock
(the “CoD”), the holders of the Preferred Stock are
entitled to receive a dividend of up to an aggregate of $15.0
million (the “Milestone Dividend”) if the Adjusted
EBITDA (as defined in the CoD) of Morinda is at least $20.0 million
for the year ending December 31, 2019. The Milestone Dividend is
payable on April 15, 2020. If the Adjusted EBITDA of Morinda is
less than $20.0 million, the Milestone Dividend shall be reduced by
applying a five-times multiple to the difference between the
Adjusted EBITDA target of $20 million and actual Adjusted EBITDA
for the year ending December 31, 2019. Accordingly, no Milestone
Dividend is payable if actual Adjusted EBITDA is $17.0 million or
lower. Additionally, the Company is required to pay quarterly
dividends to the holders of the Preferred Stock at a rate of 1.5%
per annum of the Milestone Dividend amount, payable on a pro rata
basis. The Company may pay the Milestone Dividend and /or the
annual dividend in cash or in kind, provided that if the Company
chooses to pay in kind, the shares of Common Stock issued as
payment therefore must be registered under the Securities Act of
1933, as amended (the “Securities Act”). The Preferred
Stock shall terminate on April 15, 2020. The Company expects to
classify the fair value of the earn-out consideration in the form
of Series D Preferred Stock as a liability.
In
order to provide funding for the business combination with Xxxxxxx,
during the fourth quarter of 2018 the Company (i) issued an
aggregate 1,188,565 shares of Common Stock in an underwritten At
the Market Offering that resulted in aggregate net proceeds of
approximately $5.2 million, and (ii) completed an underwritten
public offering of 14,835,000 shares of Common Stock at an offering
price of $3.50 per share for aggregate net proceeds of
approximately $48.1 million. The aggregate net proceeds from these
equity offerings amounted to $53.3 million.
The unaudited pro forma condensed combined
financial information was prepared using the acquisition method of
accounting and is based on the historical consolidated financial
statements of the Company and Morinda. The acquisition method of
accounting is set forth in Accounting Standards Codification
(“ASC”) 805, Business
Combinations, and uses the fair
value concepts defined in ASC 820, Fair Value
Measurement. Under the
acquisition method of accounting, the assets acquired and
liabilities assumed are generally recorded as of the completion of
the Merger at their respective fair values and added to those of
the Company. Financial statements and reported results of
operations of the Company issued after completion of the Merger
will reflect these fair value adjustments, but the Company’s
previously issued historical financial statements will not be
retroactively restated.
The
unaudited pro forma condensed combined financial information does
not reflect any potential cost savings or synergies that may be
realized as a result of the Merger. Although the Company expects
that some cost savings and synergies will result from the Merger,
there can be no assurance that these cost savings will be
achieved.
The unaudited pro forma condensed combined
financial information has been prepared based on the historical
consolidated financial statements of the Company and Morinda,
and by accounting for the Merger using the acquisition method. Pro forma effect has
also been given for the Company’s equity offerings completed
in the fourth quarter of 2018, since the proceeds were required to
consummate the business combination. The unaudited pro forma
condensed combined balance sheet as of September 30, 2018 combines
the historical unaudited condensed balance sheets
of the Company and Morinda
as of September 30, 2018, giving effect to the Merger as if it had
been consummated on September 30, 2018. The unaudited pro forma
condensed combined statements of operations give effect to the
Merger as if it had been consummated on January 1, 2017, and
combine the historical consolidated statements of operations of the
Company and Morinda for each of (i) the nine-month period ended
September 30, 2018, and (ii) the year ended December 31,
2017.
-5-
In order to conform with the Company’s
accounting policies, the accompanying pro forma balance sheet
reflects the pro forma adjustment discussed in Note 2(G) for the
adoption by Xxxxxxx of ASU No. 2016-02, Leases, which requires that assets and liabilities be
recognized on the balance sheet for the rights and obligations
created by those leases. While Xxxxxxx had not adopted this
ASU for the periods covered in the accompanying unaudited pro forma
condensed combined statements of operations, the Company determined
that the differences for this policy were not material. At this
time, the Company is not aware of any significant differences
between the accounting policies of the two companies that would
have a material impact on the combined company’s financial
statements. As the Company completes its review of
Xxxxxxx’s accounting policies, it is possible that policy
differences may be identified that, when conformed, could have a
material impact on the combined company’s financial
statements.
The
historical consolidated financial statements have been adjusted in
the unaudited pro forma condensed combined financial information to
give pro forma effect to events that are: (i) directly
attributable to the Merger; (ii) factually supportable; and
(iii) with respect to the statement of operations, expected to
have a continuing impact on the combined results of operations. The
unaudited pro forma condensed combined financial information does
not reflect the impact of possible revenue enhancements or cost
savings initiatives.
Presented
below are the Notes to the accompanying unaudited pro forma
condensed combined balance sheet:
Amounts
are derived from the historical condensed consolidated balance
sheet of New Age as of September 30, 2018. As permitted by the
SEC's rules for preparation of pro forma financial information, the
Company has condensed certain balance sheet captions that comprised
less than 10% of total assets.
Amounts
are derived from the historical condensed consolidated balance
sheet of Morinda as of September 30, 2018. As permitted by the
SEC's rules for preparation of pro forma financial information, the
Company has condensed certain balance sheet captions that comprised
less than 10% of total assets.
As discussed in Note 1, Xxxxxxx agreed in December
2018 to distribute to its stockholders approximately $44.6 million
of its previously-taxed S corporation earnings. On December 19,
2018, Xxxxxxx paid $5.0 million of distributions to its
stockholders, and agreed to pay additional distributions (i)
up to $25.0 million for which the
timing and amount are subject to a future financing event, and
(ii) approximately $14.6
million based on the calculation of excess working capital (“EWC”)
as of
the Closing Date. EWC is the amount by which Xxxxxxx’s actual
working capital, as defined, on the Closing Date exceeds $25.0
million. The preliminary
Closing Date balance sheet of Morinda indicates that EWC amounted
to approximately $14.6 million as of the Closing Date. As of
September 30, 2018, the pro forma calculation of EWC amounted to
$15.4 million as set forth in the second table
below.
-6-
Accordingly,
a pro forma adjustment is computed as of September 30, 2018 to give
effect to the $5.0 million of distributions and the liabilities to
the former Morinda stockholders, including the liability for EWC
that was computed based on the current assets and liabilities of
Morinda as of September 30, 2018. Presented below are the
contractual amounts payable, along with the net carrying value and
balance sheet classification as a result of this pro forma
adjustment (in thousands):
|
|
|
|
|
Balance Sheet
|
|||
|
|
Liability Carrying Value
|
|
Liabilities
|
Retained
|
|||
|
|
Total
|
Discount (4)
|
Net
|
Cash
|
Current
|
Long-term
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
Pre-closing
distribution
|
|
|
|
$(5,000)(1)
|
$-
|
$-
|
$(5,000)
|
|
EWC payable
in:
|
|
|
|
|
|
|
|
|
April
2019
|
$1,000(2)
|
$(16)
|
$984
|
-
|
984
|
-
|
(984)
|
|
July
2019
|
8,000(2)
|
(283)
|
7,717
|
-
|
7,717
|
-
|
(7,717)
|
|
Total current
portion
|
9,000
|
(299)
|
8,701
|
-
|
8,701
|
-
|
(8,701)
|
|
EWC payable in
July 2020
|
6,428(2)
|
(566)
|
5,862
|
-
|
-
|
5,862
|
(5,862)
|
|
Contingent on
financing event
|
25,000(3)
|
(644)
|
24,356
|
-
|
-
|
24,356
|
(24,356)
|
|
Total
long-term portion
|
31,428
|
(1,210)
|
30,218
|
-
|
-
|
30,218
|
(30,218)
|
|
|
|
|
|
|
|
|
|
|
Total
|
$40,428
|
$(1,509)
|
$38,919
|
$(5,000)
|
$8,701
|
$30,218
|
$(43,919)
|
(1)
Pro
forma effect is given for a $5.0 million distribution to the
stockholders of Morinda on December 19, 2018.
(2)
For
purposes of the unaudited pro forma condensed combined balance
sheet, EWC is calculated based on the historical balance sheet
after giving effect to the impact of the $5.0 million distribution
paid to the former Morinda Stockholders on December 19, 2018. As
shown in the table below, after giving pro forma effect for this
distribution, EWC amounted to $15.4 million (compared to $14.6
million as of the Closing Date). Pursuant to a separate agreement
between the parties, EWC is payable to Morinda’s former
stockholders for $1.0 million by April 30, 2019, $8.0 million by
July 31, 2019, and any remainder is payable by July 31,
2020.
(3)
Pursuant
to a separate agreement between the parties, Morinda agreed to pay
its former stockholders up to $25.0 million from the net proceeds
of a financing event to be completed after the Closing Date. The
Company believes it is probable that this event will occur in the
second quarter of 2019, and that the entire $25.0 million will be
payable to Morinda’s former stockholders. Accordingly, since
this payment will only be made from the proceeds of a long-term
financing, the net carrying value is classified as a long-term
liability in the accompanying unaudited pro forma condensed
combined balance sheet.
(4)
Interest
was imputed on each obligation based on a credit and tax adjusted
interest rate of 6.1% for the period from the Closing Date until
the respective contractual or estimated payment dates. For purposes
of the unaudited pro forma condensed combined statements of
operations, this discount is accreted using the effective interest
method as discussed further in Note 4(DD).
-7-
As
shown in the table above, liabilities for EWC as of September 30,
2018 amount to an aggregate of approximately $15.4 million, which
was computed as follows (in thousands):
|
Total
current assets
|
$79,193
|
|
Give
effect to distributions discussed above
|
(5,000)
|
|
Less
total current liabilities
|
(35,040)
|
|
Current maturities of long-term debt excluded from EWC
definition in Merger Agreement
|
1,275
|
|
Adjusted
Working Capital
|
40,428
|
|
Threshold
|
(25,000)
|
|
EWC
|
$15,428
|
In
order to consummate the Merger, the Company needed to raise equity
capital to ensure adequate capital resources were available.
Accordingly, a pro forma adjustment gives effect to equity
financings completed by the Company during the fourth quarter of
2018 for aggregate net proceeds as follows (dollars in
thousands):
|
|
|
|
|
|
Balance Sheet
|
|
|
|
Summary of Equity Financings
|
|
Additional
|
|||
|
|
Number
|
Gross
|
Offering
|
Net
|
Common
|
Paid-In
|
|
Description
|
of Shares
|
Proceeds
|
Costs
|
Proceeds
|
Stock
|
Capital
|
|
|
|
|
|
|
|
|
|
At
The Market Offering in October 2018
|
1,188,565
|
$5,347
|
$(160)
|
$5,187
|
$1
|
$5,186
|
|
Public
offering in November 2018:
|
|
|
|
|
|
|
|
Firm
commitment
|
12,900,000
|
45,150
|
(3,340)
|
41,810
|
13
|
41,797
|
|
Overallotment
option
|
1,935,000
|
6,773
|
(475)
|
6,298
|
2
|
6,296
|
|
Total
|
16,023,565
|
$57,270
|
$(3,975)
|
$53,295
|
$16
|
$53,279
|
-8-
NEW AGE BEVERAGES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
Under ASC 805, the consideration transferred is
required to be measured at the date the Merger is completed at the
then-current market price. Accordingly, the following
adjustment gives effect to the consideration issued in the Merger,
consisting of a $75.0 million cash payment, the estimated fair
value for the issuance of 2,016,480 shares of Common Stock, and the
estimated fair value of the earn-out payable to Morinda’s
former stockholders (in
thousands):
|
|
|
Balance Sheet Classification
|
|||
|
|
Estimated
|
|
Payable to
|
|
Additional
|
|
|
Fair Value of
|
|
Morinda
|
Common
|
Paid-In
|
|
Consideration
|
Consideration
|
Cash
|
Stockholders
|
Stock
|
Capital
|
|
|
|
|
|
|
|
|
Common
stock issued
|
$10,970(1)
|
$-
|
$-
|
$2
|
$10,968
|
|
Cash
paid at Closing
|
75,000
|
(75,000)
|
-
|
-
|
-
|
|
Earn-out
consideration
|
13,134(2)
|
-
|
13,134
|
-
|
-
|
|
Total
|
$99,104
|
$(75,000)
|
$13,134
|
$2
|
$10,968
|
________________
(1)
Fair
value was determined based on the closing price of the
Company’s Common Stock on the Closing Date.
(2)
Earn-out consideration represents
the fair value of the Series D Preferred Stock based on the
probability of achieving the Milestone Dividend, whereby the
maximum Milestone Dividend is $15.0 million if the Adjusted EBITDA of Morinda
is $20.0 million or more. The earn-out consideration is expected to
be finalized by the first quarter of 2020 and is required to be
paid on April 30, 2020. The fair value of the earn-out was
determined using an option pricing model.
Under
ASC 805, acquisition-related transaction costs (e.g., advisory,
legal and other professional fees) are not included as a component
of consideration transferred but are accounted for as expenses in
the periods in which such costs are incurred. In December
2018, the Company paid cash and issued 214,250 shares of Common
Stock to a financial advisor that assisted with the consummation of
the Merger. In addition, the Company and Morinda incurred
professional fees and other incremental and direct costs associated
with the Merger, all of which were incurred after September 30,
2018.
-9-
NEW AGE BEVERAGES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The unaudited pro forma condensed combined balance
sheet as of September 30, 2018 is required to include adjustments
which give effect to events that are directly attributable to the
Merger regardless of whether they are expected to have a continuing
impact on the combined company’s results or are
non-recurring. Therefore, acquisition-related transaction
costs incurred by the Company after September 30, 2018, are
reflected as pro forma adjustments to the unaudited pro forma
condensed combined balance sheet as of September 30, 2018.
The table below summarizes the pro
forma adjustments to give effect to the estimated transaction costs
incurred to consummate the Merger (in
thousands):
|
|
|
Balance Sheet Classification
|
||||
|
|
|
|
|
|
Additional
|
Retained
|
|
|
|
|
Accrued
|
Common
|
Paid-In
|
Earnings
|
|
Description
|
Total
|
Cash
|
Expenses
|
Stock
|
Capital
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
Financial
Advisor fees:
|
|
|
|
|
|
|
|
Issuance
of common stock
|
$1,166(1)
|
$-
|
$-
|
$2
|
$1,164
|
$(1,166)
|
|
Cash
payment at Closing
|
1,063(2)
|
(1,063)
|
-
|
-
|
-
|
(1,063)
|
|
Payable
in December 2019
|
375(3)
|
-
|
375
|
-
|
-
|
(375)
|
|
Professional
fees, diligence and other:
|
|
|
|
|
|
|
|
Incurred
for Morinda stockholders
|
200(4)
|
-
|
200
|
-
|
-
|
(200)
|
|
Incurred
for New Age
|
961(4)
|
-
|
961
|
-
|
-
|
(961)
|
|
Total
|
$3,765
|
$(1,063)
|
$1,536
|
$2
|
$1,164
|
$(3,765)
|
________________
(1)
Fair
value for 214,250 shares of Common Stock issued New Age’s
financial advisor were determined based on the closing price of the
Company’s Common Stock on the Closing Date.
(2)
Financial
advisor fees were payable in cash on the Closing Date.
(3)
Additional
financial advisor fees are payable in December 2019. These fees are
payable 50% in cash and 50% in shares of the Company’s Common
Stock
(4)
All
professional fees and other costs related to the business
combination were incurred after September 30, 2018.
ASC
805 generally requires that assets acquired, and liabilities
assumed be recognized at their fair values as of the acquisition
date. Many of these fair value measurements can be highly
subjective, and it is possible that other professionals, applying
reasonable judgment to the same facts and circumstances, could
develop and support a range of alternative estimated
amounts.
-10-
NEW AGE BEVERAGES CORPORATION
The
following table summarizes the total consideration transferred in
the Merger, along with the Company’s fair value adjustments
to arrive at the preliminary estimate of the fair value of the
assets acquired and liabilities assumed (in
thousands):
|
Pro forma book value of net assets acquired
|
|
$39,128(1)
|
|
Acquisition accounting fair value of asset
adjustments:
|
|
|
|
Inventories
|
|
2,169(2)(8)
|
|
Identifiable intangible assets
|
|
42,106(3)(8)
|
|
Property and equipment:
|
|
|
|
Land
|
$7,692(4)(8)
|
|
|
Buildings and improvements
|
2,662(4)(8)
|
|
|
Machinery and equipment
|
2,786(3)(8)
|
|
|
Other
|
575(3)(8)
|
|
|
Total property and equipment
|
|
13,715
|
|
Lease right to use asset
|
|
14,444(5)
|
|
|
|
|
|
Fair value of identifiable assets acquired
|
|
111,562
|
|
Liabilities assumed:
|
|
|
|
Lease right to use liabilities
|
|
|
|
Current portion
|
|
(4,178)(5)
|
|
Long-term portion
|
|
(10,266)(5)
|
|
Increase in deferred income tax liabilities
|
|
(9,400)(6)
|
|
|
|
|
|
Fair value of net identifiable assets acquired
|
|
87,718
|
|
Increase in goodwill due to Morinda business
combination
|
|
11,386(7)
|
|
|
|
|
|
Total consideration
|
|
$99,104
|
________________
(1)
Consists
of Morinda’s historical total assets of $127.4 million less
historical total liabilities of $44.3 million, less items for which
pro forma effect is given as discussed in Note 3(C) for the
liabilities to former Morinda Stockholders of $38.9 million and a
$5.0 million reduction in cash for pre-closing
distributions.
(2)
Based
on the report of an independent valuation specialist, the fair
value of work-in-process and finished goods inventories on the
Closing Date exceeded the historical carrying value by
approximately $2.2 million. This amount represents an element of
built-in profit that needs to be eliminated in the post combination
historical consolidated statements of operations. Accordingly, this
amount will be charged to cost of goods sold as the related
inventories are sold which is expected to occur within
approximately six months after the Closing Date. Since this $2.2
million adjustment is not expected to have a continuing impact on
the combined results of operations, pro forma effect for the
reversal is not provided in the unaudited pro forma condensed
combined statements of operations.
(3)
Based
on the reports prepared by independent valuation specialists.
Please see below for further discussion about the valuation
approach for identifiable intangible assets.
(4)
Fair
value of Morinda’s real estate property was based upon real
estate appraisals prepared by an independent firm.
(5)
In order to conform with the Company’s
accounting policies for purposes of the unaudited pro forma
condensed combined balance sheet, Morinda adopted ASU No.
2016-02, Leases, which requires that assets and liabilities be
recognized on the balance sheet for the rights and obligations
created by those leases.
(6)
Morinda’s
U.S. operations were previously taxed as a subchapter S Corporation
whereby no deferred income tax assets or liabilities had been
recognized for U.S. federal and state income tax purposes. Upon
consummation of the Merger, Morinda’s U.S. operations will be
included in the consolidated income tax returns of the Company.
Accordingly, a pro forma adjustment has been reflected for net
deferred income tax liabilities related to Morinda’s that
resulted from differences between the financial reporting basis and
the income tax basis of such U.S. assets and liabilities. This
liability primarily results from long-lived assets that retain the
predecessor basis for income tax purposes. The net deferred income
tax liabilities were computed using the Company’s estimated
overall U.S. federal and state effective tax rate of approximately
23% as of the Closing Date.
(7)
Goodwill
related to Morinda is recognized for the difference between the
total consideration transferred to consummate the Merger of $99.1
million and the fair value of net identifiable assets acquired of
$87.7 million.
(8)
Amounts are based
upon valuations as of the Closing Date, since the Company believes
there were no material changes in the fair value of inventories,
identifiable intangible assets and property and equipment between
September 30, 2018 and the Closing Date.
-11-
NEW AGE BEVERAGES CORPORATION
For
purposes of the unaudited pro forma condensed combined financial
information, the fair value of Morinda’s identifiable
intangible assets and the weighted average useful lives have been
preliminarily estimated as follows (dollars in
thousands):
|
|
|
Estimated
|
|
|
Estimated
|
Useful Life
|
|
|
Fair Value
|
(Years)
|
|
|
|
|
|
Direct
selling license in China
|
$18,600
|
15
|
|
IPC
distributor sales force
|
9,460
|
10
|
|
Proprietary
manufacturing processes
|
7,490
|
15
|
|
Trade
name
|
6,370
|
15
|
|
Former
Morinda shareholder non-complete agreements
|
186
|
3
|
|
Total
identifiable intangible assets
|
$42,106
|
|
Fair
value measurement methodologies used to calculate the value of any
asset can be broadly classified into one of three approaches,
referred to as the cost, market and income approaches. In any fair
value measurement analysis, all three approaches must be
considered, and the approach or approaches deemed most relevant
will then be selected for use in the fair value measurement of that
asset. The fair value of identifiable intangible assets was
determined primarily using variations of the “income
approach,” which is based on the present value of the future
after-tax cash flows attributable to each identifiable intangible
asset. The fair value of inventories was determined using
both the “cost approach” and the “market
approach”. The fair value of real estate was determined
primarily using the “income approach”.
Some
of the more significant assumptions inherent in the development of
intangible asset values, from the perspective of a market
participant, include, but are not limited to (i) the amount and
timing of projected future cash flows (including revenue and
profitability), (ii) the discount rate selected to measure the
risks inherent in the future cash flows, (iii) the assessment of
the asset’s life cycle, and (iv) the competitive trends
impacting the asset.
These
preliminary estimates of fair value and estimated useful lives may
be different from the amounts included in the final acquisition
accounting, and the difference could have a material impact on the
accompanying unaudited pro forma condensed combined financial
statements. Once sufficient information has been gathered
about Morinda’s identifiable intangible assets, additional
insight may be gained that could impact the estimated total value
assigned to identifiable intangible assets, and the estimated
weighted average useful life of each category of intangible
assets.
The
capital structure of Morinda is required to be eliminated in the
consolidated financial statements of the Company after the Merger.
Accordingly, a pro forma adjustment is required to eliminate
Morinda’s no par value Common Stock, accumulated other
comprehensive loss, and retained earnings associated with the
capital structure of Morinda. The pro forma adjustment eliminates
the historical capital structure of Morinda after giving effect to
the pro form adjustment discussed in Note 3(C).
Presented below are the Notes to the accompanying unaudited pro
forma condensed combined statements of operations:
-12-
NEW AGE BEVERAGES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
Amounts
are derived from the historical unaudited condensed consolidated
statement of operations of New Age for the nine months ended
September 30, 2018. For purposes of the unaudited pro forma
condensed combined statements of operations, the Company has made
certain reclassifications to better illustrate the pro forma
adjustments and to obtain consistent classifications between New
Age and Morinda.
Amounts
are derived from the historical unaudited condensed consolidated
statement of operations of Morinda for the nine months ended
September 30, 2018. For
purposes of the unaudited pro forma condensed combined statements
of operations, the Company has made certain reclassifications to
better illustrate the pro forma adjustments and to obtain
consistent classifications between New Age and
Morinda.
As discussed in Note 3(G), based on the reports of
independent valuation specialists and real estate appraisals, the
Company has reflected pro forma adjustments for the estimated fair
value of identifiable tangible and intangible assets, and
determined the estimated useful lives for purposes of computing
depreciation and amortization expense. The Company does not believe
there were material changes in the fair value of Morinda's
identifiable tangible and intangible assets between Spetember 30,
2018 and the Closing Date. Accordingly, the pro forma adjustments
for depreciation and amortization expense are based on the
estimated fair value determined as of the Closing Date. The
following table presents the fair value adjustments, the estimated
useful lives and the pro forma adjustments to recognize
depreciation and amortization expense (dollars in thousands):
|
|
Estimated
|
Estimated
|
Nine Months
Ended
|
Year
Ended
|
|
|
Fair
Value
|
Useful Life
|
September
30,
|
December
31,
|
|
|
Adjustments
|
(Years)
|
2018
|
2017
|
|
|
|
|
|
|
|
Property
and equipent adjustments:
|
|
|
|
|
|
Land
|
$7,692
|
-
|
$-
|
$-
|
|
Building
and improvements
|
2,662
|
28
|
71
|
95
|
|
Machinery
and equipment
|
2,786
|
4
|
522
|
697
|
|
Other
|
575
|
3
|
144
|
192
|
|
Total
property and equipment
|
13,715
|
|
737
|
984
|
|
Intangible
asset adjustments:
|
|
|
|
|
|
Direct
selling license in China
|
18,600
|
15
|
930
|
1,240
|
|
IPC
distributor sales force
|
9,460
|
10
|
710
|
946
|
|
Proprietary
manufacturing processes
|
7,490
|
15
|
375
|
499
|
|
Trade
name
|
6,370
|
15
|
319
|
425
|
|
Non-compete
agreements
|
186
|
3
|
47
|
62
|
|
Total
intangible assets
|
42,106
|
|
2,381
|
3,172
|
|
Total
|
$55,821
|
|
$3,118
|
$4,156
|
-13-
NEW AGE BEVERAGES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
As
discussed in Note 3(C), Morinda incurred liabilities to its former
stockholders for $45.4 million in December 2018 that are payable
over periods up to 19 months after the Closing Date. In addition,
as discussed in Note 3(E), the purchase consideration for the
Merger included an earn-out in the form of Series D Preferred
Stock. The final installment of the earn-out is payable to the
former stockholders of Morinda approximately 19 months after the
Closing Date. The table below presents the total contractual
obligations and the related discounts, along with accretion of
discount that is recognized using the effective interest method
over the period the debt is expected to be outstanding (dollars in
thousands):
|
|
|
|
|
|
Interest
Expense
|
|
|
|
Expected
|
Initial
Acquisition Date Allocation
|
Nine Months
Ended
|
Year
Ended
|
||
|
|
Term
|
Contractual
|
|
Net
Carrying
|
September
30,
|
December
31,
|
|
Debt
Obligation
|
(Months)
|
Obligations
|
Discount
|
Value
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
Contingent
on financing event
|
5
|
$25,000
|
$(644)
|
$24,356
|
$-(1)
|
$644(1)
|
|
April
2019 EWC payment
|
4
|
1,000
|
(16)
|
984
|
-(1)
|
16(1)
|
|
July
2019 EWC payment
|
7
|
8,000
|
(283)
|
7,717
|
-(1)
|
283(1)
|
|
July
2020 EWC payment
|
19
|
6,428
|
(566)
|
5,862
|
204(3)
|
362(3)
|
|
Sub-total
|
|
40,428
|
(1,509)
|
38,919
|
204
|
1,305
|
|
Series
D preferred stock earn-out
|
16
|
14,204
|
(1,070)
|
13,134
|
268(3)
|
802(3)
|
|
Total
|
|
$54,632
|
$(2,579)
|
$52,053
|
$472
|
$2,107
|
________________
(1)
Since
this obligation is expected to be outstanding for less than one
year, accretion of the entire discount is included in the pro forma
results for the year ended December 31, 2017.
(2)
No
discount or accretion was recognized for the December 2018
distributions since they were paid before the Closing
Date.
(3)
The
Series D preferred stock will be adjusted to fair value each
quarter. Changes in fair value will result from (i) the progress
towards achievement of the EBITDA target for the Milestone
Dividend, and (ii) accretion of the 6.1% credit and tax adjusted
discount that is inherent in the valuation at inception. For
purposes of the unaudited pro forma condensed combined statements
of operations the changes in the accretion element are reflected.
The accretion element for the first 12 months that this obligation
is expected to be outstanding is included in the pro forma results
for the year ended December 31, 2017; the accretion element for the
remaining four months is included in the pro forma results for the
nine months ended September 30, 2018.
(EE)
Income Tax Expense
Prior
to the Merger, Xxxxxxx was a subchapter S corporation for U.S.
federal and state income tax purposes. Accordingly, Xxxxxxx’s
taxable earnings were reported on the individual income tax returns
of the stockholders who were responsible for payment of the related
income tax liabilities. Therefore, all of Xxxxxxx’s income
tax expense recognized in its historical financial statements is
attributable to foreign jurisdictions for the nine months ended
September 30, 2018 and the year ended December 31,
2017.
Pursuant to the
Merger, Xxxxxxx’s subchapter S income tax status was
terminated on the Closing Date. For purposes of the unaudited pro forma
condensed combined statements of operations, the Company calculated
the U.S. federal and state income tax expense as if the subchapter
S income tax status had been terminated on January 1, 2017. Due to
Xxxxxxx’s significant foreign tax credits generated for the
year ended December 31, 2017 and the nine months ended September
30, 2018, the results of these calculations indicated that no U.S.
federal and state income tax expense would have been incurred on a
pro forma basis. In addition, the Company determined that a
valuation allowance would have been recognized for the entire
amount of any U.S. federal and state income tax benefits generated
on a pro forma basis. Accordingly, no pro forma adjustment to
income tax expense was recognized in the unaudited pro forma
condensed combined statements of operations.
-14-
NEW AGE BEVERAGES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION
The
pro forma adjustments discussed in Notes 3(D), (E) and (F) give
effect to issuance of Common Stock as consideration related to the
consummation of the Merger. These issuances of shares of the
Company’s Common Stock are given effect as of January 1, 2017
for purposes of the unaudited pro forma condensed combined
statements of operations. Accordingly, a pro forma adjustment is
required for the calculation of the weighted average number of
shares of Common Stock outstanding as follows (in
thousands):
|
|
Nine Months
Ended
|
Year
Ended
|
|
|
September
30,
|
December
31,
|
|
|
2018
|
2017
|
|
|
|
|
|
Historical
weigthed average number of shares
|
|
|
|
of
common stock outstanding
|
39,492
|
30,617
|
|
Equity
Offerings (Note (D)):
|
|
|
|
At
The Market Offering in October 2018
|
1,189
|
1,189
|
|
Public
offering in November 2018:
|
|
|
|
Firm
commitment
|
12,900
|
12,900
|
|
Overallotment
option
|
1,935
|
1,935
|
|
Acquisiton
Expenses (Note (F))
|
214
|
214
|
|
Purchase
Consideration (Note (E))
|
2,016
|
2,016
|
|
|
|
|
|
Total
|
18,254
|
18,254
|
|
Pro
forma basic weighted average number
|
|
|
|
of
shares of common stock outstanding
|
57,746
|
48,871
|
|
Pro
forma diluted weighted average number
|
|
|
|
of
common stock equivalents outstanding
|
-
|
447
|
|
|
|
|
|
Pro forma diluted weighted average number of shares of
common stock outstanding
|
57,746
|
49,318
|
Amounts
are derived from the historical condensed consolidated statement of
operations of New Age for the year ended December 31, 2017.
For
purposes of the unaudited pro forma condensed combined statements
of operations, the Company has made certain reclassifications to
better illustrate the pro forma adjustments and to obtain
consistent classifications between New Age and
Morinda.
Amounts
are derived from the historical condensed consolidated statement of
operations of Morinda for the year ended December 31, 2017.
For
purposes of the unaudited pro forma condensed combined statements
of operations, the Company has made certain reclassifications to
better illustrate the pro forma adjustments and to obtain
consistent classifications between New Age and
Morinda.
-15-